This is not one of those pile-on “it’s popular to hate tech” essays. This is, rather, a real criticism of how technology and tech entrepreneurs have economically decimated tens of millions of people in this zero-sum nightmare we call the Gig Economy.
With the COVID-19 pandemic sending tens of millions into unemployment and causing massive GDP contraction, this population is affected disproportionately.
The time has come for tech to take responsibility, to reverse and then improve this economic disaster. But first, some quick background.
Internet-Enabled Marketplaces: A New Wealth Creator.
When the Internet arrived it unlocked all kinds of new and exciting business models. As a young engineer coming out of school, the one that really spoke to me was the Internet-enabled marketplace. I went on to spend my career building marketplaces by following this simple (but hard-to-execute!) formula:
• Bring buyers and sellers together who would otherwise never meet due to geographic restrictions
• Create a trusted place for them to transact and build a reputation
• Take as much of that transaction as you can in the form of a marketplace fee
This model gave birth to eBay, Amazon and many others (including my other company, Doctor On Demand), and ultimately ushered in the era of the Web 1.0 global marketplace. Buyers and sellers who would have never found each other were now participating in a rich, global economy we called eCommerce. Marketplace operators collected billions in rent in exchange for providing these trusted platforms to transact through, and it netted out to all be a win/win.
The Gig Economy: Born of the Smartphone.
Then came the rise of smartphones, which allowed people to instantly communicate their exact locations and execute seamless, cashless payments all from the palm of their hand. Some very clever entrepreneurs discovered that this new dimension—the physical location of consumers and service providers—could unlock an entirely new generation of internet-enabled marketplaces. And with that, the Gig Economy was born.
The formula was once again simple: connect buyers (consumers) and sellers (service providers) in a trusted, convenient and seamless way, and you can instantly take market share from (and better yet, expand) markets for things like food delivery, transportation, and even dog walking.
The future never looked brighter; waiting for a cab would become a thing of the past thanks to Uber and Lyft. Your favorite restaurant doesn’t deliver? No worries, we’ve now got Postmates and Doordash.
Better services for consumers, more flexibility for workers and good old high fees for marketplace operators. Another win/win, right?
The Economic Disaster That is the Gig Economy.
Ten years after the birth of the Gig Economy, we can see now that it has been far from a win/win. We’re now able to identify two fundamental flaws in this model—I’ll use Uber as an example, but this applies to most (though not all) Gig Economy companies:
The Rake: Uber takes 30% of each ride it facilitates (and even more during surge pricing) which it generally keeps. This instantly puts the operator (Uber) at odds with the participants (drivers). The hatred of Uber by its drivers has been well-documented.
Concentrated Wealth: Ten years after its founding, Uber went public at a valuation of over $80B and made six dudes in California multi-billionaires. Meanwhile, HALF of Uber’s drivers are living at or below the poverty line—with some even living in the cars they use to deliver the service!
The Gig Economy has failed its most critical participants: the service providers. It has morbidly exacerbated the wealth gap by essentially pushing the effective nationwide minimum wage of $11.80 down to as low as $5/hour.
The Way Back to Win/Win
As a long-time marketplace entrepreneur, investor and blockchain investor/engineer, it was devastating for me to see that technology had actually made life economically worse for some people rather than better.
Having spent my entire career building, investing and advising well over 100 marketplaces, this was the calling I had been waiting for—and I became obsessed with finding a better model that could bring us back to the win/win economics the original internet-enabled marketplaces brought us.
I felt compelled to create a technology-based solution to this economic disaster. I knew there had to be a better way.
Introducing The User-Controlled Network.
User-controlled networks are designed to produce the opposite outcome of this societal and financial disgrace we call the Gig Economy, with principles that can be applied to any two-sided marketplace.
The fundamental problem with centrally owned and controlled marketplaces is that as the network grows, the fee that the operator collects (“the rake”) becomes disproportionate to the amount of value it’s adding—and as a result, incentives between the operator and the participants quickly diverge. User-controlled networks aim to solve this by giving the value and control of the network to its participants both early on and over time, in exchange for their help in building and curating the network and providing high-quality services.
By giving all participants a stake early on, you’re able to dramatically lower the rake and give that value back to the users of the network (instead of having it pile up in the operator’s bank account).
You’ve now incentivized your users to not only transact on the network for a better rate but to also grow and curate it in a way that more fairly rewards them. As the network grows, fees remain low, the value goes back to the users and the network will have greater utility (and less friction) than a high-rent-seeking network.
For example, what if Uber had given fair compensation and a stake in its network to drivers, then gave them more for maintaining a 5-star rating, and even more for referring other drivers and riders?
Fast-forward ten years and you’d have a user-controlled network operating with bare-minimum fees and giving value back to its drivers and riders—instead of an investor-owned one that exists only to maximize the fees it exacts.
Drivers would retain more of the value currently extracted by the middleman. Surge pricing would still dictate market dynamics, as it does today, but the value would be returned to the drivers and riders instead of being absorbed by the operator!
The same example applies to nearly all on-demand marketplaces. Take DoorDash, Postmates and Instacart: the folks on the supply side of these networks (shoppers, delivery people) pay hefty marketplace fees to the operators for the privilege of working.
If those networks were user-controlled as I’m proposing in this new model, the network would take almost no fees and the value would be returned to the participants of the network. So in a dire case where delivery people and shoppers are, in addition to working for low wages, also risking potential exposure to COVID-19, they’d at least be capturing more of the value instead of paying the middlemen.
Against the backdrop of COVID-19, gig workers are in the eye of the storm right now. This new network model has never been more imperative to the health and sustainability of independent workers.
I fundamentally believe that networks that properly compensate, incentivize and give a stake to their users will have greater utility and will grow faster than high-rent-seeking, investor-controlled networks.
This new, user-controlled network model allows millions of people in any country to participate and earn fair rewards for their efforts. This concept isn’t just fairer, it’s also better for business. This idea may have occurred to more egalitarian business minds in the past, but it wasn't really practical. That all changed with the introduction of Bitcoin, Ethereum and the revolutionary technology of blockchain.
Imagine a new world of work where a unique blockchain token can enable a brand new network model. Before blockchain, there was no way to properly incentivize a network of millions of people in 50 countries in this fashion. Welcome to the new era of marketplace economics: powered by a token and controlled by the users.