Can the sharing economy shift from networked monopolies to co-operatives?

Profile picture for user ddpreez By Derek du Preez September 15, 2016
Summary:
The sharing economy in its current form has arguably created the next generation of corporate monopolies. However, is there room for a new breed of networks?

Uber-Taxi
Uber is the poster-child for the sharing economy

When the sharing economy began to emerge, many had high hopes for its ability to democratise the economy somewhat. Instead of relying on big business to supply us with goods and services, we the people would be able to share and trade our under utilised resources and assets with each other.

However, as the sharing economy has grown, it has been become clear that those winning out are a select few platforms that have huge VC backing and are aggressively trying to win big in all global markets - e.g. Uber and Airbnb.

That’s not to say that these platforms haven’t been somewhat beneficial to the people sharing on them. The sharing economy is nuanced and there are plenty examples of people being able to make the bit of extra money they need every month by driving around their car or renting out a room in their property.

But that doesn’t detract from the fact that the main beneficiaries are the platforms themselves, the ones the monopolise the market.

At a Westminster eForum Keynote Seminar this week in London, which focused on the growth of the sharing economy, one of the most interesting conversations that emerged was around the idea of whether we could shift these networks from being monopolies to becoming co-operatives (in the same vein as the John Lewis model, whereby employees own a stake in the company).

This idea is interesting because as some of these networks of grown, those trading on the platform have seen their returns diminish. For example, you only have to look at the court cases involving Uber and the striking of Deliveroo workers to see some are beginning to think that they aren’t getting a fair deal.

Brhmie Balaram, Senior Researcher at the RSA, raised this topic and explained why we have begun to see this growing tension in the market. She said:

In a traditional economy the value is actually created by the products or services, as opposed to the network. The value is derived independently from the interaction. Whereas the sharing economy, the value is created by the users themselves. Consumers and workers sharing under-utilised assets or human resource as part of an online network.

There is a risk here - network effects. With some of these platforms there is this potential that they could become networked monopolies. Also, along these lines, there is a risk that as some of these platforms scale that they begin to lose some of their social values, they become a bit more commercial.

It begins with this budding network effect, which is created by the users connecting to one another through an online platform. Then there’s growing network utility, so as the network grows so does its usefulness for its users and it’s overall value for the platform provider. When it gets to a full fledged network monopoly, the network is ground to a point where other platforms could compete, but it’s difficult for them to offer users the same levels of utility without offering the same size of the network effect.

Implications

In other words, once these networks reach a critical mass, it’s very difficult for others to enter the market. Social media networks are the same. Why don’t we see more social networks than we do currently? Because the likes of Facebook and Twitter have reached a critical mass that is hard to compete with.

However, Balaram highlighted that this can have implications down the line. For example, once these platforms have become monopoly networks, they have the ability to crowdsource that power and mobilise their users.

For example, we have seen examples whereby Airbnb and Uber have been able to communicate with users on their platforms and significantly influence the outcome of proposed regulation (in their favour). This was true of Proposition F in San Francisco with Airbnb, which aimed to regulate short term lettings, and for Uber in London, where Transport for London was trying to regulate vehicles for private hire.

Balaram said:

I bring this up not because the RSA thinks networked monopolies are inherently bad or that these platforms are problematic, it’s really just to recognise that we should be mindful of market concentrations. And the fact that we should be thinking about how the market skew related factors, such as finance and investment.

We really need to be thinking about do we want to be creating companies that can exercise such dominance in the market? And I think that first we have to be a little bit mindful about what’s good for society, making sure that these platforms are creating good conditions for these workers, for example.

The employee problem

One of the advantages of the sharing economy - from the platform’s perspective - is that it doesn’t actually have to employee anyone for its main purposes (beyond running the platform itself). For example, Uber doesn’t own any cars or have any drivers on its books.

This has been disputed - and continues to be disputed - in the courts. The likes of Uber get to enjoy all the benefits without having to deal with all the challenges that come with employing thousands of people. But some are beginning to challenge this view, as they believe that current employment laws mean that the likes of Uber should be providing certain benefits to their users (which would be bad news for Uber).

people-on-jigsaw-puzzle
This is becoming more of a problem as those engaging in the sharing economy are beginning to see their returns diminish, as more ‘workers’ flood to use the same network and as the platforms themselves look to take a greater cut of the user’s income.

However, Balaram proposed that a solution could be one of shared ownership. A co-operative model, whereby the ‘workers’ take a stake in the platform too and have a say in its future direction. She said:

That’s why I really like the co-operative sharing platform. It’s very similar to the sharing platform, but the online network is co-operative. The intermediary in a lot of cases is no longer needed. In some cases this is because of blockchain technology, and users, but particularly workers, have the power over the technology to change the way that they live and work.

One of the most famous examples is Juno, which is a company that is competing against Uber and Lyft. It’s just launched in May, so we aren’t sure how well it’s doing yet, but it’s whole premise is about being better for drivers. So they do this through offering support that Uber doesn’t necessarily offer. They also make 50% of their shares available to drivers. A lot of these co-op models are equity based models, where a lot of the workers can enjoy the returns.

I like this idea. It makes sense and certainly should appeal to workers. However, the one challenge will be whether or not a co-operative network can compete with a monopoly network on price. Paying fairer wages may mean higher prices for consumers, which may reduce demand for the platform and impact on the critical mass mentioned earlier.

Also speaking at the event this week was former shadow chancellor Chris Leslie MP, who touched on the challenges of the sharing economy and changing employment models. He said that whilst we need to be cautious of platforms taking advantage of workers, we also can’t resist the wave of change. Leslie said:

We’ve got to call out exploitative behaviour. Of course if people are being abused, that’s inappropriate. At the same time, rather than being against, against, against everything, we need to recognise that there is a change here. And it’s partly to do with this connected nature of society now.

We have to think cleverly about how we frame different concepts of employment, so that for those people that feel that they are happy to have a degree of flexibility, we can frame new concepts of employment contract that do allow that to happen. I think we are stuck in quite a rigid place right now.

I think rather than let California and others lead the way on these sorts of things, the UK is very well placed because of our progressive heritage and history to start to think about the new forms of employment practice that we want to have. Defending people’s basic rights, supporting their livelihoods, but also making it fit for this sort of platform based approach to the labour market.

My take

The sharing economy is so incredibly complex and nuanced. It’s very hard at this moment in time to understand the value for users of these platforms versus the disadvantages of being ‘self employed’. Traditionally being self employed means more risk for greater returns, but that’s not necessarily the case for those using these platforms - as they are often doing it to supplement other incomes.

That being said, many like the flexibility they provide and the ability to earn some extra cash when needed. But it still feels it is the platforms themselves that are the real winners here.

This is why I too like the co-operative model. It allows users to have a stake in the growth of the platform. However, we also need to look at employment laws and have them redefined for this new era, as they are currently completely ineffective. For example, I heard one sharing economy company say yesterday that they’d love to provide users of their platform with training - but they are too scared of being taken to court, because this makes it look like they’re employed. That’s a problem.

Image credit - Jigsaw puzzle recruiting new staff. A successful team recruiting new staff like pieces of a jigsaw puzzle. © emerge

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