Supply-Side Challenges Of The On-Demand Economy

Editor’s note: Mike Dudas is co-founder and Chief Revenue Officer at Button, the VIP customer acquisition and retention platform for the on-demand economy. He formerly headed up mobile business dev at Braintree/Venmo and merchant partnerships at Google Wallet. 

As the on-demand and sharing economy grows at a feverish pace, led by companies such as Uber, Airbnb, Postmates, Instacart and Homejoy, worker rights have become one of the focal points of the most prominent technology trends in recent history. The companies in the blossoming on-demand and sharing economy cumulatively employ hundreds of thousands of workers directly and indirectly. These workers ensure that consumers receive the goods and services that they demand with the highest quality and immediacy. The increasingly massive scale of workers in this new economy has led to a bright spotlight being cast on how these companies treat workers.

The many viewpoints on worker issues in the on-demand + sharing economy recently led founders and senior executives to raise this as one of the most pressing topics during an industry event hosted this month by The On-Demand Economy. In August, The New York Times highlighted that working in the on-demand economy can create both “freedom and uncertainty.” The Boston Globe reported that there is a growing rift over how these workers are classified.

And The Washington Post made the case that “workers pay a price for convenience.” Here we explore some of the systemic factors that have led to a surplus of non-permanent workers, review how on-demand and sharing economy companies offer opportunity to these workers and offer suggestions for how these companies can better serve and empower their non-corporate work forces moving forward.


Source: The On-Demand Economy

Having been teetering on the edge of financial collapse just five years ago, businesses have been slow to re-assume their old employment practices in lieu of greater operational flexibility. As a result, Pro Publica reports that these workers are now considered “the expendables.”

The end result is longer-term unemployment and an ever-increasing employment gap. In 2012, average unemployment reached 39.5 weeks, the highest level since WWII, while the spread in employment rate between households earning more than $150K (73.5 percent) and those earning less than $20K (33.8 percent) reached its highest level (39.7 percent gap) since tracking began just over a decade ago.

So we find ourselves in an environment in which large American corporations are increasingly hostile to the bulk of workers at the same time that un- and under-employment rates are high, unemployment is lasting longer and benefits are drying up.

This has created an opportunity for new platforms and companies to help the American worker by creating primary and secondary employment and income options and rebalancing how value creation is distributed. These platforms have a unique opportunity to help the American worker by reorganizing existing industry and labor market structures to create an environment of shared value between companies, workers and customers.

This process of reorganization and re-imagination has begun in earnest, largely fueled by our increasingly connected and transparent lifestyles. We live in a networked world where it is safer and easier to transact than ever before (internet penetration above 80 percent, smartphone penetration at 62 percent, increase in consumer trust in transacting online, improved transaction infrastructure, etc.).

These advances have led to a reorganization of industries and the labor market through the advent of online and mobile marketplaces, which are heralding the rise of the marketplace-driven “on-demand”/“sharing” economy. As Andreessen Horowitz partner Jeff Jordan said recently: “The whole employment relationship between the U.S. worker and employers has changed and there are a lot of people looking for decent paying jobs. You have a bunch of potential people who want to earn money all with mobile phones.”

A sampling of the industries that have been changed to date by these marketplaces includes retail, hospitality and transportation: individuals can create shops and sell to a global customer base via eBay or Amazon Marketplace; craftspeople can now sell to a global, rather than local, customer base via Etsy; every apartment or home can now be a “hotel” via Airbnb; private drivers and on-demand rides are available to all at reasonable prices via Uber.

These new technology-driven marketplaces don’t merely enable or facilitate new processes of production, delivery or organization, but fundamentally redefine industry size, scope and participation. They increase the pool of potential service providers and sellers by leveraging networked technology to change how market participants engage in a specific transaction.

In the labor market specifically, workers are no longer tied to one company and can provide services directly on a project basis. Some have termed this the “gig economy” or freelance economy”. Approximately 1 in 3 Americans (42 million) are estimated to be freelancers, with the number expected to continue to increase amid increasing societal acceptance and redefinition of “success.” Companies such as oDesk, Elance and 99designs provide marketplaces for professional freelance work, while any individual can generate income by completing tasks or jobs for a fee via TaskRabbit or Fiverr. Additionally, marketplace models provide incentives for high quality work with ratings and feedback systems that improve the system for all participants.

These new trends are impacting a rapidly growing portion of the population, causing investment funds to flow from top VC firms such as Greylock, who dedicated an entire $100 million fund to marketplaces. This ramp up phase in marketplace creation and investment makes it a great time to focus on re-shaping impacted industries and the labor market at large to create an environment much friendlier to workers, individual suppliers and service providers than that which we have today.

Uber, one of the largest of the new marketplaces, took a step in this direction by offering preferential auto loan rates to drivers in a program they touted as “Financing 10,000 Entrepreneurs”. This program is laudable, but it only goes halfway, as the preferential rate is tied to the driver remaining employed with Uber to maintain the preferred loan rate.

Opportunities exist to extend the personal equity that is generated from a single marketplace, employer or gig into a verifiable transferable asset. This equity appreciates based on performance data that market participants create while providing goods or services within a variety of marketplaces. Taking the form of ratings and reviews, completed works, photos, income reports, etc. This data is at the core of systems that marketplaces use to establish trust today, for the benefit of all participants; eBay, Etsy, Uber, Airbnb and many others track service provider and seller ratings in order to increase confidence in their platforms and spur usage.

While this data benefits all market participants in the short term, it generally fails to benefit service providers in the long term. The next step would be to allow marketplace service providers to take their data (ratings, reviews, pictures, income statements, etc.) with them. We refer to this flexible approach to building long term worker reputational equity as employee data portability, and it allows service providers to truly become their own managers.

Employee data portability would empower workers, arming them with a valuable data-driven tool for advancement and future employment. It would benefit the marketplaces through more motivated employees building a resume of verified employee records and ease on-boarding for marketplaces and service providers. If standardized, this data could provide an accurate measure of reliability, speed, demeanor, quality, communication and many other factors that are predictors of great marketplace providers. But this standardization will not come easily or without the support of key ecosystem employers.

For employee data portability to take off, the largest marketplaces must be the first to put the best interests of consumers and service providers at the forefront. While this may be a foreign concept to most large corporations, it is one that on-demand and sharing economy businesses have consistently made good upon. As we move toward an employment environment with higher rates of long term employment, fewer government benefits for the unemployed and shorter job tenures, it makes sense to ensure that we remove as much friction as possible from the labor market.

Let’s give workers the data that will allow them to build a brand, professional identity and trust/credibility rating that is transferrable across employers and easily recognizable to customers. We will all benefit from removing friction and improving visibility in the dynamic, increasingly global labor market.

Special thanks to The On-Demand Economy, Tanner Hackett and Mike Jaconi for contributing to this piece.