Some four years ago, a smartphone-based app, Yerdle, meant for swapping or exchanging commodities, was created by two Americans with an ambition to reduce the number of new things that one buys by 25 per cent. Andy Ruben, former head of sustainability at Walmart and co-founder Adam Werback, formerly from Saatchi and Saatchi, came up with a solution to the problem of overstuffing in ones' homes or wardrobes with items that are used perhaps not more than once a month, thereby attempting to reduce the society's overall environmental footprint.
These things may be needed by another user from a household in a different or neighbourhood locality. Yerdle offered low-cost, flat-rate shipping to anywhere in the US. Based on the circular economy model, the pay-it-forward principle or direct trading (rather than buying) allowed users to get credits and use them for their next exchange.
Many similar online marketplaces have emerged in the past few years. In commercial and other aspects, the benefits of sharing economy are well-established and are being experienced by the new set of experimental consumers.
It is economical, environmental friendly, time efficient and convenient for consumers to use shared resources, optimising the point of access, sale, delivery and consumption. Software-as-a-Service (Saas), and more lately Platform-as-a-Service (PaaS), are driving major technology innovations, especially in new online marketplace sectors, the growth of which is beguiling the likes of investors, entrepreneurs and economists.
Lately, capital has become scarce or prudent, unlike in the previous era when it was easy to get it without too many difficult questions being posed by the discerning performance-focused investors. Since last year, hedge funds have slowed down.
The number of deals seems to be stable but the value has gone down drastically from $400 mn at the start of the year to $100 mn towards the end of 2015. The pattern has also remained overtly erratic. Pressure can be felt and every penny is worth a thousand dime for start-ups burning cash for promotions, operations and employees. Deal cycles have been delayed from two months earlier to six months and more. Investors are eagerly seeking consolidation and hiring has almost stalled in most start-ups.
These marketplaces, driven by passionate founders and strategic innovators with disruptive ideas, are funded under a lot of vigilance. The ideas chosen must exhibit sustainable capabilities and profitability in a reasonable time frame. Hence, while technology remains an enabler and multiplier, bringing down operational costs is the core of a business idea. While at one hand, technology is ensuring greater product utilisation and optimal delivery, on the other hand, intermediate jobs are reducing.
These sharing platforms are creating a new category of working class where there are no fixed income assurances, health insurance, gratuity and other forms of traditional benefits. This is a category of independent contractors or the collarless workers.
The challenge faced today by most of the fast growing companies is that the roles and nature of the workers are changing too dynamically. There were blue, black, white and pink collared jobs. Now, the trend has one 'collarless'. It is the start-up trend, the deemed future or the next avatar of workers what the consecutive levels of leadership will have to manage and contain along with the tides cultural change brings along in the next-gen corporates.
According to the findings of Aspen Institute's Workforce of the Future Survey, 45 million Americans, or 22 per cent of the adult population, have worked or offered services in the 'On-Demand' Economy, while 86.5 million, or 42 per cent of the adult population, has used at least one On-Demand Economy service. It mentions that almost 56 per cent employers prefer full time employees to accommodate ebbs and work volumes and consider contract workers as less loyal or invested. However, 90 per cent employers cite that independent contractors are hired for flexibility or for their specific skills when need arises, while 86 per cent say the arrangement is saving them a lot of cost in terms of taxes and benefits.
While the survey seems to picture how companies in America observe the blend, there are evidences to prove that hiring independent or collarless workers is necessary if the core business idea revolves around gig jobs. While gig jobs typically supplement incomes rather than replace full time work, start-ups like Uber and Airbnb and their replicas have become synonymous with gig or on-demand economy.
They do not own fleets of cars or rooms or buildings, they own and run a technology-based concept to leverage the existing resource pool. Some argue that sharing economy is not competing fairly and is threatening companies and jobs in the formal economy by skirting the laws around taxes and regulations. It may be beneficial for entrepreneurs big and small to generate income but it is not providing a guaranteed revenue stream or traditional benefits.
Uber, the San Francisco ride-hailing company built its high valuation on a system that uses moonlighting cabbies or independent contractors, enabling the company to avoid covering driver expenses such as gas and maintenance, or extending benefits such as health insurance, social security, overtime or sick days.
Considering drivers as employees would have bitten into its margins and slowed its global expansion and raised fares. Some drivers have felt that while Uber exerts control it does not take responsibility of workers from whom it profits. Also, taxes paid by taxi companies are not always paid by those using car sharing.
The company, currently valued at over $62.5 billion, recently announced its agreement to pay for a settlement bringing to a close what industry experts believed was the biggest threat to the fast-growing start-up. Uber agreed to disburse an initial sum of $84 million to settle cases in California and Massachusetts to some 385,000 drivers. Uber also agreed to pay drivers an additional $16 million if the company's valuation reaches 1.5 times its current value after it goes public or if it gets bought.
The company also approved policy changes that reduce its control over drivers. Drivers will now receive warnings and have an opportunity to correct any issues before they are deactivated from the service. Uber will create appeal panels so drivers can contest terminations or pays.
If drivers are unhappy with the result of their appeals, they can bring their claim to an arbitrator at Uber's expense. While it will not add a tipping feature to its app unlike Lyft, drivers will be permitted to solicit tips from passengers, which were strictly prohibited earlier. Similarly, Lyft agreed to settle a class-action lawsuit with drivers for $12.25 million but the federal judge rejected this as it was only 9 per cent of the total claim. Both sides have gone back to the drawing board.
Landmark decisions in above cases are changing the future course of this new category of employees.
The concerns about the collarless workforce are short-term tradeoffs that will be worked out as the collarless economy matures. Governments in particular would be short sighted to respond only to the contributions and tax revenues from these industries.
Sharing platforms are in formative years of their growth; they should compete on a level-playing field and ensure compliance with regulation and tax codes. While there can be no ban on innovations or ignoring these changes in the way businesses are done, people in the sharing economy like drivers, home stay hosts, equipment owners and artisans all need to pay their taxes and play by the rules.
And national or local authorities must ensure that. Society at large, including businesses and policymakers, must ensure that regulations and business ethics keep a check on working conditions.
The assets from balance sheets and costs from income statements have been removed, unlocking the unparallel potential of profitability per transaction. Decentralisation is proving powerful for the bottom line in marketplaces. The newly unlocked economics must be shared and split equitably with the three elements of the system - company, worker and customer. Transparency and foresight is what will contribute to the success of all involved in the system.
The writer is a Management Thinker & Philosopher, a Mentor and a Strategy Consultant, an Academician and a Veteran in consumer durables and retail. He was formerly associated with LG Electronics as its COO and Director. He is also a member on boards of banks and a few other business houses across various industry verticals and consults them on plans and policies. He is a PHD in organisational behaviour from IIT-Kharagpur. He can be reached at firstname.lastname@example.org