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Airbnb’s San Francisco Deal Puts Storyline Over Bottom Line – A N I T H
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Airbnb’s San Francisco Deal Puts Storyline Over Bottom Line

Airbnb’s San Francisco Deal Puts Storyline Over Bottom Line


Airbnb is trying to change the narrative. For so long, the nearly nine-year-old home-sharing platform pushed for growth by barging into new markets and new cities around the world, regulations be damned. So the news that the company agreed this week to settle its lawsuit against the City of San Francisco seems jarring. Has Airbnb had a change of heart? Is it finally becoming a good neighbor in the cities it’s strong-armed? Or did the company just realize San Francisco was a fight it was destined to lose?

The answer, as with most things, is more nuanced. San Francisco is not Airbnb’s biggest market, not by a long shot, which means anything Airbnb does there likely won’t change the company’s bottom line. But San Francisco is the leading symbol of the global tech boom, the hub of a region that has arguably generated more wealth than any other place in human history. Neighborhoods have gentrified rapidly over the past decade as newly moneyed techies put roots down in the city, sending the city spiraling into a housing affordability crisis. And that’s a narrative into which Airbnb fits whether the company likes it or not.

As such, anything Airbnb does in San Francisco carries extra symbolic weight. It’s that weight Airbnb hopes to take advantage of in settling the case, especially as rumors swirl that the company could go public this year. “Airbnb is clearly the market leader in home sharing, and it has its eye on the public market in the not-so-distant future,” says Arun Sundararajan, a business professor at New York University who studies the so-called sharing economy. “It’s good for them not to have outstanding lawsuits—it reduces the perceived regulatory risk.”

Airbnb, a company now valued at $31 billion, has proven it can grow by disrupting the traditional hotel industry. Now, to please potential investors, Airbnb has to at least convey the sense that it’s willing to play nice with regulators. The company will likely trumpet the new agreement with San Francisco, a symbolic gesture that will likely resonate well beyond the city’s limits.

“The basic model has been proven,” says Nick Grossman, a technology investor at Union Square Ventures. Now, Grossman says, it’s time for Airbnb to address the remaining major risk to its business by working with cities, not against them.

’Winner, Winner, Chicken Dinner’

San Francisco is not the only city Airbnb has sued. Airbnb cases are pending in Miami and New York City as well as Santa Monica and Anaheim in Southern California. But the company’s contentious history runs deepest in San Francisco, where anti-Airbnb sentiment became a leading expression of backlash against the tech boom, as critics complained Airbnb rentals took even more of already limited housing options off the market for would-be residents. About a year-and-a-half ago, San Franciscans split over Proposition F, a local ballot measure that aimed to place severe restrictions on short-term Airbnb-style rentals.

Prop F failed, but the spirit of it was revived around seven months later, when San Francisco’s Board of Supervisors voted to toughen short-term rental laws that already existed. The legislation proposed to shift the burden of violations from individuals onto platforms like Airbnb, which under the measure would have to pay fines of up to $1,000 daily for each listing on their platform that did not include an official, city-issued registration number. Needless to say, Airbnb was not pleased, since very few hosts actually comply with the law. Some 2,100 people have Airbnb-registered units, according to city officials, compared to the 8,000 short-term rental listings on the site in San Francisco. A few days later, Airbnb sued the city over the legislation.

This week’s settlement appears to resolve this nearly year-long legal battle. Per the agreement, Airbnb will remove hosts from its platform if they fail to register with the city, and new hosts will be required to obtain a registration number issued by the city before they can sign up to rent out their home. The company will also create a new on-boarding system set to launch in 2018, in which Airbnb hosts will register with San Francisco directly on Airbnb’s platform—eliminating the need for hosts to fill out additional paperwork. That solves a big problem hosts in San Francisco have long complained about—that it was nearly impossible to register with the city, describing hours-long waits and trips to the wrong city buildings for registration.

The current Board of Supervisors and Mayor Ed Lee have yet to approve the settlement. But both sides are already casting the deal as a win. Lee said the settlement adequately protected San Francisco’s rental housing stock. Meanwhile, Chris Lehane, Airbnb’s head of global policy and communications, called the settlement and the proposed on-boarding system a “winner-winner, chicken-dinner scenario.”

Disproportionate Attention

From afar, Airbnb does appear to be changing its ways. The company entered into fifty new government partnerships in just the first quarter of 2017. From Barcelona to London and Amsterdam, Airbnb is seemingly becoming more open to imposing limits on short-term rentals and even taking on the responsibility of policing those limits. Then came the deal with San Francisco.

Not that Airbnb has a blanket policy that it applies to dealing with regulators in every market globally. The company has consistently operated by negotiating the best possible outcome in each individual city, says Scott Shatford, CEO of Airdna, a startup that scrapes Airbnb’s site for listings data. But the San Francisco does reflect a kind of general mellowing. “Airbnb is maturing towards the direction of an IPO,” Shatford says.

In doing so, Airbnb is making a very different calculation from one that Uber currently faces, though there are parallels. Both have sky-high valuations. Both face resistance from regulators. But Airbnb splits from Uber in its newfound willingness to sacrifice some of the growth of its less prominent markets to regulation, with San Francisco the leading example. The public relations win doesn’t hurt, either. “San Francisco is a very unique market,” says Airdna’s Shatford. “The outrage about affordable housing is a real problem.” So too, he says, is the reality that any story about San Francisco and Airbnb market attracts disproportionately more attention than any other city. It just makes a good story.

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Anith Gopal
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