The future of business in the modern world looks rather bleak. I keep saying I don’t like this “I have to have it now” on-demand style of business but maybe I don’t explain myself enough. So I’m about to do it now, here. I believe, and this should be taken with a grain of salt since my “belief” relies on some basic economics and math, that this new shift in business will screw things up for everybody. Why? Well, let’s see.
The foundation of business is the demand for services and goods. We can safely ignore the manufacturing of goods from the on-demand economy, because as globalization increases the demand for said goods also goes up – new markets mean more people that could be targeted. I can buy things online from our cousins across the ocean, or from Singapore, China, and so on. Their market coverage goes up. So the market for real goods is already on-demand (internet orders and online stores made sure of that). But I can’t order a taxi from a Hong Kong any more than I can order a hot pizza from Singapore. Well, I could, but.. do I want to? No. Except for anything virtual, like a call-center conversation or a programming gig, physical services are local. Since they are local, the demand for those services is limited. Since I live in a sparsely populated country “village”, well away from this mad world we’re living in, I know the problem quite well. Let’s talk demographics.
Within the population of one million … corporate drones, let’s assume 30% of those have cars they drive daily on their way to and from work, shopping, visiting their lovers, and so on. It’s a small number and not a real one, but let’s say that factoring in children and older folks gives it enough drive for this example. So we have 700k people that could one day demand taxi service. Let’s say we have 30k cabs catering to that demand, all licensed and so on, and public transportation is just right (usually, it ain’t but who’s complaining..). Now comes somebody new to this market, let’s call it “Iber” (any resemblance to real companies is carefully .. maintained). Since the demand for transport can’t go up, this company will take a few people who aren’t licensed cab drivers and make them compete with the established companies. What happens? Less work for the later, more work for the unfair competition. Why? Prices are lower, of course, the cars are cleaner, there’s always a ride if you need one, less waiting time, better customer service, and so on. The people love it. Marketing says Iber is a great way to make money in your spare time. More people join. Remember now, demand is limited. All those people needing a ride to and from work have more choices – call Iber, get on a bus, call a regular taxicab, ride a bike or walk. But most have a fixed schedule, they go to work at 9 and come home at 5 – this means most taxi business gets done around 9 and around 5. Demand being limited, both taxi companies and Iber compete for the same slot. What happens? Well, use math. The same amount divided by more parts equals less per part. Which was why cities around the world used licensing as a way of controlling who can drive a cab. But now, there’s a new thing called Iber, and it’s marketing like crazy, people flock around their banner like there’s no tomorrow. Who wouldn’t want to make money on their spare time? Who doesn’t need more money? Well.. Since licensing regs are waived and more people compete for the same amount of money at the same time, taxi companies go belly up. Iber makes a killing, they’re the ones getting all the shiny and the customers, the ones with money in their pockets that keep demanding service now, or else… they love the new status quo. Except the contractors. It’s like a feed-back loop, what goes around comes around. When Iber was new, there were few drivers – ergo they had a bigger share of the market. Since there’s no licensing for them anymore, it means anybody can drive and that drops the market share like a stone in a river. Nobody makes enough money anymore. What used to be a good thing is now comatose. Get the picture?
Now for the real world picture, it’s exactly like this. Long term, only the company peddling the service makes money because they have no real cost except for legal fees and software/hardware, and those are small change compared to what regular licensed companies have to pay their employees. Uber isn’t licensed, for instance. Their “contractors” aren’t employees and this allows them to pocket more money while keeping cost down. They get a share of every transaction regardless of the cost of the transaction. Who gets screwed? The little guys. But their customers don’t care about any of this because they’re winning. Hoorah for the new business model.
Long term, either the market implodes, the company enforces a limit on the number of contractors or they get licensed. Either way, the new becomes the old and the likes of Uber become the future taxi company, fully licensed and ready to go. All the money they’re making is short term, swindling both cities (of their licensing fees) and “contractors” (of their benefits). On-demand used to mean people in need making money in an economy where they couldn’t make enough money the usual way, employed 9 to 5 with full benefits. Now, not so much. Companies love this new approach, since their profits go up – no benefits, no insurance, easy to fire “contractors” and they keep pushing it down our throats. Their customers love it, not because they get serviced at cost (because they don’t) but because they have control over the service and the prices are lower. Geeze Louise, you’d think this was a social service (hint, it ain’t). You know what? Let me simplify this even further. The company providing the service lowers the price of the service not by lowering their profit margin (because that’s anathema, ptuey, ptuey) but by not paying benefits that their “contractors” would normally get if they were regular employees and market their service aggressively to force the regular, licensed, law-abiding competition to go out of business. See? Easy.
The only way for any business to survive is to cut the middle man. Why do you think this driverless car got so pumped up lately? I mean, who pays benefits to robots, right? Well.. That’s the future, folks. Right now, Uber, Lyft and others are in a bit of a pickle, legislation-wise. At any point in the near future, law-makers could wise up and force them to consider their “contractors” as employees. But they can’t do that if their cars run without drivers. Let’s see who’s first to blink. You think this is unlikely? Gee, I’d check again if I were you… At least Google is sort of see-through, sort of.