The Dark Side of the "Sharing" Economy


Written by Jimmy Mengel
Posted March 15, 2016

Let me start by saying, I've always been a proponent of the “sharing economy.”

In fact, I had hoped that it would be one of the dominant investing trends of the next decade. Who could argue that paying less and getting more from the industries you already use could be anything but a win for the consumer — and in turn, a win for savvy investors who got in early?

Not to mention the fact that you could “disrupt” all of the middle men out there and deal with real people just like yourself...

I was so bullish on the sharing economy that I even appeared on CNBC's Closing Bell to sing the praises of AirBnB, Uber, and Square. I had used all of the companies, I had enjoyed my experiences and I felt like I understood their business models.

What I didn't anticipate was the “dark side” of such arrangements. As they say, if it sounds too good to be true, it usually is.

I got a firsthand look at them this weekend, and it opened my eyes to the entire industry...

While in Anaheim, California for a health industry conference, I was treated to a lot of things: sunshine, palm trees, and beautiful people as far as the eye could see.

I was also treated to a handful of Uber rides.

For those unfamiliar with Uber, it is a ride-sharing company that allows regular Joes to turn their vehicles into de-facto taxis, and make a few bucks chauffeuring strangers around for a much cheaper fee than a legitimate taxi.

In short, you download the app on your smartphone, type in your location, and are whisked away in short order to your destination.

Now, in all fairness, the first two Ubers we took were very refreshing. My colleague and I were able to secure trips at around half the cost of a taxi ride. The cars arrived within minutes, I could track their progress as we waited, and oftentimes the vehicles we traveled in were more posh than your typical Yellow Cab. We were treated to an Infiniti Q50 and a Lexus ES.

An added perk was that the drivers themselves turned out to be far more engaging and interesting than the normal cabbie as well. They had come from all sorts of backgrounds, and had interesting stories to tell.

One of our drivers was an ex-military guy who had spent time as an executive chef in million-dollar mansions and moonlighted as a Disneyland mascot (a professional trifecta that you don't see too often, to say the least). We enjoyed engaging conversation the entire way, and he dropped us off in record time without incident.

In short, everything was coming up roses, and I was feeling justified in my support of sharing economy companies.

But when we turned to Uber for our third ride — and the only ride in which we really needed fast, efficient service — things turned very dark... literally.

You see, the conference we attended was jam packed: to the tune of 70,000 people in a three-block radius. We had planned to escape before the teeming herds, and had our bags packed and ready to roll when the sky opened up and we were treated to a rare California rain storm.

You would have thought we were at the beaches of Normandy by the way the crowds were pushing, panicking, and caterwauling.

Luckily, we had anticipated the melee and were prepared to bail as soon as humanly possible. So I logged onto Uber and waited for a driver.

I was immediately informed that the driver could be there in 10 minutes, but the “flex rate” for the ride would be 500% the normal rate. Now, as a firm believer in the power of the free market, I understood the concept and wasn't immediately furious. But, we were about to take an hour-long ride, and I asked myself “Surely the flex rate wouldn't apply to the whole trip....right?”


I calculated the trip fare and — lo and behold — it was going to cost $260 for a 40-mile trek.

The equivalent taxi ride? $90.

Needless to say, we went with the traditional taxi. While I enjoyed the laidback Uber rides, I'm not one to pay a 300% premium for any service. So, strike one for Uber.

But the flex rate debacle wasn't even our most grave Uber situation...

The most important rides on any trip are to and from the airport. When you miss a flight, you are at the whims of the airlines and — in my experience — they typically have you over a barrel and will do with you what they wish. Not a great position to be in...

That's why we gave ourselves extra time to make it to the airport — which was a mere 20 minutes away.

Again, the Uber trip was about half the cost of a taxi — and being the thrifty guy I am (even with the company credit card) — I was willing to give Uber another shot. That was perhaps the worst mistake of the trip.

Our driver — Oscar — arrived promptly and carefully loaded our bags into the trunk. So far, so good.

But when he started driving we quickly became worried.

Our first red flag was when he blew right past the highway exit. “Okay”, I thought. “He's from around here, perhaps he knows a shortcut?”


He made three right turns over a three-mile stretch and — fifteen precious minutes later — we were right back at our hotel.

“Hey Oscar, what's going on?” I politely/ urgently asked.

“Oh, I have to head up the street to pick up our other passenger,” he replied, way too casually.

Now we had eaten up a chunk of time driving around the block so he could put a few more bucks in his pocket. I reminded him we needed to be at the airport soon and he assured me that this would only be a quick stop.

It wasn't...

The passenger he was attempting to pick up wasn't at their arranged meeting place. You'd have thought that he would've simply canceled that fare, as I desperately pleaded for him to do. But no, he went two more trips around the block before doing so — yet another 15 minutes wasted.

Luckily, we still had left plenty of time... I thought.

He finally merged onto the highway and headed towards the airport. “All's well that ends well”, I nervously assured my colleague, who was already rocking back and forth, rubbing her knees in anguish.

Then he blew past several exits that read, in huge screaming letters: AIRPORT! AIRPORT! AIRPORT!

Again I calmly assured us that “Hey, he's from around here, he knows where he's going. Who am I to interfere with a guy who drives to the airport for a living?”

Mistake number two...

We ended up in the middle of nowhere at a tiny hanger that only held a couple of idling prop-planes, and no travelers in sight.

“Ok, is this it?” Oscar asked.

I about lost it at this point.

“You tell me, we've never been here before!!!” I shouted.

“Oh man, me either... you want me to go find out?”

I — in far more colorful language — said, “yes please, as quickly as possible.”

After consulting with the lone pilot in the practically abandoned hanger, Oscar assured us he now knew where he was going. He sped back up the highway where we first spotted the less-than-conspicuous AIRPORT! signs and dropped us on the curb, where we ran like the wind — limbs thrashing and bags flailing — to our flight, which we made by the skin of our teeth.

“All's well that ends well,” I muttered exhaustedly as we boarded the plane with nary a minute to spare...

I apologize if this simply seems like free-floating hostility from the head of a jilted Uber rider. While I've spent more than enough time with this set-up, next week I will dig into why the sharing economy has a lot of growing up to do when it comes to IPOs — and why there may be some more insidious reasons why these companies haven't done so quite yet.

In short, Uber is hiding more than just predatory fees and incompetence...

I'll also get into some of the horrors of the house sharing service AirBnB, and bring you coverage of the only “sharing economy” business that I personally recommend as an investor.

Until then, I offer you a caveat emptor before you decide to trust the services of ham-fisted amateurs for important tasks.


Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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