The past few years have seen the rise of what’s been variously referred to as the on-demand, collaborative, sharing, or peer-to-peer economy. Regardless of what we call it, this trend has captured the public’s imagination. Articles on the subject now appear fairly frequently. Some of the articles are focused on the empowerment nature of these technology-based economic models, enabling people to get what they need from each other. Others are more concerned with on-demand’s impact on the very nature of work in the 21st century.
In an excellent 2013 report, industry analyst Jeremiah Owyang argues that the collaborative economy is the evolution of the Internet-based economy of the past two decades. The one-to-many Web 1.0 made lots of information accessible to individuals, but control remained mostly in the hands of institutions. It was followed by the many-to-many Web 2.0, where individuals could easily share content and opinions with each other. Now, the on-demand phase of the Internet economy is enabling individuals to go way beyond sharing information.
“An entire economy is emerging around the exchange of goods and services between individuals instead of from business to consumer,” wrote Owyang. “This is redefining market relationships between traditional sellers and buyers, expanding models of transaction and consumption, and impacting business models and ecosystems… This results in market efficiencies that bear new products, services, and business growth.”
In 2011, Time Magazine named the sharing economy one of 10 Ideas that Will Change the World. “Someday we'll look back on the 20th century and wonder why we owned so much stuff… [S]haring and renting more stuff means producing and wasting less stuff, which is good for the planet and even better for one’s self-image… But the real benefit of collaborative consumption turns out to be social. In an era when families are scattered and we may not know the people down the street, sharing things - even with strangers we’ve just met online - allows us to make meaningful connections.”
This early bloom has now started to fade. “If you want to start a fight in otherwise polite company, just declare that the sharing economy is the new feudalism, or else that it’s the future of work and all the serfs should just get used to it, already,” wrote a recent Wall Street Journal article. “Uber isn’t the Uber for rides - it’s the Uber for low-wage jobs,” note the critics. “Boosters of companies like Uber counter that they allow for relatively well-compensated work, on demand.”
A Financial Times article reflected on what it means to be running “a collaborative business model within a capitalist framework. Are the two even compatible? Or is there a fundamental conflict at the heart of an industry that preaches collaboration but, due to being radically commercialised by venture capital money from Silicon Valley, also needs to profiteer from the goodwill of others if it’s to remain viable? For the most part it’s a hypocrisy the community is trying to address… For now, the uncomfortable truth is that the sharing economy is a rent-extraction business of the highest middle-man order.”
This past May, OuiShare Fest, a three-day collaborative economy festival took place in Paris. There was much discussion that this emerging economy is now practically owned by Silicon Valley’s 1 percent. “The sharing economy has created 17 billion-dollar companies (and 10 unicorns),” said this article. In a keynote at the festival, Owyang noted that the VC money being poured into the sector already far outweighs the monies that flowed into social media at this stage of its development. “It’s worth noting that the early hope that this sharing market would foster altruism and a reduction of income inequality can now be refuted,” he said. “The one percent clearly own the sharing startups, which means this is continued capitalism - not idealistic socialism.”
Meanwhile, the on-demand economy continues to move forward. In market segment after market segment, ubiquitous communications and very low transaction costs continue to give rise to new firms which aim to efficiently bring together consumers and providers of goods and services with their highly scalable platforms and innovative applications. This new class of on-demand companies rely on a large freelance workforce instead of on a classic company workforce.
Is this good or bad for the world? Does this mean that we’re seeing the rise of a medieval-kind of feudalism, or simply the market’s invisible hand creating a new way for millions to find work? Should we bemoan the fact that some of these on demand startups have joined the ranks of billion-dollar unicorns, or should we just accept that this is the way capitalism has always worked and celebrate their innovative business models? Is this just another manifestation of the historical transition from an industrial to a digital economy?
Earlier this year, The Economist wrote that the rise of the on-demand economy will reshape the structure of companies and the nature of work. “In the early 20th century Henry Ford combined moving assembly lines with mass labour to make building cars much cheaper and quicker - thus turning the automobile from a rich man’s toy into transport for the masses. Today a growing group of entrepreneurs is striving to do the same to services, bringing together computer power with freelance workers to supply luxuries that were once reserved for the wealthy…”
“Ever since the 1970s the economy that Henry Ford helped create, with big firms and big trade unions, has withered. Manufacturing jobs have been automated out of existence or outsourced abroad, while big companies have abandoned lifetime employment. Some 53m American workers already work as freelances.” Fewer workers can now expect to have a long term, stable job with one company. Moreover, many younger workers don’t necessarily aspire to long careers with one company anyway, preferring to be self-employed for at least part of their working lives.
Regardless of whether we like it or not, is this trend inevitable? Yes, argued a recent NY Times article, observing that the Uberization of the economy “is not so much a labor-market innovation as the culmination of a generation-long trend. Even before the founding of the company in 2009, the United States economy was rapidly becoming an Uber economy writ large, with tens of millions of Americans involved in some form of freelancing, contracting, temping or outsourcing.”
With growth slowing down back in the 1970s, companies looked to become more flexible and productive by focusing on their key core competencies and outsourcing those tasks for which they had little expertise or that were not particularly profitable or strategic. The advent of the Internet in the 1990s accelerated these transformations, enabling companies to employ fewer full-time workers, relying instead on global partners and individual providers for a large portion of the work they once did in-house, inevitably leading to a more fragmented workforce. Finding a job is not what it used to be.
How should society respond? While it’s too early to tell, a number of ideas are being batted around. The aforementioned WSJ article offers an intriguing suggestions. “Drivers for Uber and Lyft, mostly part-time, seemingly OK with the wages they’re getting on account of the flexibility with which they can earn those wages, are quite obviously neither employees nor freelancers. Like Schrödinger’s cat, neither alive nor dead, they confound conventional definitions.”
“The only way forward is something that has gotten far too little attention, called dependent contractors. In contrast with independent contractors, dependent contractors work for a single firm with considerable control over their work - as in, Lyft or Uber or Postmates or Instacart or any of a hundred other companies like them. This category doesn’t exist in current U.S. law, but it does exist in countries such as Germany, where dependent contractors get more protections than freelancers but are still distinct from full-time employees.”
The FT article offers another interesting suggestion based on a very old idea. A major concern with on-demand companies is that a number might achieve monopoly status, trapping their freelance workers into a kind of digital serfdom because their all-important digital reputation is only associated with the platform of a specific on-demand company.
Instead, freelance workers should have fully portable digital credentials and reputations. “How else can you take your reputation and your accumulated credit with you to another territory or platform without having to start again? How can you ensure freedom and preserve your reputation if every time you change your mind about where you want to engage in bartering or sharing online you’re going to have to start with a zero reputation score?… ”
“Medieval guilds were bands of professionals and trades people, cross verified and authenticated by their own community, but who were also free to work wherever they pleased because their credentials and reputation travelled with them… Now imagine if Uber drivers and AirBnB hosts instead of depending on the reputations and data history earned on, and owned by, specific platforms could be cross-verified by independent third parties who would then vouch for them. Now imagine if users could have their reputations verified the same way. Would that help disrupt the monopolies and empower independent agents? Or would we simply end up transferring power to the vouching agents instead?”
“What sort of world will this on-demand model create?,” asks The Economist. “Pessimists worry that everyone will be reduced to the status of 19th-century dockers crowded on the quayside at dawn waiting to be hired by a contractor. Boosters maintain that it will usher in a world where everybody can control their own lives, doing the work they want when they want it. Both camps need to remember that the on-demand economy is not introducing the serpent of casual labour into the garden of full employment: it is exploiting an already casualised workforce in ways that will ameliorate some problems even as they aggravate others.”
All in all, I share Jeremiah Owyang’s optimistic point of view. “[C]apitalism will find a solution to much of the dichotomy at the heart of the space. With time… competition will force companies to improve on worker and user rights. And it’s unclear for how long being an asset-light operation will remain an advantage, especially if and when incumbents step up their game.”