The Gig Companies That Are Trying to Hustle Wall Street…
…while the real entrepreneurs are hustling for you
The promise of the gig economy was huge. For consumers, any item or service you could imagine, delivered at the tap of a finger. It seems like everything has been gig-ified: groceries, beer, laundry, taxi rides, dog walking, and even cannabis. For gig workers, the promise was equally compelling. Be your own boss, work whenever you want, and make lots of extra income with your side hustle. For some, they did so well that their side hustle turned into a full-time job, replacing long commutes and cubicles with the freedoms offered by an entirely new way to work.
Subsidizing a Broken Model
Gig startups have raised over $30 billion of venture capital in recent years, based on these attractive propositions. These funds allowed companies to subsidize the free rides and $100-off delivery coupons that overflow our mailboxes daily, not to mention the plush referral programs and milestone-based bonuses for workers. As you can imagine, customers and workers alike flocked by the millions consuming cheap services and signing up to work for gig companies.
However, like many things in Silicon Valley, the hype doesn’t always live up to the promise. The gig economy is now floundering, failing to deliver on its lofty promises. We see this story told again and again in recent headlines:
Technology Disruption Is Hard, Labor Arbitrage Is Easy
The core problem is that most gig companies aren’t traditional tech companies slinging their disruptive technology that’s 10X better and scales to near zero marginal cost — the standard Silicon Valley playbook. The technology hasn’t changed the fundamental cost structure, based on human labor to deliver the service. Instead, gig companies have hustled their way into a new business model by dramatically shifting their labor costs to their workers, by creatively classifying them as independent contractors rather than employees. The result is that consumers enjoy the convenience of a professional shopper filling their fridges with fresh groceries for the bargain price of $3.99. Meanwhile, the person doing the work bears much of the cost and gets only a small slice of the profits. Disruptive? Perhaps…but not in a good way.
As a business, why pay for managing your commercial fleet, business and car insurance, gas, vehicle maintenance, or even mobile data plans when you can just have your workers pay instead? Rather, gig companies set compensation for each task, based on supply and demand at a particular moment in time. By hiring independent contractors, they skirt minimum wage laws and pay only the price floor that the local market supports. Since the independent contractors aren’t employees, benefits and time off are no longer a corporate expense to worry about. There’s no fancy technology involved to make that happen, just old-fashioned exploitation.
Further, gig companies only pay workers while they’re actively working a specific task. Their worker classification scheme allows them to avoid paying workers for idle time waiting for the next order. For example, the cost of driving to a more attractive location is borne by workers, even when their apps incessantly beckon them to move to more lucrative areas.
The Cost of “Playing” in Today’s Gig Economy
Gamification is another practice gig companies use to hustle their workers. In many cases, they use a figurative stick within their apps to manipulate workers to accept unprofitable tasks. Always-on location tracking allows the gig company to micromanage the entire transaction flow, then terminate anyone that falls outside of the algorithms’ tolerance. Instacart, for example, sends shoppers new orders with only one button to “Accept.” This is followed by a 4-minute beep without any option to silence or decline the order. Some shoppers say they “Accept” just to make the sound stop. How’s that for messing with your mind? If you too want to experience this mind-numbing sound, you can try it here.
The hustling by the gig companies is only getting worse. With the first generation of gig companies standing in line for IPOs, including Instacart, Postmates, and DoorDash, they’re looking to put some lipstick on their financial statements. Wall Street is comfortable slinging shares for disruptive tech companies, though not so much for labor arbitrage schemes. Heck, Uber is still claiming that it isn’t a transportation company, just a mobility marketplace. As gig companies look for further ways to drive down costs and transfer costs to their workers, expect to see many more sad headlines about gig companies hustling their workers in new and more exploitative ways.
