Management Today, by Richard Reeves
The biggest hotel chain in the world owns not a single hotel. A ‘transportation company’ worth $40bn – more than Delta airlines – has no vehicles. And a multinational ‘cleaning company’ operating in 32 cities, including London, buys no cleaning supplies and does not employ a single cleaner.
Airbnb, Uber and Homejoy are middlemen of the newest new economy, connecting customers with workers via the ‘frictionless interface’ of the mobile internet, and taking a commission along the way. Airbnb – so called because it conjures up images of an airbed, inflated by a considerate friend – generates annual revenues of $300m in New York City alone.
Uber operates limo-for-hire services in 200 cities in 53 countries, and has at least 162,037 ‘active drivers’ in the US alone, more than the number of people employed by Starbucks, and about the same as Ford. Homejoy, which allows customers to order a house cleaning or get someone to do their laundry with the touch of an icon on a phone screen, was launched by siblings Adora and Aaron Cheung in 2012, and has raised almost $40m in investment capital.
Seen by friends as a ‘sharing economy’ based on ‘collaborative consumption’ and by foes as a return to Dickensian days of insecure piecework in a ruthlessly free market, these app-powered businesses are challenging traditional markets, dividing communities, infuriating unions, eroding tax bases, and up-ending the political economy of the firm.
One thing is for sure: we need to adapt. These firms, pioneers of connective capitalism, are growing like topsy – into new markets, and into new areas of activity. Homejoy focuses on cleaning, but is branching out into furniture assembly and repairs. ‘It’s always been our vision to be the “get help” button for your home,’ says Aaron Cheung.
Love or loathe them (and there seem to be few opinions in between these extremes) these connective platforms are part of the future of economic life and of the labour market. The speed of their rise makes the dotcom boom seem serene. Domestic services company Helpling was just an idea in January 2014. Within 80 days it had launched in four German cities, and a couple of months later in four additional countries. It is now operational in 130 cities.
These new players make management theories of just a few years ago seem almost quaint. What does it mean to try and create a ‘values-driven organisation’ when it is not an organisation at all?
For their advocates, these new firms represent progress in its purest form: liberation of the individual from oppressive, hierarchical corporate structures and the activation of inert assets – empty bedrooms, empty cars sitting on drives all day, empty days for potential earners – to create a leaner, greener, freer economy.
And for buyers, the advantages of the connectors are obvious, and great: convenience, control and choice. What’s not to love about getting someone to assemble your Ikea furniture, which is the most common chore requested via TaskRabbit, industry leader for one-off small jobs?
But what about the sellers, the ‘independent entrepreneurs’ (as Homejoy dubs them), on the other side of the transaction? To find out, I decided to go the spiritual home of the connecting economy, the birthplace of Lyft, Uber, Homejoy and Airbnb: San Francisco.
‘What I love about it is that I get to choose when to work,’ says Hedayatullah Nooristani, a part-time Uber driver. He works as a driver before and after his other full-time job, in a tobacco shop, putting in the longest shifts on Friday and Saturday nights, when the real money is to be made. ‘My wife is at home with our children, and we couldn’t afford to live where we want to without the extra money. I make at least half as much again on top of my main salary,’ he says.
Uber drivers all have their own stories: some are students working their way through college; others are recent immigrants, making some money while they seek more permanent work. I met one who uses his journeys into DC to pitch his other business, a security firm. A recent survey conducted by Uber found that half the drivers have a college degree.
Uber, facing resistance in many cities from traditional taxi firms, unions and some politicians, is politically savvy too: that survey was conducted by Alan Krueger, an economic heavyweight and former chair of the Council of Economic Advisers under President Obama. It was spun to the media by David Plouffe, Uber’s senior vice president of policy and strategy: his cv includes being Obama’s campaign manager and senior White House adviser.
Not everyone is being spun, however: ‘This report is designed to impress American mayors and disguise the predatory nature of Uber’s relationship to its drivers – the company collects money, while the drivers accept all the risk,’ said Dave Sutton, spokesman for a public campaign by the Taxicab, Limousine & Paratransit Association, warning against services like Uber.
San Francisco, unsurprisingly, leads the pack in terms of supporting connective capitalism. An Uber ride through the hilly streets of the city ends with me standing in front of a beautiful house in the Cole Valley neighbourhood: my Airbnb accommodation, booked and confirmed online on the train up from Sacramento.
My host, Josh Thayer, says business is booming, especially since the city decided to formally legalise the room-rental business. ‘We’ve had hundreds of bookings just in the past few months,’ he says. ‘It is great: it helps us pay our bills and it gives folks a wonderful and economical place to stay in what can be a very expensive city.’
London rivals San Francisco in the warmth of its embrace of connective capitalism, with mayor Boris Johnson seeming to revel in the discomfort of the traditional taxi industry. The Minister for Housing, Brandon Lewis, has promised to update legislation on short-term rentals, ‘to help boost the sharing economy … It will provide income to householders who want to rent out their home – for example, if they themselves go on holiday.’
But halfway between the enthusiasts of London and San Francisco, New York Attorney General Eric Schneiderman is taking on Airbnb in what has been dubbed the ‘defining battle’ of the sharing economy. Schneiderman claims most of the hosts are breaking their own lease agreements against sub-letting, and many are operating ‘illegal hotels’: he’s motivated in part by the fact that the city has lost out on at least $30m of tax revenue.
Airbnb’s response? ‘We all agree that illegal hotels are bad for New York, but that is not our community. Our community is made up of thousands of amazing people with kind hearts.’
The kindness of ordinary folk is a key motif of the industry, and an attempt to remain true to the idea of ‘sharing’ as opposed to ‘profiting’. The tagline for Lyft is ‘Your friend with a car’. Brandon Lewis’ evocation of a family making money from their empty house strikes a similarly downhome note. But in fact these firms have shifted a very long way from their informal roots: New York City estimates that 37% of the $300m of revenue flowing through Airbnb is generated by just 6% of the ‘hosts’, most of whom are renting whole apartments, rather than an airbed in their spare room.
For the connectors relying on labour, the legal challenges focus on the nature of the relationship between the firm and the contractors. Lawsuits are testing the line between ‘independent contractor’ and ‘employee’ for both Homejoy and Uber. When contractors have to adhere to strict standards, follow specific procedures and wear a branded uniform, to some they start to look a lot like employees rather than independents.
But that’s not what Sarah, a San Francisco Lyft driver, thinks. ‘The whole point for me is that I don’t have a boss. My phone makes me offers of work: but it can’t make me do them. I get to choose.’ And the courts seem to agree with her, so far.
The questions of choice and control are the critical ones here. For some, the degree of freedom offered provides an almost utopian independence. I argued 14 years ago in MT that chosen, self-propelled work was a source of joy rather than exploitation (‘The Joy of Work’, MT May 2001) and for some of those involved in connective capitalism that seems true. The individual replaces the institution.
There is more than a hint here of Karl Marx’s prediction, ‘all that is solid melts into air’. When workers are the means of production, the easiest way to own them is to own oneself, in order to receive the fruits of your own labour and control your own time. As the other Marx, Groucho, put it: ‘What makes wage slaves? Wages!’
One of the other attractions of the new model is the close relationship between quantity and quality of work, and earning potential. As Plouffe put it with regard to Uber: ‘The more efficient drivers are, the more money they’re going to make. That’s clear in all our data.’
Ali, another Uber driver, tells me: ‘This has been my main job for three years. I like the flexibility, but the main thing is if you do a good job it gets recognised through the ratings system.’
But of course there is a darker side too. It might be called Homejoy but is it joyful for the workers? In many cases, the firms represent the rise of ‘just in time’ labour markets, matching skills and hours to demand on very short time frames. This means the risks land on the individual rather than the firm. Insecurity becomes the norm.
This may be liberating for a highly skilled, expensive worker – a computer programmer with a particular, narrow area of expertise – who may be happy to be used as what some have labelled ‘plug and play’ workers. But it could feel rather different to someone who has no other means of economic existence than to wait, phone in hand, for another modestly paid cleaning or handyman job, potentially some distance away. To critics, these workers are the modern equivalent of the men lining up at the factory or dock gates each morning in the hope of a day’s work, or their wives doing piecework at home.
What MIT management professor Thomas Malone labels the hyper-specialisation of the new economy is also a form of hyper-individualism. The dystopian version of connective capitalism is of human disconnection, a loss of community, security and belonging: Fritz Lang’s Metropolis but with full Wi-Fi access.
The new contractor model represents yet another step in the shifting of risk and responsibility away from commercial institutions and onto the shoulders of individuals. The ‘free’ worker bears even more of the risk of market fluctuation, and the responsibility for upskilling, marketing and so on. They become a micro-economy in themselves, with no colleagues, no paid leave, no occupational welfare, no shock absorbers against economic downturn.
Of course, the move away from occupational welfare has been underway for decades. Remember private sector final salary pensions schemes? You must be pretty old. But in a perverse byproduct, the greater detachment of individuals from corporations may increase the need and pressure for state provision. Hence the apparent paradox of Travis Kalanick, boss of Uber, and a hero to many free-marketers, coming out strongly in favour of Obamacare. ‘The democratisation of those types of benefits allow people to have more flexible ways to make a living,’ Kalanick said. ‘They don’t have to be working for The Man.’
Where did these new connector firms come from? Three factors have caused their rapid rise: technological advance, economic retreat, and the terminal decline of trade unions. Together, these three concurrent trends created a perfect opportunity for connective capitalism. The key technological shift has been the rise of mobile internet services with integrated GPS. The internet had of course already transformed the product market: Amazon and Alibaba are testimony to that. But the mobile internet is now transforming the labour market too, connecting demand and supply with a degree of precision and speed that would have made Milton Freidman or Ayn Rand weep tears of joy.
Mobile internet-enabled devices are doing for certain activities what the jet engine did for aeroplane travel: turning a niche industry into a mass market. There is a fierce debate in the economics world over the effect that technology is having on employment: how far robots are taking our jobs. But the rise of connective capitalism highlights a different effect: technology is not here replacing labour, but more effectively connecting labour to demand.
This shift also poses a potential challenge to the structure of the firm itself. Institutional economics, pioneered by the late British economist Ronald Coase, is based on the idea that companies are a good way to do business when they lower the transactions costs of market activity. But in some cases, IT can displace the institution, by facilitating quick and easy transactions online.
By chance, this latest technological leap also happened to take place during a period of economic downturn – a global recession followed by insipid growth, causing a collapse in earnings and high unemployment. The connective firms need a reserve army of labour: and the recession provided a gigantic one. Of course, much of this work may have taken place in the informal or ‘grey economy’ in previous economic eras – cash in hand work picked up on the grapevine or from neighbours. Now the grapevine extends everywhere; the internet makes everybody a neighbour.
The third factor has been the decline in the power of organised labour. Having peaked in the UK at over 13 million in the late 1970s, trade union membership is now around six million. This has resulted in a loss of political power. Unions have been complaining loudly about the rise of the new connectors, but nobody is really listening. Unions themselves are threatened by the new landscape: organised labour is virtually impossible when there is no organisation.
One of the most interesting elements of connective capitalism is the codification of trust relationships. Historically, trusting a provider of a good or service relied on personal experience, or the personal experience of a trusted friend or neighbour. But transparent rating systems, pioneered by eBay, and now a vital ingredient of modern capitalism, are taking the experiences of thousands of strangers and turning them into a precious commodity: trust.
This depersonalisation of trust by the internet has removed one of the major obstacles to the growth of connective capitalism. Actions that would once have been considered reckless, bordering on insane, are now quite normal: paying a stranger to drive your teenager home, giving your house keys to strangers so they can iron your shirts.
Airbnb chief executive Brian Chesky crows: ‘Companies have these magical things called reputation systems.’ Professor Arun Sundararajan, a leading New York University Business School professor, writes: ‘In the sharing economy, reputation serves as the digital institution that protects buyers and prevents the market failure that economists and policy makers worry about.’
A number of books have either predicted or described the connective capitalism movement, including What’s Mine is Yours: The rise of collaborative consumption by Rachel Botsman and Roo Rogers, Clay Shirky’s 2008 Here Comes Everybody and Steven Johnson’s upbeat description of the rise of the ‘Peer Progressive’ in Future Perfect from 2012. But the most instructive book for understanding the new world may in fact be a stunningly prescient work of fiction, Down and Out in the Magic Kingdom published by Cory Doctorow in 2003.
In Doctorow’s imagined future, both jobs and currency have disappeared. Work is done in shifting groups, labelled ‘ad hocs’, depending on the tasks and the skills required. Social and economic status and resources are distributed on the basis of a person’s ‘Whuffie’, a collective, points-based rating system in which everyone determines the value of everyone else, based on their work, relationships, style and demeanour. Sound familiar?
The connective capitalism drive is also challenging management wisdom, even of a fairly recent provenance. In 1997, business theorist Sumantra Ghoshal forecast ‘a very different moral contract among employees, companies, and society’, as part of a shift from ‘organisation man’ to an ‘individualised corporation’, that would be ‘flexible enough to exploit the idiosyncratic knowledge and unique skills of each individual employee’. But what happens when they are not employees at all – when flexibility has bypassed the traditional business?
Not that the idea of brand values goes out of the window. Indeed if anything the diffuse nature of these enterprises makes the brand promise even more important. Lyft’s ‘friend with a car’ promise hardly works if the ‘friend’ is grumpy and monosyllabic – it is also why most Lyft passengers ride in the front seat. By contrast, Uber’s tagline ‘Everyone’s Private Driver’ sends a very different message: so you sit in the back, have your door held and luggage stowed, and can expect water, mints and the daily newspaper.
Charles Handy’s 2001 description of a world of ‘elephants and fleas’ also now looks somewhat quaint. Handy wrote: ‘Elephants are the big organisations that had been the pillars of the employee society of the 20th century. The fleas are the independent operators, some of them with small businesses of their own, some working by themselves or in a partnership.’
But this dichotomy is being smashed. Elephant corporations are no longer being irritated by a few fleas: they are constituted of thousands of them. In the connective economy, the elephant is the flea. How far will the this model extend into new markets? There is already a service providing doctors for $200 flat-rate. TopCoder already supplies programmers on a need-to-use basis. It is easy to imagine much of the work currently being done by paralegals being parcelled out.
Assessing the balance of costs and benefits of the new world of work – whether it represents post-industrial liberation or a return to pre-industrial insecurity – is an urgent question for us all. Rather than listen to me, it might be better to try to learn from a member of the new tribe of free workers. I realise, with a day to go, that I’m a few hundred words short for this article. So I took the obvious step: I found someone on freelance marketplace Fiverr.
I paid Joshua McGowan $5 to write 500 words on the following theme (a rate substantially lower than we are paying Richard to write this piece -Ed.): ‘Is Fiverr a tool for liberating people from the shackles of wage slavery, or an oppressive return of low-paid insecure piecework?’ He did a good job, too (see box, right). You might say that I’m lazy and exploitative. I prefer to see myself as an entrepreneur of the connective economy. I’ll leave it to you to decide.
Fiverr: An innovative way to earn outside the norm, by Joshua McGowan
I first heard of Fiverr a number of years ago through a friend who had recently started using it as a way to try to make some spare cash. He had recently finished college as well as quitting a dead-end job stacking shelves. After that it was the dreaded giro. He had had enough, it was time to try to make something out of himself.
Fast forward a few years and a lot of writing later, my friend is now one of the highest-rated sellers on the website, making a very handsome income for a 23 year-old.
When starting out, I was sceptical about how a person living in Scotland could make a decent wage from a website that was using dollars, a currency not even accepted in that country, and which seemed full of nonsense short-term work. I had always been inclined to writing in high school and I had done a bit of journalism in college. My friend’s success prompted me to have a go myself.
Bored of a dead-end job that offered under £7 per hour and little in the way of career options, I was your typical 24 year-old with not much direction. Now three weeks into my writing career at Fiverr, I feel useful at last.
I’m doing something that is great fun, massively interesting, and very easy going. No nine-to-fives any more, waiting for my wage and praying for my next day off. Interacting with interesting people who want your help is a great feeling – much better than dealing with a disgruntled shopper.
As far as I am aware there are not many places that allow people to feel so empowered in their own work. That said, at the time of writing this, I am three weeks into my life on Fiverr and am yet to be financially better off.
I admit it is uncertain. But I could move on quickly were the site to get shut down, even if for a few days. These things are possible.
To make money on this website, you do have to put the work in, and have good ability. Without my friend showing me the ropes and giving advice, and generally mentoring me on how to be a good, efficient content writer, it would have been much more difficult, and I can see how people might struggle on this site.
It can be overwhelming if you don’t know the best approach to take and sometimes I pity my mate, because he had no one holding his hand. But I think that shows what a person can achieve.
With the right drive and motivation – for us it is to have a steady income doing something we enjoy – you can break free from the wage-slave shackles of mundane employment. And it’s not just that: you feel empowered as a fully employed, self-sufficient adult. I look around at many people my age. They look lost, with little purpose to their work, most hate it.
I don’t blame them, because in the current economic climate things don’t look as if they will be getting better soon. I’m just glad a website like Fiverr is around to show me that there are many unconventional paths a person can take to finding a satisfying and enjoyable way to earn a living – you just have to look for them.