Do Apps Like Uber and Airbnb Really Save You Money?



The “sharing economy” is the term used to describe services that enable users to loan each other goods and provide one another with services that would traditionally be provided by companies like taxi firms and hotels. (Though perhaps the “rental economy” would be a more appropriate term.) But are the services offered by sharing economy apps like Airbnb and Uber really cheaper than their traditional counterparts?

One often-cited benefit of sharing economy services is the low overhead of the companies that provide them, especially as compared to the older models they want to supplant. ReadWrite reports that because ride-sharing companies like Uber don’t have to acquire and maintain a centralized fleet of cars, they charge less than the average taxi firm (except during high-demand hours, in which Uber enacts surge pricing). Surge pricing incentivizes drivers to meet the increased demand during busy hours, though it irritates customers.

The rising popularity of affordable ride-sharing services has disrupted the taxi market in major cities. ReadWrite reports that the price of big-city taxi medallions, which are required for drivers to operate a taxi, have fallen by 17% to 20% from their peak, under pressure from Uber, Lyft, and Sidecar. And taxi drivers have retaliated with a taxi-hailing app called Flywheel, which enables passengers to hail a cab from a centralized dispatch, and even process payments through the app.

Source: Thinkstock

Source: Thinkstock

Is Uber cheaper than a taxi?

Commuters use Uber’s app to order a taxi, private car, or rideshare from its app. The request is then forwarded to the nearest available driver, who picks up the user. Uber determines the cost of the fare based on the service it offers, the time a journey takes, and sometimes the distance traveled. The price increases when demand is higher. But is Uber cheaper than a conventional taxi?

MIT’s Technology Review reports that researchers at the University of Cambridge have compared Uber’s prices with those of Yellow Taxis in New York City. They say that the ability to compare prices should help commuters to choose the cheapest option, and also to help control costs for all cab users. The data set they used was made available thanks to a 2014 freedom of information request for the data associated with New York City Yellow Taxi journeys during 2013. The 50GB data set covers hundreds of millions of trips and consists of the location of every pickup and drop-off, as well as the fare paid for each journey.

Cecilia Mascolo and other researchers took the coordinates of each journey made in a Yellow Taxi in 2013, and asked Uber how much it would charge for the same trip if made on the cheapest version of the service, called Uber X. Uber suggested a minimum and maximum possible fare, from which the researchers determined an average, which they compared against the Yellow Taxi fare. They concluded that “Uber appears more expensive for prices below 35 dollars and begins to become cheaper only after that threshold.” Because most people tend to take a large number of short trips and a much smaller number of long trips, the researchers say that “This observation therefore suggests that Uber’s economical model exploits this trend of human mobility in order to maximize revenue.”

As Technology Review notes, there are a couple of caveats with the data. While the Yellow Taxi data comes from 2013 and the Uber data from 2014, the Yellow Taxi prices are set by the city and last changed in 2012 after being held constant for eight years. So the 2013 fares should be a good indicator of 2014 fares. The researchers also weren’t able to account for the fact that Uber X prices vary according to demand. Regardless of these limitations, the researchers think that the comparison is interesting and useful. It could pave the way for real transparency that would help commuters to choose the most cost-effective service. And to help users, the researchers created an app called OpenStreetCab that enables New Yorkers to compare Uber prices with the equivalent journey in a Yellow Taxi.

hotel receptionist

Source: iStock

Is Airbnb cheaper than a hotel?

In 2013, Priceonomics compared the cost of a hotel room to the cost of renting an apartment on Airbnb in every major city in the U.S. and discovered that Airbnb apartment rentals cost 21.2% less than staying at a hotel. And for travelers who are really on a budget, you can save 49.5% if you stay in a private room at a host’s house instead of staying in a hotel. The analysis also concluded that it’s not always cheaper to stay at an Airbnb apartment than a hotel — particularly in smaller cities with less Airbnb inventory — but it’s almost always significantly cheaper to stay in a private room than in a hotel. At the time, Priceonomics reported that the most expensive cities in the U.S. for Airbnb apartment rentals were Boston (at $185), New York (at $180), San Francisco (at $165), Cambridge (at $155), and Scottsdale (at $143).

The Wall Street Journal reported last December that finding the lowest-cost accommodations depends on the city you’re visiting. The cost of an Airbnb rental had reached $274 in Boston, $231 in New York, and $178 in San Francisco. At the same time, a one- to four-star hotel cost an average of $296 in New York — considerably higher than the average Airbnb rental — but just $142 in Boston. That surprisingly low rate represents just a little over half of the cost of the average Airbnb rental. The Wall Street Journal noted that Boston rents are naturally high, but are also driven up by demand from the many colleges in the area, which likely contributes to the high cost of an Airbnb rental.

But often, the costs associated with the sharing economy can be tough to determine, and getting to the bottom line necessitates more nuanced logic than comparing taxi rates to Uber fares or looking at how an Airbnb rate compares to the cost of a traditional hotel room.

Adam Berry/Getty Images

Source: Adam Berry/Getty Images

Hidden costs

Doug Henwood recently wrote for The Nation that the current “sharing economy” phenomenon — which has its roots in the 1990s and the decade’s enthusiasm for flattening traditional hierarchies, the rise of peer-to-peer networks, and the “decentering” of everything — plays into the idea that the structure of the Internet is a model for society. He says that the “techno-utopianism” of the 1990s centered on the production side of the economy, and aimed to transform the work world into a space for creativity and collaboration. But now, he argues, the updated version of the phenomenon is about the consumption of goods and services, and in some cases, is even called “collaborative consumption.” He points to Airbnb, one of the dominant forces in the area, as an example.

Henwood writes that Airbnb guests love the service because it’s much cheaper than a hotel. But Airbnb has a real, if difficult to measure, impact on housing availability and affordability in desirable cities. Last October, New York State Attorney General Eric Schneiderman issued a report on the rapid growth of Airbnb in New York City. It concluded that many of the rentals are illegal, and many units are rented out by large commercial operations that take them off the regular rental market.

Airbnb responded by reporting that the company has put an end to commercial operators, and that their footprint is too small — 25,000 hosts in a rental market of 2.2 million units — to make a significant difference. But as of the city’s most recent survey, there were only 68,000 vacancies, and subtler displacements go on as individuals rent apartments in gentrifying neighborhoods and rent out vacant rooms on Airbnb to make rapidly rising rent prices affordable.

Source: Thinkstock

Source: Thinkstock

Henwood makes the case that the sharing economy offers some people — like cab drivers — the prospect of real wage cuts, and others, like people with a spare bedroom, a way to supplement their stagnant incomes. He characterizes the sharing economy as “a nice way for rapacious capitalists to monetize the desperation of people in the post-crisis economy while sounding generous, and to evoke a fantasy of community in an atomized population.”

ReadWrite notes that a report by researchers at Boston University found that in Texas, “a one percent increase in the site’s listing in a given market would result in a 0.05 percent decrease in quarterly hotel revenues, an estimate compounded by Airbnb’s growth.” The researchers concluded that low-cost hotels take the biggest hit from Airbnb.

While a major selling point of the sharing economy seems to be that it cuts out the middleman and facilitates a more direct exchange of goods and services, the truth is that the traditional middlemen and gatekeepers are simply supplanted by newer ones. And while the old companies are bound by strict legal regulations, the new platforms push the boundaries of what’s legal because the responsibility falls on the community, not on the companies themselves. As more workers become reliant on sharing economy apps, they become vulnerable to working in less-than-ideal environments created by companies that don’t offer traditional protections and benefits for employees.

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