THE BLOG
07/14/2015 06:48 pm ET Updated Jul 14, 2016

Risk in the Asset-less Economy

As Uber continues to make headlines with both fawning stories of its hyper-valuation and grim tales of popular dissent, it is clear that risk is beginning to creep through the cracks of the asset-less economy. Economic risk always follows economic gain and the so-called disrupters are particularly vulnerable to this exposure. As the mounting case against Uber mutates from angered taxi drivers to now include state and national legislators, asset-less firms are not only fending off massive legal and regulatory complexity, the very essence of their business model and thus their survival is in the crosshairs.

While Uber may be the world's largest fleet operator without owning a single vehicle and Airbnb the largest hotelier without owning a property, their outsized returns are making them easy prey for economic risks. The chief culprit in most cases is not the angry people who have been disrupted, although they are the loudest voices of dissent, it is regulatory bodies whose loss of oversight and revenues is triggering sustained attacks. Counter-valence options against the state are few and far between, particularly as asset-less firms operate as extra-territorial web-based platforms. Clever arguments to combat legal impositions, such as "we have no employees" and "we are entirely amorphous and outside of your regulatory purview" are being shot down one by one in jurisdictions around the world. With growing legal precedence, asset-less firms will now need to acknowledge, price for and ultimately own the reality that all the risks in their value chains are in fact theirs. To paraphrase Descartes, you operate here, therefore you are.

Against this backdrop, Uber's drivers may need to be treated like employees, as California's legislators are arguing. Uber will need to take an active view of vehicle-related risks, particularly abiding by third party liability, personal injury and property damage provisions, which in most countries around the world are legally mandated. Airbnb may have to contend with multi-jurisdictional property insurance and a raft of legal and reputation risks. Imagine the exposure of unionized Uber drivers, who can readily argue, particularly in socialist environments like France, that they represent a collective and thus need to be afforded a collective voice. Imagine the imposition of stringent carbon emissions and road safety standards on large fleet operators, which any state could readily argue includes firms like Uber. In the face of these changes, which headlines suggests are very real threats, the competitive pendulum would swing back into the favor of firms with more direct control of their assets, human capital and business models. Uber would struggle to abide by state-imposed emission standards, as it is merely the just-in-time aggregation of any driver and any vehicle available. A Pyrrhic victory in these cases would be to quit unfavorable markets or to cull parts of a business model, such as the decision to suspend UberPop, the firm's entry level service, in France.

An asset base is both a source of weakness and resilience. Asset-less firms are growing in all segments of the economy as consumers look for fractional access to everything from corporate jets to city bikes and vacation properties. The true asset of firms like Uber and Airbnb is their incredible marketplace for pairing supply and demand in consumer controlled ways. Like all marketplaces around the world, the advent of regulatory burdens will not only erode profitability, it will create a source of friction that these firms are only beginning to experience in their rapid growth. While many asset-less firms are on a war footing hiring people like David Plouffe, they will need to take a more conciliatory tone if they are to remain in play in many countries. Sadly, many of the financial and risk-transfer mechanisms that are needed to keep the asset-less economy vibrant and global are themselves not keeping pace. For example, most auto insurance policies are designed as annualized contracts and not geared as a risk-per-kilometer traveled instrument. Similarly, financial regulation of the insurance industry makes it virtually impossible to offer the same global standards in terms of limits of liability and other policy provisions, which are often governed by arcane legal statutes.

Uber and Airbnb's customers, non-employee employees and stakeholders rightfully have an expectation of the harmonization of the terms of trade irrespective of borders. Herein lies one of the greatest existential risks to the asset-less economy. As Uber, Airbnb and their ilk grow ravenously around the world, indeed bringing incalculable value to free-lancers, people will demand common treatment and benefits. So, if an Uber driver in California needs to be afforded certain company-sponsored protections, it is reasonable to assume a chorus for these demands will be raised elsewhere. Asset-less firms and their readiness to respond to and, indeed, anticipate this pressure will not only make these important businesses more enduring, it will improve the conditions for free-lancers who engage these models for their household income.