How do Firms such as Uber, AirBnB, and Upwork Compete in the New Digital Economy ?

Introduction

Most of us would have heard of companies such as Uber, AirBnB, and Upwork that have emerged in recent years and are now raking in profits in the Billions of Dollars.

If you live in a metropolitan area, the chances are that you would have taken an Uber ride wherein you book the cab through an app, and the ride is completed in a vehicle that is not owned by Uber.

Similarly, if you have visited tourist destinations, the chances are that you would have stayed in a place that is hosted by a third party individual and who has signed up with AirBnB as a host.

Lastly, if you are a freelancer, you would have registered with platforms such as Upwork that bring together clients and freelancers.

The Emergence of the Platform App Based Aggregators

What is common to all these Digital Economy firms is that they are facilitators and aggregators whose business model consists of providing a Platform for clients and freelancers to transact business with each other.

Indeed, neither Uber nor AirBnB owns any cars or hotels or guest houses, and all that they do is to provide a meeting point for the armies of freelancers and the drivers and hosts who are part of their platform.

In other words, firms such as Uber and AirBnB are what are known as Platform economy or Platform Capitalism entities that do not have physical assets but, nonetheless, provide a service that is highly useful not to mention highly popular, and more importantly, the service makes profits in the Billions.

The Rise of the Gig Economy

Similarly, with the emergence of the Gig Economy or the paradigm of work wherein full-time jobs are a thing of the past and the norm is to work as a freelancer for any of the numerous aggregator based and platform based firms such as Upwork and Task Rabbit.

Indeed, this new world of work is qualitatively and quantitatively different from the conventional models since in this paradigm, one is not attached to any particular firm, and hence, one is free to choose which firm one works for and what kind of work one wants to do.

Apart from this, the other noteworthy aspect of all these firms is that they use the Internet and the Smartphone-based apps in a creative and innovative manner wherein these so-called app based aggregators provide a platform for clients and workers to come together and share their services that are matched with the requirements for the work.

The Contours of the New Digital Economy

Welcome to the New Digital Economy or the Sharing Economy also called as Platform Capitalism where anyone anywhere and everyone everywhere can become a freelancer who works for multiple platforms and firms that provide opportunities for freelancers to sign up and provide a medium for clients who do not want to go through the hassle or lengthy and excellent print based contracts.

Instead, all they want is to get their work done as quickly and more importantly, as cheaply as possible.

Thus, the platform firms ensure that their medium or the app is the facilitator and they make money by charging for services that they provide to the customers and in some cases, they charge the freelancers as well.

These types of firms are also known as Gig Economy firms since they specialize in providing a medium for gigs or tasks instead of jobs wherein those who want the tasks to be done can request the services of those who get the gigs done.

It is a win-win situation for both parties and especially the aggregators themselves since neither the seller or the buyer is in a longer term relationship and more importantly, the aggregators do not own any physical assets and all that they do is to make money through their innovative idea that is based on virtual contacts devoid of any brick and mortar (the conventional way of owning large physical offices) presence.

The Downsides of the Sharing Economy

One must be cautious and circumspect before heralding a new era in business as there are several downsides to this paradigm of work.

For instance, the freelancers often get the short end of the stick as they neither have health insurance nor pension and social security benefits and in addition, they can be easily replaced with another freelancer which means that they do not have job security as well.

Moreover, most aggregators pay huge commissions initially, and once enough freelancers have signed up, they revert to paying them pennies and peanuts which means that more often than not, the freelancers who by now have no choice or alternative continue to work more for less.

Apart from this, the labor laws that are supposed to protect workers do not provide any safety net as at the moment, governments around the world are still grappling with how to provide such protections for workers who are essentially, freelancers not covered by conventional contractual and legal obligations.

Conclusion: A Brave New World of Work

Thus, any attempt to explain the New Digital Economy must take the flip side as well as the downside of the paradigm. Considering that we are in the early years of what is essentially another Industrial Revolution kind of phenomenon (some have already called it the Fourth Industrial Revolution), there needs to be a comprehensive effort by all stakeholders to devise the mechanism or the mode of work, the obligations of the employers and the rights of the employees, fix accountability in case of mishaps, and more importantly, legislate laws to regulate this emerging paradigm.

To conclude, we might be on the cusp of a Brave New World of Work, and hence, it is up to all of us to ensure that this works for everyone and not for a few.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.