On-demand economy - a worker’s eye view

The Economist recently wrote an authoritative exploration of the On-demand economy. We wanted to note some thoughts on the impact and consequences for workers in the sector.

The Economist recently wrote an authoritative exploration of the On-demand economy. We wanted to note some thoughts on the impact and consequences for workers in the sector.

While the growth has been astonishing, we are cautious on the long-term impact for workers in the on-demand economy. The short-term benefits are clear - higher utilisation and automated payment, but, longer term, we suspect the market equilibrium may set in a place not that much better for workers than today, and possibly worse - if it means similar levels of income, but more work.

In these businesses, the flow seems to go: higher convenience brings more clients, which increases utilisation, which reduces prices, which drives further demand.

What also happens is that more workers enter the market, increasing competition for jobs within on-demand firms, while the number of such firms also increases.

Balancing supply and demand, and wishes of clients and workers is possibly the hardest part of running these businesses, and sometimes it seems like trying to balance a pencil, on water.

After New Years, we saw this tweet:

Uber found supply-demand equilibrium on NYE, and drivers aren’t happy. http://t.co/E38cOSYbQn

— Kevin Roose (@kevinroose)

January 2, 2015

Isn’t that an oxymoron? If drivers aren’t happy doesn’t that mean equilibrium wasn’t actually found?

Since it first started to take off, the negative case on Uber has often referred to Groupon. Only a few years ago, the world was gripped with the marvel of social / group buying, dramatically increasing local businesses’ utilisation, creating a dramatic win-win scenario. What happened? Groupon clones sprang up like mushrooms, customers swarmed like locusts, but in the long-run most businesses found the impact negative. They had ceded control to an intermediary. The intermediary became a churn & burn sales operation (granted, a sizeable one which today generates $750m in quarterly revenue, although not profitably). What was heralded as a transformational boost for the little guy ended up being anything but. For the outcomes of workers in the on-demand economy, we suspect the same will happen.

What’s unchanged is that these jobs offer no inherent progression. There is no “Senior Partner” at Uber (Uber drivers are called “Partners”) nor a Cleaning Director at Handy. If you drive for Uber or clean for Handy, then that’s your station, until you yourself figure out something else.

As the Economist pointed out:

“The on-demand economy will inevitably exacerbate the trend towards enforced self-reliance that has been gathering pace since the 1970s. Workers who want to progress will have to keep their formal skills up to date, rather than relying on the firm to train them (or to push them up the ladder regardless).

Now, that is also true if you work for a local taxi company or clean houses for people found on Craigslist, and that’s key - this isn’t ultimately that different - the improvements here for the worker in the long-run are incremental, not transformational, and possibly erode rather than increase, due to competition.

Meanwhile, looking briefly at the prospect of working for one of these companies in the corporate office, without doubt the growth has been astonishing. In each category (rides, cleaners, meals, etc.) there is every chance of 1-2 winners creating very nice exits for founders and the earliest / most senior employees. Uber is a profound outlier and will create 2-3 thousand millionaires when it goes public. But the key concern is competition. As the Economist pointed out: "barriers to entry are low and bonds of loyalty are non existent.” In 2010 an app that showed your car driving towards you on a map was revolutionary. In 2015, you can code one in a week from parts found on GitHub, and within a year or two, every Car-for-hire in the world will use one. So picking one of these companies to work for should be about finding differentiators.

We think culture is the strongest one, and it would be amazing to find an on-demand service culture that baked worker protections and benefits deep into their business model. It seems like MyClean, who switched from using contract workers to using permanent staff (and found their ratings improved) may be an example of that. Are there others?

We’ll be keeping a close eye on the sector, and highlighting interesting companies we find.

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