An opportunity for the Airbnb of Asia?

In a week where taxi drivers around the world went on strike against Uber, and Airbnb announced an anticipated 120,000 visitor stays for the World Cup in Brazil, this post looks at the growing number of “collaborative consumption” startups in Asia and the legal and commercial challenges they will have to overcome to succeed in the region.

What is “collaborative consumption”?

Collaborative consumption (aka “the sharing economy” or “peer to peer”) is a broad term used to describe the shared creation, supply and consumption of goods and services. Typically it involves the use of technology platforms (usually the internet) to link supply and demand, enabling supply-side and demand-side to share resources and capacity in an efficient way.

That’s the concept but it is perhaps best explained by way of example, with reference to arguably the two most disruptive collaborative consumption companies today: Uber and Airbnb. As most readers will be aware, Uber connects passengers with drivers in most major global cities, whilst Airbnb links people with temporary accommodation. If you’ve used either of those services, or any like them, then you’re already part of a new generation of collaborative consumers.

“Hi, we’re ‘The Airbnb of…’”

If you go to a startups event or incubator anywhere in the world, chances are you’ll have to wait all of five minutes before someone pitches their new startup idea to you as “the Airbnb of [insert industry that they think is about to be disrupted by their new idea]”.

It looks like some people are getting tired of this pitch but there’s no doubt that we are still in the relatively early stages of internet-driven collaborative consumption. Although services like Uber and Airbnb are no longer used solely by tech-savvy early adopters as they were a couple of years ago, we’re still some way from the tech laggards booking their next holiday accommodation on Airbnb.

Collaborative consumption startups in Asia

Although the big US companies are making most of the headlines, Asia itself is in the middle of its own collaborative consumption revolution. Here are just a handful of the collaborative consumption startups making a splash in the region at the time of writing (hat tip to VulcanPost and TechinAsia for some of these):

Food

  • KitchHike is a Japanese startup that aims to let travellers experience food cooked by local people (usually in the cook’s own home); and
  • Indian startup MealTango, and Malaysian startup PlateCulture, have a similar model. 

P2P Accommodation

  • Roomorama is an Airbnb competitor with its HQ in Singapore and global ambitions (albeit largely targeting the Asian traveller); and
  • TravelMob is another Airbnb competitor based in Singapore – but it is specifically targeted at short-term rentals for travellers staying in Asia-Pacific.

Taxi apps

  • Singapore-based GrabTaxi (or MyTeksi as it’s known in Malaysia) is a taxi booking service with an innovative charging model for drivers that involves them purchasing pre-paid credit redeemable against jobs;
  • Hong Kong-based Taxiwise differentiates itself from other apps by focusing on reservations (rather than hailing); and
  • Didi Dache and Kuaidi Dache are China’s homegrown challengers.

Carpooling and rentals

  • Tripid.ph is a Philippines-based carpooling site; and
  • iCarsclub lets users in Singapore rent cars by the hour.

So what is driving collaborative consumption in Asia?

1. Easy to scale. The model is relatively easy to scale. Uber is five years old and already it is operating in 128 cities worldwide. Users of six-year old Airbnb can book accommodation in 190 countries. Of course, each new expansion can bring challenges, particularly in regulated sectors like transport and accommodation (more on that below) but there are few, if any, business models that could be scaled this quickly.

2. Relatively low capital/operational cost. Structured in the right way, the “platform” model requires relatively little in the way of capital or operational expenditure. Airbnb is not a hotel business – it does not have to pay city-centre rents, clean rooms or manage facilities. Uber does not have to own a fleet of cars. The costs to acquire additional users are low compared to businesses that actually manage or own the resources themselves.

3. A Connected Asia. This website has already covered the explosion in connected devices and internet connectivity across Asia. It is this proliferation of devices and connectivity, and a young population (with an estimated 1.1 billion people in the 10-24 age bracket across the region), that makes all of the services featured above possible.

4. Population density. Asian cities like Hong Kong and Singapore are amongst the most densely-populated on earth. Denser living arrangements create some unique supply/demand challenges (how do you get a taxi in Singapore when it rains?) and it’s these challenges or “pain points” that collaborative consumption startups seek to address.

5. Success breeds success. With a growing startup scene in Asia, entrepreneurial types can’t help but read about Uber’s USD $18 billion valuation (which, by the way, values it at more than Hertz and Avis) without thinking – “maybe I could launch the Uber of…”

The legal and regulatory challenges

“In 128 of our cities, we’ve got regulatory issues in about 128 of our cities,” says Justin Kintz, Uber’s policy director for the Americas.

If there’s one big challenge that collaborative consumption startups face, it’s law and regulation. Not everyone is a fan of the collaborative consumption business model. Incumbent businesses, politicians and regulators are raising questions about whether some of these collaborative consumption startups are complying with their legal and regulatory obligations.

Here are the top five legal and regulatory challenges that collaborative consumption startups will have to overcome to survive in Asia:

1. Industry regulation. This is the one that’s making the headlines right now. If a collaborative consumption startup wants to disrupt an industry, they would be well advised to look carefully at how tightly-regulated the industry in question is, and (if it’s tightly-regulated) to set aside a substantial legal budget to deal with regulatory challenges. Uber’s business model may not require it to incur large capital or operational expenditure but dealing with the intricacies of transport law across 128 cities certainly requires it to have a team of great lawyers. In London, for example, the controversy has focused on whether its mobile app constitutes an illegal taxi meter. Related to the issue of industry regulation is the issue of politics. How influential are the business owners and employees of the industry they plan to disrupt? Even if a collaborative consumption startup can position itself in such a way that complies with existing laws and regulations, if it’s business model is going to cost the jobs of an influential portion of the voting population (e.g. taxi drivers), then it better be ready for new law and regulation to be passed in future that limits its activities.

2. Contract law. Yes, simple contract law is a big potential risk area for collaborative consumption startups. In a business model that is founded upon playing something of a “middle man” role, with as few direct obligations as possible, a common mistake for collaborative consumption startups is getting the wrong contractual structure in place. One of the first questions such a platform should ask itself is what level of contractual risk it is comfortable taking on in the ecosystem. Is it purely playing the “marketplace” role linking supply and demand (more like a Craigslist) or is it willing to take some of the responsibility if something goes wrong? Who pays if the car is crashed, the apartment is burnt down or the food poisons the customers? Absorbing some of the liability can be a real differentiator (who wants to let people in their apartment without insurance, for example?) but it also means that appropriate exclusions, caps and insurance arrangements need to be put in place.

3. Consumer law. As a B2C or C2C platform, collaborative consumption startups will have to comply with the full weight of consumer law. Although the requirements in Asia are by no means as extensive as those in Europe or the US, there are still important obligations to bear in mind across most Asian countries when it comes to contracting with consumers. An interesting question to be worked through is whether the supply-side of the sharing economy (for example, an individual renting out his/her apartment for a weekend, or someone volunteering to cook a meal for travellers) constitutes a “consumer” for the purposes of applicable consumer law. If they do, they will be entitled to all of the additional protections afforded by consumer laws (e.g. protection against unfair contract terms). In most cases, one would imagine that the supply-side will fall into a business rather than a consumer category but the distinction is often a fine one and the position can differ substantially from one country to the next.

4. Data protection. Positioning themselves in the middle of the sharing economy means that collaborative consumption startups will have access to a huge pool of customer-side and supply-side data. This data has enormous value. Uber, for example, will know what journeys and passenger volumes can be expected at 5pm on a Friday evening when it’s raining. However, holding huge volumes of data carries with it a growing weight of data protection and privacy obligations. Asia is currently in the midst of a regulatory shake-up, with new data laws coming into effect across the region (in Singapore, for example, which gets its first comprehensive data protection law from next month). As such, regulators in Asia can by no means be seen as a soft touch, and it follows that users will have a growing expectation of privacy. Like any other data business, collaborative consumption startups will have to comply.

5. Payments. One of the USPs of most collaborative consumption startups is fast, secure, reliable payments on both the supply and demand sides. Uber, for example, takes cash out of the equation by automatically withdrawing payments from credit cards. Of course, holding customer payment information is subject both to general data protection laws and payment industry-specific requirements, such as PCI. These requirements will have to be built in to startups’ compliance strategies.

Predictions: An opportunity for the Airbnb of Asia?

Yes, there are legal and regulatory challenges but collaborative consumption entrepreneurs won’t be put off. The scalability and profitability potential of collaborative consumption is too good to miss, and the coming years will see even more collaborative consumption startups launching across the region. So which ones will succeed, and which ones will fail?

The answer is two-fold. In this sector, there is a lot to be said for the first-mover advantage. Platforms that secure a critical mass on both customer- and supplier-side will be hard to catch by new startups, because they will have to offer something sufficiently new and different to, for example, convince cab drivers to engage with their service and passengers to download yet another app. It’s not impossible, but it’s difficult, and that is why we are seeing aggressive early-stage marketing strategies from companies seeking to win a critical mass of users.

Longer term, however, it is the startups that maximize the advantage that comes from their local and regional knowledge that will succeed. Flat-pack, global business models will not stand the test of time in this sector. A key expectation on both supplier-side and customer-side is that the platform should make life easier in some way – that is, they should address all of the “pain points” that existing business models and technologies fail to address. And without genuine local knowledge, it isn’t possible to really understand what these pain points are. Take the reluctance amongst a portion of Singaporean cab drivers to transact online. Startups like GrabTaxi have built this into their thinking by offering those cab drivers the ability to purchase prepaid credit in cash. Local knowledge also means listening to the disrupted – particularly the incumbent services (are there ways to partner?) and the regulators (how can their concerns be addressed?)

Only with a genuine understanding of the local market will companies in this sector secure the type of community loyalty they will need to turn an exciting opportunity into a lasting business.

Matt Pollins

Author: Matt Pollins

Matt is an international technology, media and telecoms lawyer and Head of Commercial and TMT at CMS in Singapore. He supports clients across Asia-Pacific. You can contact Matt via the "Contact" page. Views expressed on Connected Asia are those of the author. Nothing here constitutes legal advice or creates a lawyer-client relationship.

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