More than one-third of the U.S. workforce (36%) participated in the gig economy in 2018, a figure that some predict could rise to more than 50% by 2023. This trend accelerated significantly in 2020, largely driven by the fallout from Covid-19 and its impact on small businesses and larger employers’ budget and resulting mass layoffs.
Regardless of whether this shift is being driven by individual preference or necessity, there are significant public policy interests at hand: many safety net benefits for individuals in the U.S. have been funded or administered by employers. Accordingly, there have been state legislative efforts to force the companies enabling gig work – technology platforms such as Lyft, DoorDash, UpWork and others – to categorize the workers as ‘employees’.
2020 saw platform companies fight back, collectively spending $200 million to promote (and subsequently win) the Proposition 22 direct ballot measure in California, which exempts these companies from classifying independent contractors as employees.
With platform tech giants spending this type of capital to protect their interests, questions have come up around how to protect workers concerns.
One answer? A ‘public market’ marketplace option: creating a government-run gig economy platform, which could infuse competition into marketplaces that have historically been thought of as “winner take all” and could protect for gig workers’ interests and that of the public.
But, should the government be in the gig economy marketplace business?
British entrepreneur, Wingham Rowan, founder of Modern Markets for All and a long-time TV and media figure, believes so. A vocal proponent for a public gig-work option, Rowan believes that having government-run marketplaces is the best way to improve in the best interest of gig workers and provide a public good — and the only way to address what he outlines as the key issues impacting gig workers.The public marketplaces, which Rowan calls “Public Official E-Markets”, or POEMs, would be overseen by government entities or non-profits to ensure they are run as public utilities.
Roadblocks To Public Platforms Solving The Gig Economy’s Problems
There are a few problems with taking a POEM-approach to expanding the gig economy that Rowan and policymakers should consider prior to making any investments:
1. Big vision vs nailing the narrow “core interaction”
Rowan outlines a big, bold vision for how a government-run gig economy platform could provide a public benefit, with the article noting that, “If public e-markets really took off, they would fill with a constant hum of microeconomic activity, drawing an ever-wider set of people into exchanges of goods and services without private companies cashing in.”
The challenge with this big vision is that by their very nature, platforms that seek to be successful must start out with a very limited scope. Why? Three key reasons:
- The value of the platform itself tends to come from the size of the network of users of the platform (commonly referred to as Network Effects);
- In order to attract users they typically face a “chicken and egg” adoption problem in which each “side” of users (buyers or sellers, for instance) wait for the other to join; and
- In order to create enough value to keep each side on the platform, they need to quickly facilitate enough value to both sides that both decide to continue using the platform (and not other methods) for future interactions
This may all sound easy, but even if one solves the adoption problem, this can prove a false victory if the third piece is not addressed in time. Termed the “core interaction”, this seemingly simple concept largely explains the difference between eBay and Yahoo! Auction, Bumble’s success by putting women in control, and Lyft’s increasing ride-matching success.
If the platform cannot create successful interactions for those first early users, those users drop off the platform, which reduces the value to remaining users. Indeed, Rowan himself seems to recognize the folly of ‘big vision’ thinking based on his experience with a government-run platform: “‘The first week, with very little publicity, they had eighteen thousand hours of residents’ availability for work…. [but] they had seventy hours of demand from employers, because nobody had thought to outreach to the demand side.’”
2. Government as matchmaker and holder of sensitive financial information
A primary role of most gig economy platforms is to help reduce “search costs” by providing a curation function: to make a match between supplier and consumer as easy, fast and successful as possible. This curation can come in different forms: Lyft uses GPS to efficiently match drivers and riders; Amazon allows users to rate the quality of products and merchants; Airbnb encourages hosts to post pictures so guests aren’t surprised, etc.
A secondary role of platforms is to minimize “transaction costs,” which are all costs associated with consummating a commercial transaction, including those not commonly thought of. Upwork, for instance, provides standardized contracting, dispute resolution, payment, and other services to remove as much friction as possible for both sides (the payer and freelancer) of the transaction.
Rowan makes the case that a government-run platform could fulfill the same set of functions: “As on Uber, buyers and sellers would accumulate reliability records; unlike on Uber, features such as health-care contributions and retirement benefits could be built in.”
To this end, there are two immediate (and likely many more) questions that come up that pose a challenge for any government-run platform:
- When push comes to shove, which “side’s” interest should drive the matching algorithm?
- Do we really want the government (or a contractor) storing the type of sensitive personal information necessary to make transactions seamless?
Regarding the first, there are typically small nuances that make or break a platform’s matching success. Bumble IPO’d this year because it put women (not men) in charge of matchmaking and the first point of outreach; similarly, Lyft outperforms Uber with a smaller network in part because it focused on and prioritized the importance of managing the quality of both its drivers and riders. At the end of the day, the challenge for a public marketplace will be in determining which side’s interests are preferred in order to determine the proper matching algorithm — and this isn’t easy, especially when trying to serve a public good.
Regarding the second — and what could ultimately be the public option’s fatal flaw — it maps back to consumer trust. Platforms like Uber and Lyft, DoorDash and GrubHub, etc. all store personal and financial data about its users to drive quick, seamless transactions. Will the American public want the government to have visibility and control of our private information? There will be inherent trust issues in that people may not trust a government-run platform for that very reason.
3. Platforms require organizational agility, not exactly the government’s strong suit
From 2006 to 2016, research indicates that 94% of large federal information technology projects were unsuccessful, more than 50% were delayed, over budget, or didn’t meet expectations, and 41.4% were deemed complete failures. Because governments and nonprofits typically do not have the technical skills, experience or resources required, they are not in the position to launch, manage, grow, govern, or monetize a gig-focused platform company.
Furthermore, developing a plan to attract and create value for just one set of users requires rapid testing and iterating on a multitude of factors; doing this for two different sets of users is even harder.
There are also user interface and experience (UI/UX) considerations, which require both a very specific set of technical skills to build and constant improvements to keep up with changing market expectations. We don’t usually associate public utilities with having a slick UI, but this is an incredibly important part of creating platform “stickiness” in terms of keeping people active on the platform.
Shortcomings in both of these areas should raise a red flag: research suggests that platform companies fail at twice the rate as non-platform tech startups. And in a recent study of 250 platforms, the authors found that many gig economy platforms collapsed within two to three years because they did not have enough users or funding.
While Rowan does mention having a private company involved in public platform development in his article, simply outsourcing this function and to a private company with the lowest bid for the job — or, worse, to a government entity or non-profit with little to no experience in platform development and marketplace creation — is likely to be the public platform demise.
An Example And Exception: HealthCare.Gov
With the enactment of the Affordable Care Act (ACA) in March 2010 came the introduction of health insurance exchange marketplaces, including Healthcare.Gov. Launched on October 1, 2013, HealthCare.gov lets consumers compare and shop for coverage, identify if they qualify for federal subsidies, and enroll in a chosen plan.
Like other federal IT efforts, Healthcare.Gov’s rollout was anything but smooth. The initial failure was mocked by government officials and talk show personalities alike, with only six individuals successfully completing and signing up for individual insurance on launch day. It also came in at ~17X its initial $93.7M budget, ultimately costing $1.7B.
Today, the experience on HealthCare.gov is much different than it was eight years ago. This is largely because of the government’s fixed technical issues with the site itself, but also because the platform itself serves different functions than those that Rowan envisions.
First, HealthCare.gov itself has a process by which individuals can identify if they qualify for a subsidy. Second, the insurance exchanges aggregate vast amounts of information from multiple plans and provides that information in a standard format, allowing for easy search and meaningful comparison shopping. Third, the nature of shopping for health insurance is more similar to buying a house than hailing a taxi: purchasing decisions are few and far between, and there is significant money at stake in the transaction, and there
Finally, HealthCare.gov now has the budget behind it to make it work after substantial budget cuts under Trump. The Biden administration recently committed $50 million in spending to help market and promote Obamacare insurance options to eligible enrollees. The administration is also working to secure more “navigators,” human beings available to help walk enrollees through their options and the process to ensure they are paying the lowest price possible.
Public vs. Private Run Marketplaces and Platforms, And What Can Work
With both state and federal public health insurance exchanges as an example, there are certainly instances where the government can play a role in public marketplace development:
- There is a high-degree of information asymmetry between consumer and supplier
- The cost of a failed transaction (or poor quality service) is high
- There is significant utility provided to a large group of consumers by standardizing and simplifying the way options are presented
- Purchasing decisions or information exchange needs are infrequent
When these conditions are met, a government-run (or sponsored) platform may yield value.
But for most other marketplace and platforms seeking to make commercial and information exchange more efficient, private capital is much better positioned to succeed. In healthcare, for instance, despite millions of taxpayer dollars invested into interoperability efforts, adoption and use remains low. While there are additional contributing factors for why this is the case, it is also true that most forms of health information exchange deal with frequent interactions between providers (and/or patients), different groups of providers and patients have different information needs, and standardization at too high a level renders information to any one constituent virtually meaningless.
Platforms will undoubtedly continue to expand their utility across industries and find new use cases in both the public and private sectors. But just because you build it, it doesn’t mean users will come. Successfully launching and scaling platforms requires the right expertise, experience and resources, plus an in-depth understanding of the market forces at play. Without that, a platform will remain in a field of dreams, without any players, and a very disappointed Kevin Costner.