Is the Future of the Sharing Economy Small-Scale? - Pacific Standard

Is the Future of the Sharing Economy Small-Scale?

It could be, if companies like Uber become platform providers more than the services themselves.
Author:
Publish date:
Social count:
0
(Photo: Noel Tock/Flickr)

(Photo: Noel Tock/Flickr)

In San Francisco, lunch is more than just a meal.

Free food provided by snazzy start-ups have become so de rigueur, job descriptions now include information on which restaurants provide the catered eats. Michelin-starred chefs aren't just giving up their brick and mortars to run kitchens at Facebook and Google; they're cooking for meal delivery start-ups looking to disrupt the traditional home-cooked dinner. And for those who want to eat at their neighborhood haunts without having to leave home? A bevy of on-demand delivery services await your order.

Though Oakland, San Francisco's sister across the bay, isn't necessarily immune to tech's sprawl, a curious oddity has sprung up in the East Bay: a small local meal start-up named Josephine is thriving, and with a business model that's never been described as "Uber, but for...." The micro-start-up, which pairs home cooks with neighbors who want to buy hot meals, comes with relatively few bells, much less any whistles. The menu isn't standardized, chefs choose how little or how much they want to cook, and delivery is non-existent. Yet Josephine continues to proliferate against the odds, earning write-ups in the Atlantic, and holding its own in the hometown of the competitors that should be crushing it. An East Bay anomaly? Maybe. But don't dismiss Josephine's success that quickly.

"The middleman economy will open up the sharing economy to a bunch of little tiny companies that will allow people to share, rent, and buy locally."

As technology continues to fuel the rapid proliferation of collaborative industries, it seems that, nowadays, everyone is a consumer, producer, or often times both. The sharing economy is quickly becoming America's new normal; the industry that took in a respectable $15 billion in revenue in 2013 is on pace to see that number balloon to $335 billion by just 2025. While companies like Uber, Lyft, and AirBnB connect consumers to the sharing economy at an ever-increasing clip, so often it's the negative headlines that make the most noise—and not always without reason. Poor benefits for contractors, uncertain wages, safety and liability issues, and oft-fluctuating pricing structures continually make the news; Uber, mascot of the tech utopia revolution, faces multiple class action lawsuits in California alone, over issues such as driver employment status and improperly charged fees to riders. For many freelance workers, a second narrative has emerged: that the ostensible "sharing economy" is actually just another way for middlemen companies to exploit low-cost labor and ultimately grow into the multinational behemoths they originally intended to "disrupt."

Lost in that argument is a third proposition, one supported by an ever-growing group of economists: that the new sharing economy isn't going to continue in the manner we're currently used to, with efficiently run corporations dominating markets. Rather than putting local independent establishments out of business, the Ubers and AirBnBs of the new economy will instead license their platform at nominal rates to companies like Josephine, by lowering, quite literally, the cost of doing business. And should that theory prove to be correct, it's got the potential to change the face of capitalism as we know it.

ps_break1.jpg

Uber CEO Travis Kalanick often likes to proclaim that "Uber is a tech company," though you probably know it best as a cheaper, more reliable alternative to taxis. To envision the sharing economy going local, you must first buy into the idea that Uber is indeed a tech—and not just a rideshare—company. While their rideshare operations are immensely profitable, those who believe a localized economy is just around the corner also believe companies like Uber stand to benefit the most from licensing their technology to small companies. It's a value proposition with so much upside, the original products of taxi rides, meal deliveries, and short-term rentals will end up being sold only by local purveyors who will be able to enter the market largely because of Uber's low-cost, easy-to-use platforms.

AirBnB and Uber often get lumped into the sharing economy, though their intrinsic value lies instead in their platforms: specifically, the ease and trust with which users can connect to other users to co-op their homes, their cars, or their time and labor. The sharing economy itself is the marketplace connecting independent contractors with goods and services to those who want to use or rent their services for a finite period of time. Companies like Uber and AirBnB? Purveyors of the middleman economy—and model examples for economists who believe the sharing economy will be our future, if the middlemen tech companies start allowing small, independent contractors to use their services as enterprise software. In simple English: It's not about the short-term goals of building a better taxi company; it's about a long-term reality of making it easy for anyone to be a driver.

"The middleman economy will open up the sharing economy to a bunch of little tiny companies that will allow people to share, rent, and buy locally. If you can buy pickles, or chutney, or locally produced food that you can get delivered, the advantage of the middleman economy is that all sorts of things will become commodified that weren't before, simply because the transaction costs were prohibitive," says Dr. Michael Munger, director of the philosophy, politics, and economics program at Duke University.

"We fetishize jobs, but jobs are a product of the Industrial Revolution."

"Once these small companies are hooked up to Uber's platform, you won't even have to go pick these things up. Uber can be like the new Amazon, who has so many companies that subcontract with Amazon Web Services. Over the years, AWS has become their money making product, and that's what going to happen with Uber too."

Munger is right; just this year, Amazon CEO Jeff Bezos announced financials of the cloud computing platform for the first time, revealing that AWS is currently valued at $5 billion and growing, making it the most profitable Amazon product, and easily beating out similar offerings from IBM, Microsoft, and even Google.

Economists such as Jeremy Rifkin, author of The Zero Marginal Cost Society, say we're looking at the end of capitalism. It's not simply that marginal costs will pull consumers away in amounts that customized, high-end service can't win back; it's that technology will connect people so thoroughly in ways that aren't even fully realized yet, that information will flow so freely, costs will have to drop to zero.

"Now the phenomenon is about to affect the whole economy. A formidable new technology infrastructure—the Internet of Things—is emerging with the potential to push much of economic life to near zero marginal cost over the course of the next two decades," Rifkin argued in a 2014 op-ed in the New York Times on the rising anti-capitalism movement:

This new technology platform is beginning to connect everything and everyone. Today more than 11 billion sensors are attached to natural resources, production lines, the electricity grid, logistics networks and recycling flows, and implanted in homes, offices, stores and vehicles, feeding big data into the Internet of Things. By 2020, it is projected that at least 50 billion sensors will connect to it. People can connect to the network and use big data, analytics and algorithms to accelerate efficiency and lower the marginal cost of producing and sharing a wide range of products and services to near zero, just as they now do with information goods.

While Munger acknowledges that there's still much to be discovered about the actual sharing economy's long-term future, the wink and nod irony of the new local-bound cottage industry poised to disrupt capitalism is that it isn't new at all. As Jason Tanz wrote for Wired in 2014:

Before [the Industrial Revolution], Americans tended to cluster in small towns and farming communities, where citizens built tight-knit relationships over the course of many years. In an economic system like that, where everybody knows everybody else, there's a natural incentive to treat people well: Get a bad reputation and the whole town will know about it. That all started to change around the mid-19th century. As Americans moved from small towns to big cities, small merchants were replaced by large corporations, and local markets gave way to national distributors. Suddenly people couldn't rely on interpersonal relationships or cultural norms to safeguard their transactions; they didn't know, and often never even met, the people they were doing business with.

Munger echoes a similar sentiment, pointing out that, as a nation, "we fetishize jobs, but jobs are a product of the Industrial Revolution." Both he and Rifkin concur that the economy is heading toward a service-based model, where jobs will increasingly be done by automation and workerless work forces, shifting our economic attention back to a local production economy of goods and services.

"The new employment opportunities lie in the collaborative commons in fields that tend to be nonprofit and strengthen social infrastructure—education, health care, aiding the poor, environmental restoration, child care and care for the elderly, the promotion of the arts and recreation," Rifkin wrote.

With all the hyperbole surrounding Munger and Rifkin's theories—phrases like "The End of Capitalism" don't necessarily elicit rational responses. It is indeed easy to dismiss their work as a fringe idea in the face of the ongoing battle for the sharing economy's soul. But by dismissing the zero marginal society theory as a potential, though unlikely, outcome, we overlook one big thing: It's working.

Take Josephine, the East Bay start-up with no delivery, no set menus, and a very finite supply of meals (as much as a home cook can handle). Nothing about it is inherently convenient, and yet, its charm is so contagious, Atlantic author Robin Sloan declares that he's no longer ordering from "Uber-for-food" start-ups.

"I will tell you that my Josephine pickups have been utterly reliable generators of smiles and warm feelings," Sloan writes. "I look forward to them, not just because 'gotta eat,' but because they unlock my neighborhood, fill in the blank spaces on my mental map. And of course, it's always fun to see the insides of other people's houses."

As of recently, the Josephine website has been teasing delivery as it expands its operations—still fully staffed by the kindness of locals who want to cook and share, and don't mind their Tupperware being lent out on good faith to nearby strangers. If a company like Postmates, or even its Uber Eats competitor, offered lowered transactional costs of using their driver platform, even a bare bones bootstrap start-up like Josephine could knock down yet another barrier to local sales: delivery. In doing so, the platform makes money, the home cook earns more than he would have without Josephine, and Josephine is able to take home a profit befitting its start-up operating costs. The sharing economy functions as it actually should, rather than in the top heavy way that puts prosumers—producers and consumers—at a disadvantage.

The local economies that can grow from the sharing economy aren't just good business; they're good for the community at large, offering hope for the income equality that tech has long since promised but has yet to implement. By allowing the middleman economy to focus on being platform providers, rather than also vertically integrating product, profits increase and transactional costs drop in a way that allows local communities to afford entering the sharing economy. Uber may be one of the fastest-growing companies in the world, but it's real long-term strength may be its ability to help make the world feel just a little bit smaller.

Related