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The Platform Economy


It’s becoming more and more common for workers to be self-employed using apps like Lyft, Uber, Instacart, Postmates, and others. This transition has been called the “sharing economy,” the “gig economy,” and other optimistic-sounding terms.

But what we’re really looking at is a “platform economy”: an economy where the primary beneficiaries are those who own platforms.

It must be said that the basic idea of a platform economy is not new. It is essentially a type of vertical market. If you are unfamiliar with the concept, a vertical market is one that serves the specific needs of a given industry or clientele and attempts to satisfy their demands virtually end-to-end. Imagine a pharmaceutical manufacturer that also owns a large research and development firm, chemical companies, and retail pharmacy software and hardware systems. Such a company would be considered vertically integrated because they have interlocking suppliers and divisions that permit streamlined (and more profitable) operations from the basic supply stage all the way through retail sales and even post-sales.

In software, such vertical integration used to be commonplace. These days, IBM deals almost exclusively in providing software services. But in its heyday, IBM did basic research and development on hardware and software, and built their own machines running operating systems that they wrote in-house. But the problem with a vertical market is that it’s only profitable to be vertical if it remains highly specialized, and thus permits premium pricing. If a vertical market or large portions of it become commoditized, maintaining a vertical business strategy becomes difficult if not impossible. This is what happened to IBM and the other “big iron” computer corporations: the rise of cheap, standardized computer hardware–and such hardware rapidly growing in power–made it less and less necessary to rely on a single, large company for all your computing solutions. The emergence of Linux and free/open source software have hastened this trend. These days, you can get yourself a laptop running the free Chromium OS and do pretty much anything (short of graphically-intensive gaming) for a couple hundred bucks. You could set up a personal server for not much more. In that sense, the end of vertical strategies like IBM’s has been good for consumers, in the long run.

The Internet has helped push these trends even further. Online standards have made the type of hardware and software you’re running almost irrelevant. As long as you speak the standard languages–HTML, JavaScript, etc.–you can do what you want. The proliferation of smartphones and their relatively limited fragmentation (that is, the choice between iPhone and Android, rather than 50 different flavors) has likewise enabled various single-purpose apps to flourish.

This is where services like Uber and all the other “gig economy” players come in.

What’s been discovered is that you need not own various elements of a vertical market in order to behave like a vertical firm. For instance, Uber does not directly employ its drivers. It does not license them or provide them with vehicles. Rather than owning a fleet of cars and employing drivers like a traditional taxi company, Uber focuses solely on being a platform. The message here is that the drivers themselves are utterly replaceable. They can easily drop drivers whose customer ratings dip below an established threshold (currently 4.7 out of 5 stars) because there are enough other people who are desperate enough to work for the same pay (or less) under the same circumstances. Uber does not take driver feedback, either–it is entirely customer-focused. Customers rate drivers; the other way around is not permitted. This means that customers can behave virtually any way they want, and there is little Uber drivers can do about it. Such a system is meant to punish and minimize bad behavior by drivers, but this assumes that customers leave impartial, reasonable ratings, rather than acting on their pre-existing prejudices, privileges, or sense of entitlement.

An article by Andrew Callaway elaborates on this issue (and others):

I was excited to get started. I like talking to people, and in the movies being a taxi driver always seemed really interesting. Almost everybody I picked up was great, but it is a problem when the passengers aren’t cool, like the group of racist, self-righteous venture capitalist bros who smoked in my car. If I was really running my own business, I could have let them know I thought they were all assholes, but with Lyft, and a lot of other apps, the customers are rating you. And if your average rating falls below 4.7 out of 5 stars you are removed from the platform—fired. Whether it’s Uber, Lyft or any other ride-share app, when you’re in the car, the passengers have the control. The rating system is essential to the sharing economy’s ability to function because the companies aren’t legally allowed to train their independent contractors like they would employees. They test the workers in the field and drop those who get low ratings, which passengers can give for any reason. The venture capitalists, for example, told me they didn’t like drivers who had a hard time with English.

In workplaces that are not unionized, workers have always had a limited capacity to influence the operations of the business as a whole. But, given that such workers are typically interacting in a face-to-face environment, speaking directly to managers, there is at least some ability to agitate for better conditions and engage in group actions. It’s far from perfect, but there exists some channel of input from the bottom to the top.

In a platform-app company, there is no such channel. The workers using the app rarely have any official means to contact staff at the platform company–this is by design. The company is not inclined to care about your particular concerns or feelings, because they have far too many people using the platform to pay attention to individuals, and also because those individuals are easy to replace. To manage public image, unofficial communities set up for platform workers are monitored for negativity–speak ill of your platform provider, and if they are able to identify you, you may well be kicked off and left in search of new employment, likely with a company that will treat you no better.

It might be argued that the platform economy is a function of economic efficiency, that this is happening because it allows workers to flow freely from job to job, based on their own needs. Indeed, in a job market where workers had diverse choices in terms of employment, pay, and benefits, and possessed enough bargaining power to obtain a fair deal, this would be a good thing. But in the aftermath of the 2008-9 economic meltdown, countless jobs were shed by the economy and are simply never coming back. The US is currently said to be at full employment–based purely on the unemployment rate, this is true–but most working Americans have not seen any real economic gains since the crash. We have not returned to pre-recession levels of income for most workers.

A fantasy exists that people are joining the platform economy because they like being free agents–they enjoy the flexibility and the sense of being your own boss. This may be fine if one is young, at the beginning of their career and earning power, and relatively free of familial attachments and obligations. Such an arrangement becomes less tenable if you have obligations such that missing an hour or two of Uber fares will see you short on rent. As American safety nets have been gutted–with government dysfunction so extreme there is unlikely to be anything done about it for the foreseeable future–living from day to day on platform apps becomes, not a nice-to-have option, but a work-or-starve necessity.

The issue does not lie solely, perhaps not even primarily, with platform companies. At this point, it’s tough to say that Uber is ripping off drivers when it is itself wildly unprofitable. Given that most of the platform players are startups running on venture capitalist cash, profits may not been seen for several years yet. In the meantime, workers will (and some already have) come to depend on these platforms for income. Some of them may be regulated out of existence–most operate in gray areas, legally speaking, in terms of how they relate to the people working under the platform.

There is no reason to believe that a platform economy needs to be a bad thing. Choosing your own hours, what tasks you will do, and for what price is a fascinating concept–workers have never held so much hypothetical power to negotiate the terms of their work. But current implementations are very worker-hostile, and succeed primarily by externalizing their costs onto the workers themselves as well as public coffers. (Large, established companies like Walmart do the same, it must be pointed out.) That such services are now available to people who aren’t wealthy is also an intriguing development, although one might ask how much of that is the result of people having to work excessive hours just to stay afloat, left with little choice but to offload everyday tasks to people willing to do them cheaply.

It’s hard to say what the platform economy will turn into and to what extent it will ultimately influence the future of work. But if nothing else, it looks here to stay, and perhaps at some point the platforms themselves will become commoditized enough to empower workers themselves, rather than Silicon Valley startups and venture capitalists.

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