The regulatory woes seem to be never ending for the newest wave of tech start-ups — the on-demand apps that connect people who need something (a driver, a house cleaner, a grocery shopper) with people who want to do the job.
Why have these companies run into so many problems? Part of the reason is that they think of themselves as online companies — yet they mostly operate in the offline world.
They subscribe to three core business principles that have become a religion in Silicon Valley: Serve as a middleman, employ as few people as possible and automate everything. Those tenets have worked wonders on the web at companies like Google and Twitter. But as the new, on-demand companies are learning, they are not necessarily compatible with the real world.
The first principle is to be a middleman — or in tech lingo, a platform — connecting the people who post on YouTube with those who watch their videos, or the people who need a ride with people who will drive them. As platforms, the thinking goes, they are just connectors, with no responsibility for what happens there.
For websites, this is codified in law — they are not legally responsible for what their users publish, according to the Communications Decency Act, perhaps the most influential law in the development of the web. That is why Yelp avoids liability when people post inaccurate or abusive restaurant reviews, and why YouTube does not have to remove videos that some find offensive.
The law protects online speech, not actions people take in the offline world. Yet its ethos has permeated Silicon Valley so deeply that people invoke it even for things that happen offline.
The second web business principle is to minimize the number of paid on-staff employees. Tech companies have long shunned the idea of hiring lots of sales staffers or call-center workers. Instead they automate ad sales with auction algorithms or offer help forums where other customers offer advice on their sites. When Instagram was acquired by Facebook, it employed 13 people; Kodak, in its heyday, employed more than 140,000.
That mentality may be why new on-demand companies are running into trouble with workers. Most of these companies avoid having employees by using contract workers. But some are wondering whether the companies are pushing the definition of contract worker too far. Uber drivers have filed class-action lawsuits in Massachusetts and California, and advocates are pushing for things like benefits and disability compensation
The third related principle is to automate everything — whether selling ads, flagging inappropriate content or assessing employee performance. That notion also meets its limits in the real world. When Brian Chesky, the co-founder and chief executive of Airbnb, responded to complaints about vandalism, he emphasized that Airbnb had “algorithms that identify suspicious behavior.” That’s nice, yet algorithms, when people’s safety and well-being are involved, are not enough. Airbnb said it combined automation and human involvement with 100 people who reviewed suspicious activity.
The belief that problems can be solved without involving people is probably why many of these companies did not meet with regulators and officials before starting services in new cities. And it has come back to haunt them. Luther Lowe, director of public policy at Yelp, had some basic advice for Uber that could apply to Airbnb, Lyft and others: Hire a lobbyist and meet with the mayor and the city council before setting up shop.
Claire Cain Miller, “When Uber and Airbnb Meet the Real World”, The New York Times (19 October 2014), SR5.