There is some recent backlash in the continued success of platform or marketplace companies (i.e., Uber, AirBnb, Instacart, Handy, etc.) that rely on people to provide services. It is important to note that people that join marketplaces do so as contractors, they are not employees.
The people are free to come and go as they please (and most companies do not report the delinquency rate), so it is an interesting topic to understand. How do companies treat the people that represent their brand?
For good or bad, marketplaces scale on technology. Uber creates a platform to connect drivers with riders, but the drivers are the face of Uber. The drivers are the touchpoint and represent the brand to its users.
So how should marketplace companies treat them?
From the WSJ’s On-Demand Workers: We are Not Robots:
Current and former workers for Uber, Amazon Inc.’s Mechanical Turk and Handybook, better known as Handy, say on-demand work platforms give them little control over the terms of their labor, and complain that the contracts they’re required to accept force them to shoulder personal and financial risk without the returns or advantages they’d hoped for.
The article describes a few pending class-action law suits, which relate to compensation, which is not at a minimum-wage level (and this is likely debateable in court as the marketplace companies produce average wages above minimum wage).
They are the lead plaintiffs in a class-action suit that alleges Handy’s workers should be covered by minimum-wage rules and other employee protections because they lack the control over their work that characterizes a true freelancer.
The freelance (or 1099) economy cuts both ways. Marketplaces, such as AirBnb, Uber, Handy, etc. present opportunities for employment for people. In certain circumstances, people have been displaced from the traditional job market or other circumstances, people prefer freedom to work their own hours to take care of their family.
People join for flexibility and then realize the headline numbers related to hourly wages do not necessarily materialize. It is a conundrum where platforms need to recruit talent to provide services to clients, simply supply and demand. However, the actual people involved feel slighted with corporate decisions, such as fee reductions that take place at Uber.
From an UberDriverMiami blog post titled Dear Travis, the Uber numbers do not equate to real life (bold added).
Even if I believe an UberX $20/hour in fares as noted on the craigslist ads, (I don’t) and let’s say that is based on 2 rides an hour (the precedent set by the Chicago example as justification for the drop). At 25 MPH, a very high average speed for this type of driving, it would yield 2 rides averaging 6 miles and 14.4 minutes in length each. Averaging near 50% occupancy rate is incredibly high in this business, but I’ll continue with their example: From the $20/hr: $2.00 goes to Uber on the Trust and Safety Fee. $3.60 goes to Uber on their commission. That leaves $14.40 in Revenue and you might be feeling good about that. But that’s up to $10.08 in Expenses ($.56/mile and dead miles to revenue miles 1:2) Just $4.32/hour in INCOME is left at their inflated fares example. Meanwhile Uber collected $5.60. At the end of the day, you are just trading the equity in the car for some upfront cash.
As noted, the expense number ($0.56/mile) is supplied by the IRS, anyone that has used their car for work knows may or may not be the actual expense. It is probably good to note, wear and tear as a “taxi” differs greatly from a 100 mile trip on the highway. Ultimately, the expense number passes the smell test to derive the net income for an Uber driver.
However, on-demand talent continues to grow. Earlier, we posted about Enjoy (and were well off in our assumption on their business model), which seemingly aims to create an on-demand Genius Bar.
Another company, Hello Tech, aims to provide on-demand tech support (as noted a $21 billion market) service aimed at “parents.”. Richard Wolpert, a successful entrepreneur and VC, indicated the excitement for the service from investors.
“These are homeowners with disposable income who don’t how how to get through the newest digital security service or latest update [to their other products],” says Wolpert. “It’s much more than, “Let us catch that virus.” He adds with a laugh: “Most investors we pitched said, ‘I would buy this for my parents so I don’t have to do this anymore.’”
Even within these examples, we have possibly identified another aspect of the bifurcated economy. Blue and white collar jobs are now shifting to the marketplace. If Hello Tech provides experts to serve customers with “disposable income” or upper-middle to upper class, than they can afford to compensate workers with higher wages. The same customers may be more inclined to take UberBlack over UberX, where the drivers are very hush regarding compensation. The people that enter the freelance economy for survival take lower paying jobs, so education and training may play a part. If you are not qualified for “high paying” freelance work, then you’ll take “low paying” freelance work. Does the question still relate to how to train people for the 21st economy?
As the story evolves, then there are two additional items to note. The rise of insurance and back-office solutions for freelancers, which could help solve some problems.
The second item is the absence of AirBnb from any discussion of how they treat freelancers. This is totally a good thing as AirBnb constantly promotes the culture of inclusion and community. It delves into the Mean People Suck argument. It is interesting how most reports relate to mistreatment by Uber, but not Lyft (however, the compensation is generally the same).