Initially, the so-called sharing economy seemed a miraculous elimination of market failure. No longer would there be a gap between consumers who need a service and workers willing to provide it.
For consumers, it promises unprecedented convenience. For those looking for work, an unprecedented breadth of opportunity. Have a car? Postmates and SpoonRocket can make you an on call delivery service. Have a driver’s license and good skills with kids? Help busy families by driving for Shuddle. Got some time on your hands? See if someone has a project for you on TaskRabbit. Love food shopping? You can become a Instacart shopper and help people fill their fridge. The list goes on and on and is only growing. [Disclosure: SpoonRocket is a Foundation Capital investment.]
When I was younger, this would have been a game-changer for me. I worked 27 jobs before my 23rd birthday. You could have found me on a fishing boat, in a factory, or even behind the wheel of a taxi. At each of these jobs, I clocked in and clocked out on a set schedule — none of them adapted well to my personal life.
The thought of paying my bills and having money for food (and beer) while making my own schedule, effectively becoming my own boss, would have been a dream come true. That’s the promise the sharing economy seems to hold.
But as the wonderment fades, the questions begin. There have been concerns about the unpredictability that comes with making a living from an “on demand” economy, in terms of reliable income and long-term career prospects. As countless articles have told us in recent months, issues of consumer safety and privacy are also cause for concern.
So, is this economy a boon for convenience and efficiency delivered by technology? Or is it simply a way to “outsource risk” and encourage workers to compete against one another for contract work in what is ultimately a race to the bottom?
Actually, it’s a familiar cycle of change that occurs when a disruptive new player or technology enters our economy. With all the buzzy new phenomena constantly popping up and dying down, Silicon Valley often falls victim to long-term memory loss. We forget we’ve seen this cycle before.
First, the “next big thing” gets everyone excited. Then the inevitable backlash begins, often fueled by real flaws that the mass adoption of the product serves to highlight. In an industry where everything can change overnight, the growth curve can get away from your business model management. Eventually, smart entrepreneurs engage with critics, hire smart policy and program managers, develop solutions, and self-regulate. The winners emerge stronger than ever — benefiting marketplace participants and the economy as a whole.
As my colleague Meg Sloan reminded me, eBay was put through these same paces in the 1990s.
First, everyone loved the new model. It came at the right time, when everyone was getting online (in the same way that Uber hit as smartphones became ubiquitous). Then came the backlash. Some sellers had scammed consumers by not delivering merchandise, while others sent the products but held their feedback as ransom, refusing to give a five-star rating until the buyer did so first and threatening to leave the lowest possible rating if the buyer did otherwise.
eBay swiftly strengthened its buyer protection efforts and built teams to more actively manage the seller side of their marketplace. It dedicated a team entirely focused on Trust and Safety. By earning the trust of more buyers and attracting new ones, it also improved prospects for quality sellers — including many individuals and small business owners who were able to meaningfully earn or supplement their income on the platform.
While Silicon Valley schadenfreude certainly dominates the coverage of the sharing economy these days, it often masks how fundamentally those new entrants are reshaping our economy. That’s why I think we’ll see a similar cycle occur in this case, where concern about the very real growing pains (and the impact on workers) masks a more fundamental shift — the aggregate benefit that the rise of the sharing economy will have for part-time and lower-skilled workers.
Unlike the initial waves of Silicon Valley startups, where much of the benefit went to a very few highly credentialed individuals, very few of the jobs created by sharing economy startups require a specific degree or technical skillset.
All of them put workers in control of their own schedules, allowing them to earn when they have time, or to schedule around school, parenting, or other commitments. And many of them provide another type of freedom — greater financial freedom than most service sector jobs.
As more startups enter the space, providing workers with more certainty and more options, the sharing economy promises to give rise to a fairer, more innovative, and more prosperous independent workforce. And as these markets become more competitive, any one company’s growth will increasingly depend on the degree to which it provides excellent service, which will create incentives to provide the compensation necessary to attract the best workers.
And new companies will continue rising to meet the needs of this growing workforce. Zen99, for example, essentially serves as a virtual HR department that helps independent workers navigate everything from tax forms to the new health insurance exchanges. In fact, one of the less heralded benefits of the Affordable Care Act is that it allows workers to participate in the sharing economy on a full-time basis and still afford health insurance. One can imagine a company created to help these workers communicate with each other.
Today’s sharing economy has produced hype and hand wringing. But it’s also produced hope that these new platforms will create a meaningful boost to our national economy and a new set of career opportunities never before seen in any economy anywhere around the world.
Paul Holland is a general partner at Foundation Capital. He invests in the IT, consumer, and digital energy sectors and is on the boards of CalStar Products, Dreambox Learning, InsideView, Simply Hired, and SpoonRocket. Prior to joining Foundation Capital, he worked at — and helped take public — two software startups, Kana Communications and Pure Software. He began his career in Silicon Valley at the Stanford Research Institute, now known as SRI International.