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Published 13 March 2013 10:34, Updated 23 April 2013 10:32
Property investor Hugh McCullum says since switching to collaborative platform AirBnB.com, he has barely had a day’s vacancy. Photo: Nic Walker
Property investor Hugh McCullum used to rent out his apartments in the usual way, by signing up tenants on six or 12-month leases. The apartments in Sydney’s bustling party district Potts Point always went quickly.
But when one became vacant just before Christmas in 2011, he decided to try listing it on AirBnB.com – the global collaborative consumption platform that connects people who have accommodation with travellers who need somewhere to stay.
Soon he had six months’ worth of back-to-back bookings. And, while his apartments typically fetched $450 to $500 a week when rented to a longer-term tenant, he was suddenly earning $770 a week by renting them to travellers (assuming full occupancy).
He now rents out all three of his investment apartments exclusively on AirBnB, and a fourth is to be added to his AirBnB portfolio in April.
He also rents out a campervan.
“There’s barely a day vacant,” McCullum says.
“Going through AirBnB, a one-bedroom apartment effectively rents for the rate of a two-bedroom apartment. But you do have to do more work.”
Collaborative consumption sites such as AirBnB are allowing people to make better use of the things they own and eliminate expensive middle men, including property managers.
Their growth is phenomenal, given that 3 million guests stayed on AirBnB listings last year and the website’s listings more than doubled from 120,000 to 300,000.
Sites that facilitate the sharing of anything from cars to tasks to spare cash are increasing the value of assets and creating new asset classes. They are making it easier for people to monetise spare time, or an unused car in the garage, or a spare room in a rented apartment. As these platforms achieve scale, they are spawning new businesses and creating demand for a new type of middleman.
The lucrative business of short-term renting takes up an increasing share of McCullum’s time as tenants only stay for several days to several weeks and he has to arrange key changeovers and cleaning every time an apartment becomes vacant.
The only way to get full occupancy is to get great reviews by offering flawless service and responding quickly to complaints. He would like to find someone to manage that process for him, but so far nobody appears to be offering that service.
“I have a friend who is going into retirement next year and I’m trying to talk him into taking it up as a retirement job,” McCullum says. “It’s enough to give him two to three days’ work a week.”
Similar demands are opening up in the world of motoring, where an unused car can quickly be turned into a paying asset. Two years ago, Sydney angel investor Mathias Kopp was considering investing in car-sharing company DriveMyCar, so he decided to put the service to the test. He bought a second-hand Audi A3 for $24,000 and made it available on DriveMyCar.
The director of a Dutch company with an Australian subsidiary rented it on a two-year contract for $1100 a month. Within two years the car had virtually paid for itself. Kopp is now a director of DriveMyCar. It was a worthwhile exercise, Kopp says, but also a hassle at times.
“The first driver got a lot of traffic offences,” Kopp says.
“Every time, and there were roughly 10 of them, I had to sign a statutory declaration, get it signed by a JP, and in one case the NSW State Debt Recovery Office didn’t believe the statutory declaration I submitted and I had to prove I wasn’t the driver.
The first driver got a lot of traffic offences. Every time, and there were roughly 10 of them, I had to sign a statutory declaration.
“It was a bit cumbersome but overall the experience was positive.”
Another hassle with the platform is there is more demand for some types of cars than others. An additional car Kopp placed on the platform didn’t get many offers. These sorts of difficulties are challenges for the company as it tries to scale this new marketplace, which needs inventory and demand to grow in pace with one another.
So DriveMyCar is coming up with its own solutions to fast-track its growth. It offers a management service so people who own cars can leave all the work of renting them out to DriveMyCar. It is setting up a fund that will buy cars according to what the platform needs, and rent them to DriveMyCar.
And it has a model to help people who want to build up their own fleet of cars: DriveMyCar tells the investor what car it needs, the investor buys it, and the company manages it. One owner has a fleet of 13 cars, while a number of others have fleets of five or six, says chief executive Howard Moodycliffe. “Now we have a robust model we can take out to give to people who are looking to invest in this asset class,” Moodycliffe says.
Over in the United States, where the collaborative consumption ecosystem is larger, Shelby Clark, founder of car-sharing site RelayRides, says he sees a trend away from individuals offsetting their own expenses towards thinking of the platform as a way of doing business. He welcomes the idea of new businesses stepping in to help the business scale up, such as assisting with key exchange or cleaning.
But Clark is less comfortable with the idea of middlemen stepping in to help people manage their assets on the site, which would be a move away from its peer-to-peer origins.
“I think people treat the cars a lot better when they have a sense of having a next-door neighbour,” Clark says. “I wouldn’t want to lose that sense of community. That is something we will have to keep a close eye on as these communities grow.”
Airtasker is a relatively new addition to the ecosystem here. Like the more established TaskRabbit in the US, Airtasker hooks up people who have some spare time with people who need to have work done.
Finance company receptionist Teresa Hong does between one and 10 tasks a week depending on her spare time. Some are quite random. “There’s a lady who gets these cravings for charcoal chicken,” Hong says.
“She doesn’t give much notice but she gets a craving and asks somebody to get her a quarter-chicken from a specific shop in Padstow [in Sydney].”
She’s done gardening, delivered furniture, sold items on eBay and, curiously, erased answers written on a second-hand exam paper. She mostly does it for fun, but there is a knack to picking plum jobs and some of them pay handsomely. She once made almost $400 by assembling a treadmill, which took around four hours. Regulars such as Hong with a good track record can cash in on their reputation to charge more for jobs.
The direction this all takes remains to be seen but greater scale is inevitable. As these markets develop, people will inevitably come up with ways to make processes more efficient at scale.
Businesses hoping to tap into the wellspring of crowd-sourced funding – which by some estimates reached about $2.8 billion last year – might like the services of a company that helps them build a compelling grassroots campaign.
Savvy handymen with the tools and expertise to do jobs quickly could begin siphoning the plum gigs off Airtasker.
But Rachel Botsman, the founder of Collaborative Consumption Hub and a speaker on the future of sharing sites, says new platforms should be taking a cautious view towards the emergence of large-scale operations or middlemen who manage but don’t own assets.
“They’re saying I can manage a portfolio of assets within this system and make more money from it than doing direct trade,” Botsman says.
“If you’re coming from an entrepreneurial point of view, it’s saying to individuals you can take the principle and do it at scale. The thing that makes me nervous is, the beauty of these sites is they make transactions highly human. But what happens when people become portfolio managers – whether that be a portfolio of cars houses or errands – there’s an element of that humanness that gets diluted.”
Collaborative consumption also brings up some regulatory issues. AirBnB began offering insurance after receiving bad publicity when AirBnB guests trashed a woman’s San Francisco apartment. Complaints of this nature have been surprisingly few, but if policymakers begin to see AirBnB as facilitating hordes of unlicensed hotel operators, the company could bump up against zoning laws that vary in each of the 34,183 cities in which it operates.
As layers of responsibility are added to transactions, it gets harder to pinpoint who is accountable if problems come up. “These are real grey areas for consumer protection,” Botsman says. “When does an AirBnB host become a small business? I would argue the people on Airtasker running errands in their spare time are being entrepreneurial, so the tax should be different. But as soon as you’re managing other users, you have to pay all kinds of business taxes.”
She hopes new websites that are rushing to achieve scale keep a lid on third-party involvement, at least in the early days as they find their feet.
“This is a natural thing that’s going to happen but the companies have to be extremely careful of this dynamic in their infancy because it could dilute the experience of the end user, and they could lose control,” Botsman says.