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The Uber Model Has Its Limits

customer service smallWill the “sharing economy” fundamentally change the way we work?  Platforms like the taxi service Uber, and the vacation rental service Airbnb, sever traditional bonds between a company and its employees, instead providing platforms where customers and independent contractors match themselves for the service in question.  Service providers can make themselves available at times of their choosing, but this flexibility comes at the cost of a regular salary, job security and benefits.

Observers are asking just how far this model will spread.  Will we all become independent contractors rather than employees?  Pundits like to talk in all-or-nothing terms, but common sense economics suggests a middle ground.

In addition to the established players, more online platforms are emerging in the services sector, including laundry; delivery of food, flowers and alcohol; and even massages.  Services where this model is found share several important traits:

  • They don’t require large teams of people;
  • They lack economies of scale;
  • They are not capital-intensive, beyond what a middle class household can afford (e.g. a car);

This framework suggests the service economy has both room for expansion and faces major hurdles in some industries.  A courier service, where small items are delivered on demand within a single city, appears ripe for a platform-based model. (Sure enough, Uber has tested the waters of this market.)

But consider the market for shipping on a national or global scale.  FedEx has planes, trucks, and teams of employees who know logistics and delivery routes.  Individual contractors, such as those working with Uber, would likely not be willing to travel long distances between cities, nor would it be economically efficient for them to do so.  FedEx’s 300,000 employees are unlikely to see their job status changed through the sharing economy.

Many have speculated that the sharing economy will expand to professional fields such as law.  Again, it likely depends on the type of service provided.  A single attorney can prepare a will or incorporation documents for a small company, meaning law firms specializing in these services could be on their way out.  But complex litigation involves larger teams that function more efficiently with experience working together.  This would suggest that many attorneys can consider their jobs at large law firms safe.

Fifteen years ago, the dot-com boom made the online channel a major player in many retail categories, but as many learned the hard way, it didn’t radically overhaul every corner of the economy.  Sites like Pets.com were heavily funded by investors but became legendary flops. The sharing economy, like many new business models enabled by technology, will likely lead to major changes in the markets for some services, but obstacles exist to large portions of the workforce becoming independent contractors.

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