The Sharing Economy Is Still In Beta

Rachel Botsman, Founder of Collaborative Lab, explains how increased collaboration between consumers and start-ups is upending business as we know it. — by Cognizant Technology Solutions

On-demand. 1099. matching. sharing. collaborative consumption.

These are all ways we refer to the Sharing Economy, a rapidly growing class of services that enable peer-to-peer sharing of resources by leveraging digital matching services. Notable examples include Uber and Lyft for transportation, AirBnB for rental housing, Handy for domestic services, and TaskRabbit for errands. While not an exhaustive list, these companies highlight the rapid expansion and consumer appetite that exists globally for on-demand services. Uber expects a 141% increase in bookings in 2016. AirBnB booked 17 million rentals in summer 2015 alone, a 353x increase from 2010. This is certainly indicative of a bright future for the venture-funded unicorns that keep appearing in the space.

This new economy was founded on the principles of increased access to services, waste mitigation, and risk distribution. While access to services has improved, the risk of participating in the sharing economy is held almost entirely by individual service providers. This has sparked a lively debate about whether higher wages and job flexibility are worth the tradeoffs workers must make in order to participate in on-demand services. The debate continues, but it misses the point: the new economy is here to stay, but without significant innovation it will fail to live up to its promise as a sustainable force for good.

Despite all appearances, the sharing economy is still in beta.

I’ve been very critical of the sharing economy due to the false choice presented to business owners. TechCrunch recently ran an article about some emergent behaviors of on-demand workers that highlights just how bad a fit sharing economy businesses can be for the micro-entrepreneurs they claim to serve, especially those who excel at the work they do. In particular, friction is felt by business owners who excel at their jobs but are unable to negotiate higher wages or retain clientele and still remain under the umbrella of the matching service itself. A significant percentage of these workers opt out of the sharing economy entirely. These observations are symptoms of a fledgling industry struggling to reclassify disenfranchised populations while maintaining triple-digit growth rates and closing billion-dollar venture rounds. It’s easy to blame this on a lack of empathy on the part of investors and tech founders, but it’s important to recognize that they are simply repeating a pattern.

Traditional workers under either the W2 or 1099 classification have defined benefits and responsibilities under the law, whereas on-demand workers fall somewhere in the middle. The scrutiny over classification is ongoing, but again misses the point: the United States relies on employers to provide benefits to employees, including but not limited to healthcare, unemployment insurance, and professional development, and on-demand workers are not employees. They’re also not strictly contractors, and are held to higher standards. By not adhering to this classification, on-demand companies are exempt from providing any benefits. At the same time, their business model involves wiping out the competition, so few viable alternatives exist for workers. And while many workers would prefer to be W2 employees, many others prefer to stay freelancers for the sake of flexibility. There’s no winning formula, but workers ultimately lose. The results are known: on-demand workers face wage stagnation, low health insurance adoption, dis-intermediation from clientele, and a leaky marketplace that sheds the best workers who prefer to build their own brands.

Workers ultimately carry the burden of the dispute over their own classification.

In order to reach sustainability, the sharing economy must recognize how fragile it is when its workers are vulnerable. The on-demand sector is unique in how essential it becomes to those who participate in it, and tying the livelihood of hundreds of thousands of workers to the whims of a handful of VCs and co-founders is lopsided at best. At worst, it’s a recipe for marketplace collapse. To be fully viable, on-demand services must have the resources to provide support and peace of mind to their workers. Where this support comes from is up for debate, but we can make the assumption now that it will not come from the government. Social reform is slow and the fight over Obamacare illustrates how opposed our representatives are to providing social services for Americans.

Private companies have an opportunity to provide social services to on-demand workers.

Rather than despair, the need for worker support should strike entrepreneurs as an amazing greenfield opportunity. There are two main plays:

1. Provide support services to sharing economy workers: Healthcare companies like Oscar have already capitalized on the democratization of health insurance, and Breeze has made it simple for transportation workers to rent vehicles. There’s huge opportunities to build companies around other services workers need, including childcare, career advancement, education, and EAP-style concierge centers.
2. Alternatives to the Sharing Economy: There are multiple approaches to creating an opt-out alternative to the sharing economy, and the leakiness of the on-demand marketplace makes it ripe for disruption. Providing an alternative for workers dissatisfied with wages or exposure to customers is an effective way to create more value in the small business space. My own startup Populace does this by focusing on neighborhood service businesses businesses that have yet to be touched by the sharing economy. We provide them with tools to build a brand and stay connected to their clientele so they can focus on delivering great services that in turn increase their earnings.

My own path and passion led me to start Populace, which strives to be a viable alternative to participating in the gig economy. We believe that an ecosystem that works for the individual service provider and scales for the entire vertical is a significant improvement to a consumer-first approach. We leverage the existing neighborhood cohesion that exists between businesses and their communities to keep services independent and wages high while offering the same level of convenience you get as a consumer from an on-demand service. It’s what we need most as a society and exists squarely in the space between the sharing economy and the dis-intermediated business owner. But the sharing economy is here to stay, and bringing it out of beta will require many more hands on deck. As the ubiquity of these services increases it becomes more important for entrepreneurs to be tackling problems related to workers, not just to scaling the services themselves. Para-sharing services are the next big land grab: provide support for workers and the market will continue to expand. Ignore the problem and we all suffer the consequences.

Sam Gimbel is Co-Founder at Clark, an operational assistant for tutors. He lives in Brooklyn and yes, he takes Uber on a regular basis.