On December 30, 2013, only a day before a six-year-old girl named Sophia Liu was hit and killed by an Uber driver in San Francisco, Elizabeth Eun-chung Yuh, a 35-year-old South Korean native from Ontario, Canada, died of carbon monoxide poisoning at an Airbnb in Taipei. She had traveled there with friends for a wedding and checked into an apartment downtown, where the landlord had recently enclosed an outdoor porch without properly venting the water heater or installing a carbon monoxide alarm. According to a report in the China Post, her four friends in adjacent rooms were admitted to a local hospital and treated for carbon monoxide inhalation, but Yuh was found dead at the scene. A few weeks later, her father, Deh-Chong Yuh, tweeted at CEO Brian Chesky:
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Unlike the Sophia Liu tragedy, the incident received no attention in the Western media. When I later asked Airbnb about it, a spokesperson emailed me a statement: “We were extremely dismayed when we learned about this incident and we immediately reached out to the guest’s family to provide our full support and express our deepest condolences. This was a tragic event and our focus has always been on supporting the family and taking action to help prevent this kind of incident from happening again. Additionally, we permanently removed the host from our community. Out of respect for our community members’ privacy, we generally do not comment on the conversations we have with them.”
The Yuh family, which did not respond to my attempts to reach them, contacted San Francisco personal injury attorney William B. Smith, who advised them to file a wrongful death suit and challenge Airbnb’s 14-page terms-of-service agreement, which stated that hosts and guests assumed all risks and were responsible for adhering to local laws. But soon after, Smith told me, the Yuh family informed him that Airbnb had offered them two million dollars to resolve the matter. They decided to accept instead of filing a lawsuit.
According to a legal paper Smith later published on his law firm’s website, Airbnb denied liability for the incident and specified that the settlement was “offered only for humanitarian reasons.” One attorney who worked for Airbnb later told me that Airbnb didn’t have to settle the case but that, in such situations, Chesky focused intently on the right thing to do. To Smith, though, any hint of benevolence rang false. “People might pay money for humanitarian reasons, but corporations don’t. They pay because of legal liabilities,” he says.
Nearly two years later, journalist Zak Stone chronicled Yuh’s death in a story about his own father’s death at an Airbnb, which occurred when a tree branch attached to a tire swing fell on his head.
In a joint interview with all three Airbnb co-founders, I asked about such tragedies. “There is a certain statistical probability that extremely unlikely things will happen from time to time, given enough scale,” Nate Blecharczyk answered. “It can be an opportunity actually to come out stronger. When something bad happens, we really look deep within and try to think hard about . . . what it is we can do going forward to make the service better.”
Indeed, in the United States in 2014, Airbnb started giving away carbon monoxide detectors as well as first-aid kits, smoke detectors, and safety cards that advised hosts on emergency preparedness. It also said that by the end of the year, hosts had to have smoke and carbon monoxide detectors in their homes, though there was no way to determine whether the hosts had actually installed them.
The Yuh tragedy epitomized the dueling realities facing Airbnb at the start of 2014. It wanted to be seen as an innovative hospitality brand bringing strangers together and providing authentic, intimate travel experiences. But it was also an internet marketplace that, like all such marketplaces, could not fully guarantee the scrupulous behavior of its hosts or the actual conditions its guests encountered.
The reality people saw often depended on where their sympathies lay. Regulators, left-wing politicians, hotel CEOs, union leaders, affordable housing advocates, and angry neighbors tired of carousing guests saw Airbnb as nothing but a rule breaker from the far-away land of arrogant, entitled billionaires. Investors, hosts, property owners struggling to make their monthly mortgage payments, travel-discount shoppers, and high-tech aficionados tended to believe in the startup with good intentions that was disrupting the stultified hospitality industry.
But despite its humble origins and more empathetic CEO, Airbnb was about to become every bit as controversial as Uber.
Steve Unger moved to Portland, Oregon, back in 2002 after losing his Silicon Valley job in the dot-com bust. With his husband, Dusty, he reinvented himself as the proprietor of the Lion and the Rose, a stately one-hundred-year-old Victorian inn with eight bedrooms, arched windows, a wraparound porch, and a turret on the third floor. In a good year, Unger catered to two thousand guests.
To register as a proprietor of a traditional bed-and-breakfast in Portland, Unger had to get a city permit that cost four thousand dollars, part of an ordinance that had been put into place to protect residential neighborhoods from too much commercial activity. So Unger was among those inclined to look askance when unlicensed Airbnbs started popping up across Portland, particularly since his business remained curiously slow even after the city emerged from the recession in 2012.
By the beginning of 2014, local hosts were imploring the city to reduce its B & B registration fees and stop the inconsistent, piecemeal enforcement of zoning laws that were shutting some Airbnb hosts down whenever neighbors complained to the city. Unger attended city council meetings on the issue and saw that Airbnb and its lobbyists were deeply involved in the debate. He marveled at the hosts that Airbnb reliably corralled to argue on its behalf. They offered sympathetic testimony about how renting out their spare rooms or in-law apartments on Airbnb allowed them to earn enough extra money to stay in their homes. Unger started calling this kind of arrangement “the good Airbnb.” The bad Airbnb was made up of hosts with multiple properties and owners who didn’t actually live in their homes for much of the year but rented them out online, keeping them off the housing market. These types of hosts weren’t asked to testify at the meetings.
Despite resistance from neighborhood groups, Airbnb and its hosts succeeded in changing the law. Over the summer of 2014, Portland became the first city in the country to strike a deal with the company. The arrangement legalized short-term rentals in primary residences but limited unhosted rentals — that is, when the host was not present — to ninety days a year. Registration fees were reduced from $4,000 to $180 and hosts were required to conduct a safety inspection of their homes, notify their neighbors, and register with the city. In return, Airbnb agreed to collect the 11.5 percent lodging tax on behalf of its hosts and send the revenue to the city (without including hosts’ names and addresses). The company also opened a customer-service call center in town.
There was peace in Portland, but Steve Unger didn’t like it. “I believed that the ninety nights a year would be almost impossible to enforce unless Airbnb helped, and they never said they would,” he told me. “They said it was critical to have ninety nights a year as one of the conditions of the agreement. They wanted people to go away on vacation and be able to rent their houses. And they make more money on entire place rentals.”
For Airbnb, the Portland deal was one of the first steps in a new campaign to bolster its image and calm the mounting regulatory rancor. A blog post by Chesky published in tandem with the Portland announcement introduced a new initiative that the company called Shared Cities. It included Airbnb’s pledge to make cities friendlier and nicer by, for example, helping hosts donate to local causes and matching their donations.
At the heart of the proposal, Airbnb was offering cities a carrot, in contrast to the sharp stick Uber employed by weaponizing its customer base against its political opponents. Hotel taxes were the reward. Years earlier, Airbnb had said it shouldn’t be responsible for collecting hotel taxes because it operated only as a marketplace. Hosts, however, were unlikely to pay hotel taxes voluntarily. Airbnb now saw the advantage of conceding that point and facilitating tax collection itself in return for laws that sanctioned short-term rentals. “We’re offering to cut red tape and to collect and remit taxes to the city of Portland on behalf of our hosts,” Chesky wrote. “This is new for us, and if it works well for our community and cities, we may replicate this project in other US cities.”
That, it turned out, was foreshadowing. A week later, the company said it planned to start collecting the 14 percent hotel tax (aka the transient occupancy tax) in San Francisco and even agreed to pony up tens of millions in unpaid back taxes (it never specified the exact amount). Over the next year, it would strike taxes-for-legalization agreements in Chicago, Washington, D.C., Phoenix, Philadelphia, and elsewhere. Amsterdam became the first city in Europe to sanction short-term rentals, permitting residents to rent their homes for no more than two months a year and only to four people at a time. France also legalized short-term rentals of primary homes and empowered its cities to pass additional restrictions on rentals of nonprimary residences.
Chesky was optimistic that Airbnb had turned the tide when we discussed the issue in 2015. “Every city used to look to New York to figure out what to do,” he told me. “Now I think cities are deciding, we are going to figure out what’s best for us.”
But New York City was still a flash point, and it was here, in one of the company’s largest markets, that Airbnb first underestimated the powerful political forces that were beginning to mobilize in the wake of its success. In the spring of 2014, Airbnb was negotiating with the office of New York attorney general Eric Schneiderman to end the long standoff in New York. The parties came close to reaching a settlement that would resolve the AG’s issues with the company and authorize it to collect taxes on behalf of its hosts, according to three people familiar with the discussions. But then, in an abrupt turnaround, the city refused to finalize the agreement. Almost overnight, Airbnb had somehow become politically radioactive in New York City.
People involved in the discussions say there were two reasons for the reversal. Airbnb had just completed the round of funding that valued it at $10 billion. It was now worth more than major international hotel chains like Hyatt Hotels and Wyndham Worldwide. Jolted by this, these companies suddenly woke up to the looming threat in their midst. Ten days after the news, the American Hotel and Lodging Association, the primary trade group for the 1.9 million employees in the US hospitality industry, released a statement announcing that it would begin tracking Airbnb and other short-term rental sites and drawing attention to issues like taxes, adherence to disability laws, the protection of residential areas, and the preservation of neighborhood parking.
At the same time, Airbnb had reached out to the New York City chapter of the Service Employees International Union in hopes of giving its hosts access to certified unionized housecleaners who could be summoned on demand. That alienated another hotel union, the powerful Hotel Trades Council, which feared such an agreement could further legitimize Airbnb. It too spun up a campaign to curb short-term rentals, funding the creation of a New York-based lobbying group called Share Better.
Airbnb now had two significant enemies: hotels and their powerful employee unions. Both were well organized and deep pocketed, and both had strong relationships with local governments. A lawyer working for Airbnb on the attempted settlement in New York City said that within 24 hours, the hotel unions and their representatives scuttled any prospective deal, insisting that the city should not do anything to legitimize Airbnb. “At that moment everyone panicked and said, we are not touching this for a while,” this person said.
Airbnb attempted to swing popular opinion to its side but didn’t have the same populist tools as Uber. Hosts who rented out their apartments only a few times a year were unlikely to show up for protests at City Hall at three o’clock in the afternoon. So that summer, Airbnb hired Bill Hyers, the manager of Bill de Blasio’s successful campaign for mayor, and he placed ubiquitous ads in New York City subways featuring photos of smiling New Yorkers using the service to make ends meet. (“The good Airbnb,” according to Steve Unger.) New Yorkers agree: Airbnb is great for New York City, read the tagline on the subway posters. Many of these posters became the target of graffitied scrawls such as Airbnb accepts NO liability and The shared economy is a lie.
By the end of 2014, the chances for a political agreement in New York looked dim. As a report that fall by New York attorney general Eric Schneiderman revealed, more than two thirds of Airbnb rentals in the city violated the draconian Multiple Dwelling Law — the law that Airbnb had ineffectually tried to block in 2010 that said New Yorkers couldn’t rent out their homes for less than 30 days. And 6 percent of hosts in the city were renting out multiple units on Airbnb, generating 37 percent of the company’s revenue there.
Momentum was shifting elsewhere too. The laws passed in the Shared City agreements with cities like Portland were being flouted, just as Steve Unger had feared. They required hosts to register with their cities, but despite the fanfare that accompanied the deals, few did. In the face of this, Airbnb refused to put in place restrictions to force compliance — for example, requiring hosts enter valid registration numbers or preventing a host from listing multiple properties. In interviews, company executives pointed out that law enforcement was not typically the domain of a private company and complained that the registration process was often too complicated and time-consuming (hosts in San Francisco had to make an appointment and then appear at City Hall in person to present valid documents). But it was also impractical for the cities to police the thousands of anonymous people using the home-sharing site, and Airbnb didn’t seem all that eager to help.
Airbnb had said it wanted to talk candidly with cities, to play by the rules, to be a partner. But in the end, there emerged an unavoidable fact: Chesky was every bit the warrior Travis Kalanick was. He believed so much in the promise of his company that he was going to fight for every inch of territory.
Excerpted from The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World Copyright © 2017 by Brad Stone. Published by Little, Brown and Company, a division of Hachette Book Group.
