Watch out, Uber: The sharing-economy boom could deflate

Today, workers at companies like Uber and Homejoy shoulder the risk but reap little of the reward

deflated hot air balloons sink grounded
flickr/Robert Couse-Baker

Impossible customer-acquisition costs popped the dot-com bubble of the 1990s, and rising labor costs could deflate the so-called sharing economy of today.

The dot-com model's bust wasn't based solely on silly business models like the much-ridiculed, whose founders thought they could make money delivering kitty litter ordered over the Internet.

It was more fundamental: Consumer-focused dot-com companies were spending huge amounts of money to acquire customers. It was a mountain they simply couldn't climb.

That problem has been solved by the advent of the smartphone, the app, and social media. Even companies that deliver services that seem trivial and unnecessary can acquire huge numbers of customers in a hurry without spending very much on marketing or advertising.

For wildly successful companies like Snapchat and Instagram, the barriers to entry were quite low. The cloud takes care of hardware, and social media replaces marketing. What they needed were clever ideas and smart programmers.

The new bubble around the "sharing economy"

But another class of app-fueled companies -- those in the sharing economy gaining popularity today -- face a gap they may not surmount: actual human labor. Until we really have self-driving cars, someone has to be behind the wheel of a ride-sharing car. And until robots really work, a living, breathing person has to mop the floors when summoned by a Handy or a Homejoy.

Those sharing-economy companies draw on an immense pool of self-employed workers; by some estimates, freelancers now comprise more than one-third of the labor force. They labor for modest wages with no paid benefits, have little control over their working conditions, and bear much of the risk that employers once shouldered.

The label "sharing economy" is itself a misnomer. It really means that people are using personal assets to make money outside of traditional venues, whether their cars, homes, or know-how. That's renting, not sharing. These companies are really providing on-demand ordering systems for piece labor.

Like it or not (I don't), the sharing-economy business model has worked very well -- for the people who founded those companies. Uber, for example, has a valuation in excess of $41 billion and serves millions of customers across the United States and several foreign countries.

Now that business model is being threatened on multiple fronts. Prodded by labor unions, Germany, France, and Spain are trying to ban Uber. In the United States, a flurry of lawsuits against task-ordering companies are demanding that their workers be reclassified as actual employees.

The face of the sharing economy: Little risk, lots of reward

I recently got a late-night SOS call from my buddy Cliff, who lives in the East Bay but drives for Uber in San Francisco. His water pump was going out, and he didn't want to risk driving home.

Cliff is a building contractor by trade, but when his business hit a pothole, he figured he'd make ends meet behind the wheel. How's it working out? Driving eight to 12 hours a night, he's put 23,000 miles on his car. After paying for gas and other expenses, he typically nets about $20 to $25 an hour. Sick time, paid vacation, health care, Social Security contributions, tax withholding? Nope -- that's how the old economy did business.

In San Francisco, most cab drivers are also contractors, renting company-owned vehicles by the shift. But when a water pump goes out, they don't have to spend $600 to replace it or wear out the family car. Multiply that by its thousands of drivers, and Uber has shifted millions of dollars in risks and costs off its books.

Workers treated like employees fight to be employees

Cliff isn't suing anyone, but other sharing-economy workers are.

Last month, two federal judges in San Francisco allowed labor lawsuits filed against Uber and Lyft to move ahead. The workers are asking to be deemed employees, not independent contractors. (In the United States, employers are legally entitled to some benefits, and their employers pay half their Social Security and Medicare taxes; independent contractors get neither.)

Workers at Homejoy and Handy, two rival housecleaning services, also sued. (Handy is in 37 locations in the United States and Canada, and Homejoy serves about 30 markets.)

Sisters Vilma and Greta Zenlaj started working for Handy in April 2014. They said the company dictated everything from what they wore (a Handy T-shirt was required) to how to interact with customers. They had to accept jobs that were sometimes an hour or more apart, and they were not paid for the travel time or gas.

Under U.S. law, that level of mandate from an employer typically classifies a worker as an employee, not an independent contractor. (The word "independent" has a specific legal meaning.)

"It looks like Handy and Homejoy are trying to have it both ways," their attorney Byron Goldstein tells me. "They want to treat them as employees but not pay them as employees."

Similar suits, reports Ars Technica, have been filed against companies Try Caviar, a food delivery startup that was acquired last year for $90 million, and two other delivery services, Postmates and Instacart.

I'm not at all sure that the legal actions demanding employee status will succeed, given the strong antilabor tenor in this country and the increasing institutional divide between the haves and have-nots that so many now take for granted.

Welcome to the share-the-scraps economy

In an acerbic essay in Salon earlier this year, economist Robert Reich dubbed the "sharing economy” the "share-the-scraps economy.”

"The new on-demand work shifts risks entirely onto workers and eliminates minimal standards completely. In effect, on-demand work is a reversion to the piece work of the 19th century -- when workers had no power and no legal rights, took all the risks, and worked all hours for almost nothing,” the former U.S. Secretary of Labor wrote.

That's the moral argument. It's a good one, though it won't likely convince newly minted billionaires like Uber CEO Travis Kalanick to share much of the wealth.

I don't believe that all contract work is evil. Indeed, I'm happily self-employed, and I am treated quite well. The only significant risk I bear is that demand for my work will slacken. My status is unambiguous, I set my own hours, and I am free to negotiate my wages. My current work life lacks the paid benefits and security of one of my old unionized jobs, but it's fair.

The sharing economy, though, is built on a fundamentally unfair business model. Even if the lawsuits don't meet their basic objective of winning employee status, they may well push the Ubers and the Homejoys of the world into giving their employees -- um, workers a better deal.

That might crimp the growth of the "sharing economy," as companies have to shoulder their fair share. If so, them's the breaks.

Copyright © 2015 IDG Communications, Inc.

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