Pre-2020, the sharing and gig economies were thriving. Then the pandemic changed the game. While Uber's food delivery was up, its ride sharing plummeted. Airbnb saw a wave of cancellations. The entire space stumbled. As we emerge from lockdowns and restrictions, new challenges face these Silicon Valley darlings. With ongoing rights over worker classification, and increased pressure to turn a profit in a rising rate environment, it's time to ask: What's next for the sharing economy?
Pre-2020, the sharing and gig economies were thriving. Then the pandemic changed the game. While Uber's food delivery was up, its ride sharing plummeted. Airbnb saw a wave of cancellations. The entire space stumbled. As we emerge from lockdowns and restrictions, new challenges face these Silicon Valley darlings. With ongoing rights over worker classification, and increased pressure to turn a profit in a rising rate environment, it's time to ask: What's next for the sharing economy?
Show notes
[0:00] 2012 was a big year for the sharing economy
[00:28] But the following decade was even bigger
[00:56] Professor Ming Hu is the person to talk to about the sharing or gig economy
[01:43] The pandemic changed the game for companies in the sharing economy. Can the gig economy thrive in a sustainable way?
[03:14] What exactly is the sharing economy?
[03:47] These companies very quickly transformed parts of our lives…and quickly became the status quo in our lives
[04:42] You can thank the network effect for this rapid growth
[05:07] Uber is the poster child of the sharing economy
[05:25] The pandemic had a devastating impact on Uber’s ride sharing
[05:51] Future success is going to be dependent on its relationship with its workers
[06:26] The fight over Uber worker classification
[07:05] The two types of Uber drivers: Ad hoc and full-time workers
[08:00] Why a one-sized fits all solution doesn’t work
[08:27] Uber is changing how it deals with drivers as a result of proposed worker classification legislation, putting some control in the hands of drivers
[09:12] Ming proposes that different types of workers should be treated differently - just look at how the UK is handling things
[10:12] Why now is so pivotal for the sharing economy
[10:47] Rising inflation is having a big impact on sharing economy consumers…
[11:18] …and on the drivers - gig workers are likely to be the hardest hit by high inflation
[12:18] Beyond ride sharing, what at the big opportunities for innovation in the sharing economy? What about energy sharing?
[13:10] "There's no shortage of new applications and new markets, where we can apply these ideas to."
Jessie Park: Think back to the year 2012. The Prime Minister was Stephen Harper, and Barack Obama was just re-elected as U.S. President. Uber changed how people got around when it entered the Canadian market. SkiptheDishes launched out of Saskatoon, followed by DoorDash a year later. And Airbnb reached its 10 millionth booking.
In the following decade, these companies have seen astronomical growth. For example, in 2020, Uber said it unlocked an estimated $6.5 billion in economic value for Canada. That includes earnings of drivers, delivery people and restaurants facilitated by Uber, and the indirect multiplier effect created through the company’s supply chain. In November 2022, Uber was valued at over $55 billion dollars, serving 93 million customers around the world.
At the Rotman School, professor Ming Hu is the person to talk to about the sharing economy, and the gig economy — a system where goods or services are shared between individuals, typically online, for a fee.
Ming Hu: The sharing economy model will continue to expand and evolve with newer technology. For example, greater adoption of smartphones and apps will drive new applications where buyers and sellers can efficiently meet on digital platforms.
JP: Ming has published dozens of papers on how companies manage their operations, from ride-hailing companies to food delivery apps.
Though a company like Uber has taken over the ride-hailing market, it’s whizzed through about $25 billion dollars of cash in its lifetime. That’s roughly half of its market value. When people stayed home for months on end in 2020, the demand for ride-sharing plummeted, quickly followed by revenue. Uber reported a negative net income of over 6.7 billion U.S. dollars in 2020.
And Uber isn’t alone – many consumer-reliant tech companies have faced major losses in recent years. Uber Eats competitor DoorDash struggled with profitability, even as food delivery demand boomed during the pandemic. In November 2022, after a year of steadily falling stock prices, it announced it would cut six per cent of its global workforce to shave off expenses.
The gig economy business model relies on a growing base of customers willing to pay for convenience, and a steady fleet of gig workers to meet varying levels of demand. Add in inflationary pressures and a recession, and it’s an even tougher road ahead for these companies.
So what are some of the underlying operational issues for a company like Uber? And what will it take for the sharing economy to thrive in a sustainable way?
You’re listening to the Executive Summary. I’m Jessie Park from the Rotman School of Management.
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JP: There’s a reason why the sharing economy is called what it is. At the core, these companies started as a platform for people to share their resources and services with others in the community. It was supposed to add to society in a positive way. You have extra space in your car; and here’s someone who needs a ride. You have an extra room in your house, or you’ll be out of the country for a month – is there someone who might want a place to stay in your town?
The founders of Uber and Airbnb thought of a way to bring the spirit of sharing into these spaces.
MH: Those companies changed our lives significantly, and made our lives easier and more efficient.
JP: Very quickly, Uber, Airbnb and Doordash transformed the way we move, travel and eat. Before, people had to call in to a restaurant if they wanted to order takeout or delivery, and restaurants had to hire delivery drivers and set them up with vehicles. Today, Uber, Doordash and Skip the Dishes handle the logistics; restaurants just need to sign up and customers just need an account.
Today, most people with a smartphone default to ordering an Uber instead of hailing down a taxi. Why stay in a $400 hotel room, when a quaint and cozy Airbnb apartment down the street is only $150?
These companies changed the status quo of our daily activities. But today, they are the status quo.
Ming says this rapid growth can be explained by the network effect. When a company like Uber creates an innovative platform connecting drivers and riders, it attracts more drivers to try it out for themselves. In turn, more drivers attract more riders, and so on.
MH: So the early players in the market tend to be able to quickly dominate the market.
JP: Uber is the poster child of the sharing economy. When it went public in 2019, its IPO was valued at 82.4 billion dollars. At that time, it was providing 7 billion trips per year around the world, with a 65 per cent share of the ride-hailing market in the U.S.
When the pandemic hit, the operational side of the ride-hailing platform came tumbling down. On March 19, 2020, ride volume had gone down between 60 to 70 per cent in cities like Seattle. It took nearly three years for Uber passenger numbers to rebound.
While the rebound is good news, there’s still conflict brewing behind the scenes.
According to Ming, the greatest tension for Uber lies between itself and its drivers. It’s a problem that’s seen across many companies in the sharing economy, and if these types of companies want to succeed, they’ll need to rethink how their gig workforce is treated and compensated.
Musical interlude
JP: In July 2022, a U.S. Senator sent a letter to Uber’s CEO with an ask: stop exploiting your drivers.
Currently, Uber drivers are independent contractors to the company, not part-time or full-time employees. They’re not guaranteed a minimum wage, overtime pay, or collective bargaining rights. There’s minimal training involved, and drivers aren’t paid for their time in between rides or deliveries – when waiting for rides might account for a third of a driver’s work time.
As of November 2022, there were about 100,000 people in Canada who drove for Uber. Worldwide, it's nearly four million drivers. While there are many reasons people may decide to drive for Uber, in his research, Ming distinguishes between two types of drivers – ad hoc workers, and long-term workers.
MH: Ad hoc workers do gigs, mostly to supplement the income from their full-time jobs. While long term workers, they take gig jobs as a primary source of income and work as much as full time employees.
JP: Ming says ad hoc workers make up about 50 to 65 per cent of Uber’s drivers. They enjoy the flexibility around when and how often they work, but proposals for more regulations could change that. In October 2022, the Biden administration proposed a rule that could reclassify Uber and Lyft drivers as employees of the company, and no longer as independent contractors.
MH: So under labour law, employees are eligible for protection such as minimum wage, medical leave, or overtime pay, that don't apply to independent contractors.
JP: This could result in more workers being classified as employees, which isn’t necessarily beneficial for the ad hoc drivers who enjoy having the flexible option to log onto the platform. Once they log enough rides to become full-time employee, Ming says it’s likely they might leave the market.
The proposed legislation has also been met with pushback from Uber and Lyft, who want to keep labour costs low.
MH: I noticed there's a trend in the ride hailing industry currently, because of the new legislation, companies are motivated to provide more control and transparency to the drivers.
JP: For example, in 2022, Uber and Lyft have allowed drivers in some cities to cherry pick their rides.
MH: That was not the case before. In the past, the drivers could not see the destination of the ride. But now they can see it. And they can decide whether they take the ride or not.
JP: The push and pull between what the company wants, and what drivers want, could result in the gig worker landscape changing as we know it. But Ming and his co-authors suggest that a one-size-fits all approach is not the best way forward. They propose an alternate solution: discriminatory worker classification.
Here, ad hoc workers will remain independent contractors, with all the flexibility that comes with that. And long-term workers who work full-time hours on the Uber platform are treated as full-time employees with benefits and protections.
MH: So instead of just having one classification of treating everyone as employees, we treat ad hoc workers and long term workers differently.
JP: In essence, different types of workers should be treated differently. He says we can learn some lessons from the U.K., where they’ve recently found a middle ground. Rather than classifying every independent contractor as an employee, they require the company to provide benefits that are proportional to the amount the driver works.
MH: So if an ad hoc worker only works, say two or three rides for the company, they get little benefits out of it. If someone worked full time, or even longer than eight hours for the platform, they proportionally earned more benefits. So that's another good solution.
Musical interlude
JP: Now, three years out from the start of the pandemic, life has largely resumed to what it was before. Ming says it’s a pivotal time for companies in the sharing economy to find steady ground again.
MH: The market conditions shifted pretty rapidly. So currently, we have a high inflation. And as a result, there's a surge of drivers into the market.
JP: And though more drivers are working for supplementary income, passengers have less discretionary spending money. If people spend less on Uber and food delivery — with their premium fees — demand will falter.
MH: So the company really needs to pay attention to both sides and try to balance the supply and demand and make the market more efficient.
JP: This could involve finding ways to match drivers with riders more efficiently, which would increase the number of gigs drivers can do in a certain amount of time. For Uber, they’ll need to find ways to keep drivers engaged and ready for unpredictable spikes in demand.
Ming says that in this climate, it’s the gig workers who will face the repercussions, not the company. High gas prices cut into drivers’ earnings, and customers tend to tip less when inflation is high.
MH: The recent earnings reports for Uber, Lyft and DoorDash all said they're not affected too much by inflation. And the reason is because of the influx of supply with many drivers and the couriers entering the market.
JP: This surge of drivers putting themselves out there can also crowd the space, so more drivers are earning less per hour. The tension between companies and their gig workers will take time to resolve, but the urgency is growing as regulators get more involved.
Musical interlude
JP: Shifting gears beyond ride sharing, what could the future of innovation in the sharing economy look like? (38:32) Ming says an emerging area is renewable energy sharing.
MH: So think about in the future, on our rooftop, we will have a lot of solar panels, in addition to our own usage, we may have some leftover energy that we can sell back to the grid.
JP: Ming says another idea being explored in Singapore has to do with electric car batteries. As more people swap their gas cars for electric ones, people will need solutions for depleted batteries in their cars – what if you don’t have an hour or more to sit and wait for your car to charge?
We might see battery swapping stations where people drop off their depleted batteries and pick up one that’s fully charged.
These ideas are just the tip of the iceberg of new ways businesses in the sharing economy can impact society in a positive way.
MH: So there's no shortage of new applications and new markets, where we can apply these ideas to.
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JP: This has been the Rotman Executive Summary, a podcast bringing you the latest insights and innovative thinking from Canada's leading business school.
Special thanks to Professor Ming Hu. We’ll be back in a few weeks with Sarah Kaplan and Carmina Ravanera to talk about the future of remote work.
This episode was written and produced by Megan Haynes and Jessie Park. It was recorded by Dan Mazzotta, and edited by Avery Moore Kloss.
For more innovative thinking, head over to the Rotman Insights Hub, and subscribe to this podcast on Spotify, Apple Podcasts, Google podcasts, or Soundcloud.
Thanks for tuning in.