- The differences between the gig economy and the sharing and on-demand economies.
- The best ways to work with digital talent platforms and traditional consulting intermediaries.
- Commonsense logistics around digital branding, contracts, and employment issues.
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What Is the Gig Economy Anyway?
News about the Gig Economy is everywhere these days. The world seems to be awash in studies and initiatives aimed at this new world of work. Politicians are talking about it, as are journalists, businesspeople, and policy makers. Interestingly, the discussions don't always have a common thread. Here is a sampling of some recent headlines:
"Skilled Professionals Will Dominate the Gig Economy, Report Says" (David Williams, Small Business Trends, 3/17/16)
"The Entire Online Gig Economy Might Be Mostly Uber" (Josh Zumbrun, Wall Street Journal, 3/28/16)
"Most Benefits of the Gig Economy Are Completely Imaginary" (Rebecca Smith, Quartz, 3/4/16)
"The Gig Economy Is Growing and It's Terrifying" (Hamilton Nolan, Gawker, 3/31/16)
"PWC Launches an Online Marketplace to Tap the Gig Economy" (Financial Times, 3/6/16)
Maybe it is just me, but it is hard to glean a common theme by perusing these news items all from the same month. On one hand, skilled professionals may make up the majority of the Gig Economy, but on the other, perhaps it is just comprised of Uber drivers after all. Any benefits may well be illusory, but obviously Price Waterhouse Coopers (PWC), the giant, well-respected, professional services firm, doesn't see it that way, and has invested not only its capital but also its brand in a digital talent marketplace. Nonetheless, despite the entry of premier firms like PWC, the future of the Gig Economy is scary. The contradictions go on and on. So what is the truth?
As Oscar Wilde said, "the truth is rarely pure and never simple." And that would be the case here. Part of the problem is language; not only does the Gig Economy mean different things to different people, the very word gig does as well. So without a common vocabulary and therefore a common starting point, confusion reigns. There are also adjacent issues, such as all of the technology platforms pursuing this space, the absence of benefits or a social safety net for many participants, and the resulting emotion arising from the social impact of the movement. Taken in its entirety, the topic can seem overwhelming. It's not, so let's dial it back and get on the same page.
The Gig Economy Defined
Let's start at the beginning and develop a common understanding of what the Gig Economy is and what it is not. Dictionary.com offers as its fourth definition of the word "gig" — behind a two-wheel carriage, a fishing hook, and a military demerit — the following:
1. A single professional engagement, usually of short duration, as of jazz or rock musicians.
2. Any job, especially one of short or uncertain duration.
The first reference became widely used in the 1920s as jazz became more popular in America. Musicians would refer to the work they would secure with a band, whether for one night or for one month, as a "gig." Similarly, someone who moonlighted as a musician might refer to the work as a "side gig."
Other uses of gig began to emerge, especially during the Depression, as companies hired day laborers. Rebecca Smith, the deputy director of the National Employment Law Project, points out that today's big Gig Economy companies, like Uber and Instacart, all talk as if they are different from old-style employers simply because they operate online. "But in fact," she says, "they are operating just like farm labor contractors, garment jobbers and day labor centers of old." Similarly, as the World Economic Forum Report just noted "although digital formats for connecting people to work are new, the act of ad-hoc work or self-employment is not."
The extension of the gig concept to any job including highly skilled ones began to build in the 1980s. The corporate consolidations in the 1980s redefined the employment landscape. In the latter half of the next decade, the number of firms falling off the Fortune 500 list reached new heights, as the earlier decade's merger and acquisition activity led to massive restructuring of bloated organizations ravaged by inflation and international competition. Layoffs came to be known as downsizing and then, even more euphemistically, rightsizing. These staff reductions combined with the adoption of new "just in time" management philosophies resulted in the elimination of many managerial roles. This launched the first wave of modern freelance businesspeople.
Freelancers had long been a staple in the creative industry; advertising creative directors built their reputations on the stable of freelancers they controlled, whether they were copywriters, illustrators, or photographers.
The movie industry, too, had been a freelance marketplace, since the 1940s. From its origins in the 1920s, it was vertically integrated; actors, directors, writers, and technical staff worked for the studios, and the studios owned the cinemas. The time period, referred to as either the studio system years or the Golden Age of Hollywood, was known for formula movies, with actors playing very similar roles in similar stories, because the business formula was to utilize the talent that was on the payroll at the studio. (Think about all those old Fred Astaire and Ginger Rogers movies.) The change came in 1948 when a Supreme Court ruling required the studios to divest themselves of their distribution operations. At the same time, a threat appeared from another corner, as technological advances resulted in a new media form: television.
As the studio system broke down, the talent began to take control of their own careers. Talent agencies emerged as the market makers in talent, and unions arose to protect various specialties. In fact, many have pointed to this parallel as a reason why Gig Economy workers may need to unionize. In the movie business today, people come together in all the disciplines (writers, actors, set designers, assistant directors and key grips, to name just a few) to create a film. Once it is over, the various players disband and go on to the next gig.
Gig work in the mainstream business world evolved a bit more slowly. It wasn't until the 1980s that independent consultants in core business functional areas, such as finance, marketing, and human resources, began "hanging out their own shingles" or going into business for themselves in large numbers. In the next decade, as technology changed business communications and enhanced mobility, the trend accelerated.
Other factors drove this entrepreneurial development as well. In 1989, Felice Schwartz of Catalyst, a national organization focused on helping women chose and manage professional careers, published the now-famous "Mommy Track" article, in which she revised the notion of the glass ceiling for women in corporate positions. She pointed out that maternity leaves and family obligations impaired the upward mobility of women in corporate America. That said, many women were opting for a different future, one in which they could marry their professional expertise and their need for flexibility in their personal lives. Credentialed women with advanced degrees and strong business experience became consultants to gain control over their lives.
Similarly, others became consultants because they wanted to write the great American novel, build furniture, or write music; consulting enabled them to fund what might be a less lucrative but more rewarding creative pursuit. For example, one of our top consultants at M Squared had been the head of international human resources for one of the largest banks in the world, but his passion was sculpting. Being a sculptor is a dirty profession, so he wanted a more flexible professional lifestyle in which he could spend entire days not in an office. On those days, he could also pursue his passion and not worry about all of the marble dust.
Firms emerged to create a market to match the buyers, companies, with the sellers, the consultants. My firm, M Squared Consulting, was one of those early pioneers, and frankly the marketplace did not know what to make of us. We had a network of independent consultants that we matched to projects to help clients meet their business needs. (We had this network before the Internet, I might add, but I am dating myself.) On the one hand, we were like staffing firms, but our people had higher billing rates. On the other hand, our services were akin to executive search firms, because we were locating very specific expertise, but the roles our consultants filled were temporary. Then again, we were also like consulting firms, because we handled the same type of high-level problems and bid on the same projects as brand name consulting firms, like McKinsey or Accenture. We were a hybrid service in a nascent market that was ready to take off. Because this was a high-value service, an intermediary to facilitate the process made economic sense for all involved; getting just the right expertise for a high-profile, mission-critical gig was worth the cost.
During the last 10 years, the market has changed dramatically as new technologies enabled the development of large-scale marketplaces for relatively low-value services. Now, with the ubiquity of mobile communications, the proliferation of apps, and America's impatient 24/7 way of life in most urban centers, identifying someone who could make your life more convenient, by delivering your groceries via Instacart or getting you where you need to be through Uber, became worth a price. This convenience dimension is what most people refer to as the OnDemand Economy. Investors determined that this convenience factor had sufficient volume so that even though these new firms offered a relatively low value service, money could still be made.
In Chapter 2, we will explore more about who these gig workers are, but for now, let's agree that a gig is a job of uncertain duration in any field, whether it's a driver, a freelance artist, or an interim CEO. "Gigs" are what has historically been called contingent work, whether it is secured by the worker, through a staffing company, through a human capital company, or through a digital talent platform. The Gig Economy, then, refers to the companies and business systems that have evolved to support this independent work.
The On-Demand Economy
The On-Demand Economy is a subset of the larger Gig Economy and refers to economic activities that arise from digital marketplaces that fulfill customer needs through "immediate" access to goods and services. Immediate is noteworthy here, as that is a relative term. My need for transportation now means that I want my Uber driver to arrive as soon as possible. In fact, a half hour would be a long time to wait. That said, I may have an immediate need for an interim CFO, but I do not expect to see that person on my doorstep (truthfully, that could be a bit disconcerting), but finding them in a day or two would be tremendous. Immediacy, then, is conditioned by the skill set I am seeking.
That skill set also adds other parameters to the decision. I don't care who picks up my dry cleaning through TaskRabbit, but I do care who steps into run my marketing department while my manager is on maternity leave. So, an additional consideration is the duration of my need. Similarly, anyone can put up with even the chattiest Lyft driver for a short trip, but if I need a project manager for six months, I want to have a better sense of the individual filling that role. The chemistry or fit of the individual becomes more of a factor.
One could make the argument that the difference in immediacy is whether the customer is a business or an individual; immediacy has a shorter half-life in the B2C (business-to-consumer) market than it does in the B2B (business-to-business) market. That said, there are some individuals who buy services from marketplaces such as Upwork, a digital marketplace for programmers and creative freelancers, or the Gerson Lehman Group, an expertise platform. This author, for example, contracted for certain industry research from an expert procured on Zintro. In fact, 26 percent of Gig Economy workers spent $101 billion in 2015 hiring other independent workers. The following chart gives a sense of where different business models fall in this immediacy framework.
One key aspect of the new On-Demand world is that it is based on a technology platform, and the platform handles the settlement of the financial transaction. At the higher end of the skill spectrum, the platforms are built with algorithms designed to match the precise expertise needed for the client with the requisite experience of the individual. The algorithms improve as more successful matches are made, and as such, there is a first mover value; the firm that can capture the largest number of projects at the start will be further along in perfecting its algorithm. (We will discuss the talent platform world in more detail in Chapter 6.)
The economics of the On-Demand world dictate that the shorter the time frame, the lower the fee, and similarly, the more commoditized the expertise, the lower the fee. As such, the platforms in the lower left of the preceding chart are predicated on highly efficient operations and high volumes. They also benefit from the network effect: the more people in the network, both users and gig workers, the more volume is generated, and the higher the value of that network.
These firms in the lower left also have the largest challenge from an employment law standpoint. The tasks performed are low skilled. Most players started with the lowest cost business model, calling their gig workers independent contractors (ICs) rather than employees. Legally, ICs, because they are not employees, do not get the benefits typically accorded to employees such as payment of statutory payroll taxes, paid time off, access to healthcare, and retirement programs. These costs for the employer are estimated at 32 to 37 percent of payroll costs. It is no surprise, then, that many on-demand companies started with the idea that their workers could be ICs.
Alternatively, employees need to be managed by strict wage and hour regulations, so there is a level of inflexibility to these roles. A hallmark of the on-demand service world was that the workers could set their own schedules. As such, the reasoning went, the workers shouldn't be viewed as employees.
Unfortunately, this area of the law is ambiguous at best, because "independent contractor" (IC) is an undefined term in the law. (See Chapter 7 for more on this subject.) Because there is no legal definition of an IC, tests have been developed that take into account agency law as well as other factors. The IRS has put the most widely used framework together in its "20 Points" that define an independent contractor. These include things like having their own tools, being able to experience a financial loss, and receiving no training. Unfortunately, not all of the conditions need to be met, and some are more important than others. This makes for a very murky picture of what constitutes an IC versus an employee. In the last 20 years, the two key things that businesses have drawn from the "20 Points" are that the most important considerations are direction and control of the enterprise over the individual; if you direct and/or control the work of someone, they are likely your employee.
Many on-demand service companies are changing the way in which they treat their gig workers. Eden, a grocery delivery service, decided it wanted to have more control over its employees to improve customer satisfaction. Munchery, a prepared food delivery service, needed to be able to exercise more control over schedules and thus employees to ensure on-time deliveries. Similarly, valet parking service Luxe needed the power to assign its valets to certain locations to ensure coverage. Control was key in all three cases. These business model changes could have occurred for any number of reasons, but it is hard to imagine that staving off a government employment lawsuit was not one of them. Witness another firm that did not change its model. Homejoy, a house cleaning service, backed with $40 million in venture capital, did not make the call soon enough and ended up closing its doors in 2015 in large part due to worker misclassification issues.
Washington is taking notice of all this activity. The Department of Labor (DOL), acting in a way that, in hindsight, seems foolhardy, stopped its regular reporting on the contingent economy in 2005. It announced in January 2016 that the DOL will be reinstating that study in May 2017. Different politicians are calling for increased scrutiny and potentially regulation of the employment practices of the On-Demand Economy. Elizabeth Warren, speaking about these employment issues, recently said:
The gig economy didn't invent any of these problems. In fact, the gig economy has become a stopgap for some workers who can't make ends meet in a weak labor market. The much-touted virtues of flexibility, independence, and creativity offered by gig work might be true for some workers under some conditions, but for many, the gig economy is simply the next step in a losing effort to build some economic security in a world where all the benefits are floating to the top 10%.(Continues…)
Excerpted from "Thriving in the Gig Economy"
Copyright © 2017 Marion McGovern.
Excerpted by permission of Red Wheel/Weiser, LLC.
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Table of Contents
1 What Is the Gig Economy Anyway? 27
2 Sizing the Gig Economy: The Lay of the Land 41
3 The Demand Side of the Gig Economy 59
4 Building Your Independent Brand 73
5 The Price Is Right 97
6 Selling in the New Marketplace 105
7 The Nasty Little Employment Problem 123
8 The Employee Experience as an Independent 137
9 The Gig Economy Ecosystem 153
10 The Future of the Gig Economy, Part 1: Policy and Politics 161
11 The Future of the Gig Economy, Part 2: The Workplace and Workers 177
Appendix A Selected Intermediaries and Digital Platform Companies 191
Appendix B My Digital Platform Experience 199
About the Author 221