The Gig Economy

We’re in the gig economy, we can order food, dinner delivered, or cookies delivered at midnight if you’re in New York. We can share our spare room for cash on AirBnB, our trips with Uber, or garden tools we’re not using.  We can have someone visit us to hang a picture, build a bookcase or unblock a drain. In France you can have someone do your homework. The people providing the platforms say it unleashes innovation and offers exciting opportunities, it’s supposed to be good for us.

The companies offering platforms to enable all of this are lauded as disruptive and for a long time new companies were launched and cited as “the Uber of X“, there is even a book called “The Uber of Everything” which has the positive-sounding subtitle “How the Freed Market Economy is disrupting regulated industries and delighting customers”.

I’m all for disruption, but sometimes the disruption isn’t where you expect. Take AirBnB, there are a lot of articles about how AirBnB is disrupting the hotel industry, and it’s a service I’ve used in half a dozen cities. But it’s not the hotel industry that’s feeling the impact in Amsterdam, hotel nights are on the rise up 7% in Q1 2016, and numerous hotels have opened since airBnB launched in 2008. What has been affected is the rental market, with hundreds of apartments taken off the rental market. Amsterdam is not the only place to see an impact on the stock of rental apartments, and the city has now put limits in place.

Uber started out as a ride sharing platform, and it has a lot of benefits in terms of lowering congestion, lowering car pollution, reducing parking problems in cities. It has, according to some reports, lowered the rate of drink driving. There are a lot of positives. But there is also a downside. The industry that Uber set out to disrupt is the taxi industry seeing it as over-regulated and ripe for reform. When I hear the term “regulated industry” I always myself “who benefits?” In the case of the taxi industry there was a certain amount of industry protection to stop new entrants into the market, which maintains higher taxi prices. However it also protected drivers, allowing them to have a reasonable work week, and it protected passengers because drivers were licenced – as opposed to the ‘random driver‘ you might get as your Uber driver. Uber drivers started out as freelancers, part of the gig economy, but many of them now depend on their Uber income and are starting to fight back with attempts to unionise in Seattle and New York.

If we follow the money, it’s accruing to the platform owners. Uber’s revenue in 2016 is around USD6.5billion and AirBnB’s reached USD1.7billion. These two companies are doing very well out of the sharing economy. But there’s one platform that’s doing even better, Facebook earned almost USD27billion in 2017 almost all from advertising.

Other platforms began in one form and have evolved to others. Amazon began as a retail outlet and Netflix as a movie subscription service. Both have evolved into content creators each with a huge, somewhat overlapping, customer/subscriber base.  Although some local competitors exist, it would be almost impossible for a new entrant to compete with either platform on a global scale. This is fast becoming detrimental to those who work in creative fields.

For digital platforms the economics tend towards a “winner takes all” outcome, that is we end up with a single monopolistic player in each type of platform that evolves. This is because even if there’s room for several players in a market, ride-sharing for example, a platform can outspend –  or outsmart – competitors to acquire all the suppliers or all the customers. Once it has all the players on one side of the transaction it’s almost guaranteed acquisition of all those on the other side.

Stakeholder management theory says that a company must balance the interests of employees, customers and investors otherwise business model not sustainable, but in the case of platforms there is an imbalance of power allowing them to focus on the interests of investors, particularly prior to IPO when they must satisfy the demands of the Venture Capitalists. It’s taken new regulation to protect the interests of consumers, employees and others affected by the platform’s success.

The gig economy is good for business, it’s not so good for workers.

Right now I could order dinner to be delivered to me via Thuisbezorgd (the local incumbant), Foodora, Hungry, Deliveroo or Uber Eats. I predict that in one year’s time there will be just one platform.

Image: Lost in the Gig Economy?  | Tankesmedjan Futurion  |  BY-NC-SA 2.0 

 

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