Gig Economy: What is it?

Definition: a labor market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.


INTRODUCTION:

There have always been contract workers in the United States, but never has there been so much opportunity for them and so much accessibility for consumers. After Uber took off, it seemed like every new company/investor wanted in on the hype and started creating on-demand for everything… food (Postmates, DoorDash, Caviar), labor (Thumbtack, Task Rabbit, Handy) and naturally helicopters (Blade) / dog walking (Wag). This rush of new companies with a lotta money provides the opportunity for money-losing strategies with the long-term goal of being the last man standing with the whole market share.

While I think the on-demand companies themselves are interesting, what I see the most opportunity in are the ancillary companies who support the demands of the gig economy. Specifically, I believe that there are more people then ever embracing the entrepreneurial spirit of working on-demand as an Uber driver or Postmate. Whenever I talk with my Uber drivers about their job they always say how much they enjoy owning their own schedule and how much money they make and a lot of them even consider it their full-time job. Where I see opportunity is in helping this labor market fully capitalize on their entrepreneurial endeavor and provide them the tools to be most efficient. In addition, I see a lot of benefits to providing services for the platforms which create the gig economy.

EXAMPLES AND EXPLANATION:

The company which I have not come across yet, but think would be great for the industry is an aggregator. If there was somehow a portal where an individual could fill in their skills/abilities and whether they had a car, then the system would tell them the the best on-demand app for them to be using at any given time. For example, if Uber were surging around them, then it would tell them to hop on Uber, but if two hours later – Postmates started surging, then it would say switch to Postmates.

Unfortunately, the reason this would not work is because the Ubers/Postmates/Lyfts don’t want to be aggregated and thrown into a price war, so they end up shutting down companies that do this such as Corral Rides.

While I understand why a company like the one I described would not work, I still think there is opportunity to capitalize on the gig economy in different ways such as the below:

Tax Reporting/Mileage Tracking – There are a bunch of companies in this space, but my personal favorite came out of Y-Combinator and is a recent winner of JP Morgan’s Financial Solutions Lab, called Everlance. The company assists contractors in tracking their mileage traveled, so they can write-off expenses when it’s tax time. The company has a straight forward interface and easily understandable value-add for it’s users.

Cash Smoothing – There are also a bunch of companies in this space, but my favorite is backed by one of Canada’s Dragons and is called Clear Banc. This company will pay users based on their account receivables from different apps such as Airbnb and Uber. The application will also provide short-term loans for users for the purposes of improving their Airbnb with amenities for examples. The company has strong backers and a strong team, which I believe make it a potential breakout star in the space.

Background Checking – This one is pretty self explanatory, but if you are going to give a complete stranger access to your home or put yourself in their car, then it is obvious you want to know they have been background checked. Companies like Chekr and Onfido provide this service for top companies in the space and I believe will grow as the number of workers in the gig economy increase.

Optimization/Analytics – The most data heavy of the bunch would be all of the companies working on the back-end. These represent the applications which navigate drivers, provide masked call-numbers, and make sure there are enough contractors available on the application. There are tons of companies in this space including Fleetmatics, Zendrive, Onfleet…

CONCLUSION:

If I were investing my money then I would not put it in the money-losing, capital/labor intensive on-demand startups, but I would put it toward the companies taking advantage of this emerging, well funded economy. I would invest in companies who are making the lives of these contractors easier whether through financial management/job management or the companies that provide critical services to these on-demand applications. I will end this post with the clearest example of this I can think of which is Twilio and Uber. While everyone is enamored with Uber and its mega-valuation, if I was an investor right now then I would be pretty happy with my publicly traded Twilio stock. While I understand that Uber has a significantly higher value, I believe Twilio’s path is a better approach for the more conservative investor.

 

 

 

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