Thinking Economic Transformation, by Mitch Ratcliffe
Author: Mitch Ratcliffe
Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.
Food delivery is consuming the soup business. Campbell’s Soup appears to be losing out when consumers want a fast easy lunhc or dinner. The analysts on the CNBC segment make the point that GrubHub’s current valuation is momentum-driven and that Campbell’s is underpriced.
What about Campbell’s delivery? When does the food brand move to engage through home delivery? Or does the Soup Nazi break into homes?
The rationale for buying Campbell is that canned soup remains attractive. At today’s prices for Campbell’s stock, it looks like a deal, but does delivery mean that fewer cans of soup will line kitchen pantries in the future?
California’s gig economy is not sufficiently broad and deep — that is, there are not enough types of work to create real differentiation of labor — to support prosperity, as 47 percent of surveyed gig workers say they are impoverished. Note, too, that Californians are suggesting to their children move elswhere for better opportunities.
If companies want flexible labor pools, they need to open up more work for flexible work based on premium prices paid for good work. Simply turning every type of work into a commodity task, and lowering the pay, is a fast-track to the bottom. Economic prosperity starts in the household, not the office. Try to keep an office open without enough customers.
…the PRRI survey found nearly one-third of all Californians and 47 percent of workers in the Golden State are struggling with poverty, while 53 percent are not. California ranks as the fifth-largest economy in the world, but its high cost of housing in many parts of the state mean more than one in five children live in poverty, according to the California Budget & Policy Center, an independent policy research center based in Sacramento.
Kessler told NPR’s Hari Sreenivasan: “…what I found is that there is a world in which like this story that startups pitch about this being like wonderful and independent and all you need. It really exists but it exists for people who have skills like programming computers versus some of the people who I followed who were trying to make ends meet on the lower end of things.”
The hyping of gig work is relentless. Yes, it can work. Yes, it is hard to make ends meet, but there is not sufficient connectivity to work, yet, to deliver on the promise of flexibility because too often gig workers are left hustling for low-pay alternatives to a good job.
What’s missing? Benefits and a commitment to shared prosperity, as well as greater scale to enable one person to conveniently move between earning from the skills they possess. We must organize our society so that people can thrive. That’s on all of us, employers and workers, to debate and codify, whether in contracts, regulations, or both.
Louis Hyman’s opinion article in the Times provides an apt answer: “The history of labor shows that technology does not usually drive social change. On the contrary, social change is typically driven by decisions we make about how to organize our world. Only later does technology swoop in, accelerating and consolidating those changes.”
Platform marketplaces, such as Uber, Airbnb, TaskRabbit, and others, have focused on their success relentlessly, forgetting about their workers’ prosperity and, in some cases, the worker’s humanity. This is why we need clearly articulate laws about the relationship between company and worker, regardless of the form that relationship takes. Kessler’s comment, that “there’s really no clear definition of what makes and employer or what makes an independent contractor” is emblematic of the ongoing evolution of work.
Hyman’s take is that we’re mistaking governance for technology, allowing startups to dominate the economic and legal debate because we are distracted by technology:
Internet technologies have certainly intensified this development (even though most freelancers remain offline). But services like Uber and online freelance markets like TaskRabbit were created to take advantage of an already independent work force; they are not creating it. Their technology is solving the business and consumer problems of an already insecure work world. Uber is a symptom, not a cause.
He’s suggesting, if I may interpret him broadly, that we are being gaslighted into thinking that technology is changing our lives while the real culprits get away with outlandish profits by defining unfair work relationships. And he is correct to the degree that contractual terms are changing labor power, but he is wrong that Uber is a symptom and not a cause. Uber is an organization that found an efficient way to drive more temporary work by implementing technology with built-in unfairness.
First-movers always set the new terms of a business in a nascent industry, yet they are almost always superceded by organizations that bring both quality or efficiency to market along with fairness for the consumer, worker, and society in which they operate.
Most analysts focus on the pace of technological change, but now we are at the cusp of a massive socioeconomic change based on the potential for completely new ways to organize using technology. Hyman is correct that it is corporate leadership and political pressure that actually shapes economic fairness. The overwhelming force that will change work is visible in the sometimes wild-sounding speculation by crypto-currency promoters and blockchain experimenters, who have some of the answers.
Everyone needs to look past the technology to the people, who are our fellow humans and citizens, as well as the customers we count on to drive economic activity that supports business. They come before the business, and the businesses that become indispensible to people will thrive whatever we call these new work relationships.
ClassPass, the New York-based health club subscription service, raised a new round of $85 million to expand domestically and in Asia. Here, in a nutshell, is what this trend means:
Real estate is completely fungible. Location, location, and location still matter, but the physical property must be tuned to what product or services are in demand locally while a third party like ClassPass drives the foot traffic that generates revenue. Health clubs are a natural starting point, but just as a beauty salon rents chairs to stylists, local property owners should be thinking about how to build multi-use venues where speicalized services or products delivered in person, with great customer support.
Local selling and service remain the uncharted waters of the economy, and now everything is susceptible to the subscription model. ClassPass isn’t the only pioneer in this trend, but it gets today’s “Attaboy” for proving investors are following the subscription trend.
56 percent, 36 percent, and 30 percent — the share of large, medium, and small news organizations that have experienced lay-offs since January 2017, according to Pew. These are interesting numbers that describe the inverse scaling problem in news. After the New York Daily News cut half its staff yesterday, New York is facing a lack of local news coverage. Yet Tronc, the owner of the Daily News, said it will concentrate on breaking local news.
The problem is, the Daily News will not maintain beats to uncover news, rather it will simply focus more on covering stories when they break. That’s a reactive approach when a proactive, deep-digging press is needed to ferret out real news, you know, the issues that impact our lives, policy-making, and other material issues citizens face every day.
Back to the numbers. If large papers are being cut deeply, with 56 percent suffering lay-offs in the 16 months of The Pew Research Center’s study of newsroom attrition, perhaps smaller papers are the way to go. That is, focus more on local activity and leave break non-local news to bigger news organizations. Only 30 percent of smaller papers were hit by lay-offs, though it is likely because they have been cut before. However, they may have stabalized as publishers realize there is a lot of money is well-made local news and information.
The net has inverted news coverage while the newspapers and many online organizations blithely focused on fewer traffic-driving topics, allowing smaller news teams to do a better job.
Every community — physical and virtual — needs coverage. Launching and running a publication is never easy. Local or specialized coverage can be affordable, but not on the traditional newsroom model that attempts to provide a global view of events. Beat-based tenacious reporting uncovers news people need. Apparently, that’s working for smaller papers and sites that don’t try to implement news gathering in the industrial model. Local craftspeople make local news.
At minimum, the smaller papers (which include their on- and offline offerings) seem to be finding an equilibrium between the market they cover and the cost of covering it. More small, very targeted news sources can respond to our crisis of confidence in media by returning to the news’ primary function: Explaining what is happening instead of mostly concentrating on who is winning.
Larger newspapers – those with circulations of at least 250,000 – were more likely than smaller-circulation newspapers to have experienced layoffs between January 2017 and April 2018. Nine of the 16 newspapers with circulations of 250,000 or more (56%) had layoffs. By comparison, that was true of 16 of the 44 newspapers with circulations between 100,000 and 249,999 (36%) and 15 of the 50 newspapers with circulations between 50,000 and 99,999 (30%).
Information asymmetry has been the basis of the Gig Economy to date. Marketplace providers know so much that the worker cannot possibly negotiate a better deal. Consequently, we see that millions of people who earned far more as full-time employees are now scraping by on one-third or one-fifth the pay they used to earn when gigging in similar jobs.
Regulation could solve this, but so could a new business model in which platforms partner with workers to build sustainable independent businesses. That means they can earn enough to live and retire, take care of their healthcare costs, and have the flexibility that a full-time job cannot offer. Business would do better to lead than fight this evolution.
Gig and full-time jobs are converging on the question of compensation and benefits. We just have not seen the leverage needed for workers to differentiate their offerings and market them.
What is that leverage? The ability to differentiate services, which is primarily a sales and marketing issue. When platforms allow workers to differentiate what they do, treating them as unique local options instead of commodity-priced infinitely replaceable cogs, the opportunity for fairness will follow. And, I believe, the marketplaces will be poised to earn far higher revenues.
Creating a labor market that supports everyone who works requires extending the benefits and protections awarded to full-time employees to all workers. It’s a monumental undertaking, but a necessary one if we want to walk the talk of supporting entrepreneurs and if we want to maximize the potential of our increasingly self-employed and independent workforce.
Kindly Care is taking a marketplace approach (e.g. “the Uber of…”) to home caregiving. This is a category ripe for the on-demand approach. Like Uber, Kindly Care will take 20 percent to 25 percent of hourly wages and handle all the financial transactions and tax “arrangements,” which seems to hint at tapping Medicare and other programs for payment.
Now, another startup in the space, three-year-old, San Francisco-based Kindly Care, is taking more of a marketplace approach, pairing vetted caregivers with families who need them, then helping both sides manage their financial and tax arrangements by acting as their back-office provider.
BMW’s new ReachNow Seattle-centered service experiment turns on quality and differentiation of service. But it also will use full-time employees contracted from a local vendor. Differentiation of service relies on more than commodity workers, it involves an eye for customer preferences — ReachNow includes in-app preferences, such as “Quiet ride” and air temperature. These preferences are expected to justify a higher price, yet they depend on a human to do the work of changing the air conditioning and tuning the radio.
In non-driving settings, workers add far more value and will eventually be treated as providing value and not solely a commodity service. This move represents a decision to have trained, familiar employees represent a brand. That can be accomplished in an on-demand arrangement with workers, too. It’s just a matter of time and economic conditions.
BMW is contracting them from a company called Ecoservice, according to The Seattle Times. While Uber and Lyft incentivize drivers to make as many trips as possible, with pay coming from a cut of each fare and bonus opportunities tied to overall volume of rides given, the ReachNow ride-hailing sounds like it will emphasize quality over quantity. Drivers are paid $14.25 per hour and have set shifts, will be eligible for benefits, and can even bring in a 5 percent bonus each week if their rating stays between
So what’s left to do with online sales? Almost everything. Jeff Bezos knows this, which is why he pushes Amazon into so many new markets. There is, however, a limit to virtual trust. Bhaskar Chakravorti, Dean, Global Business and Founding Executive Director, at The Fletcher School of Tufts University, wrote at the World Economic Forum in January:
As the boundaries of the digital world expand, and more people become familiar with internet technologies and systems, their distrust will grow. As a result, companies seeking to enjoy consumer trust will need to invest in becoming more trustworthy more widely around the globe. Those that do will likely see a competitive advantage, winning more loyalty from customers.
Brands will be trusted when they are part of the consumer’s community, and that will include their local physical community. Having people on the ground and participating in local events, fund-raising, and improvement projects will help to convert skepticism into trust, but it is the salesperson who will close and support most of the transactions that typify offline commerce.
The challenge is how to get enough salespeople into the local market. Hiring full-time reps is prohibitively expensive, so flexible sales networks will be built instead.
Selling is an extraordinarily hard part of economic life that as many as one-in-five workers do to generate the revenue that pays the rest of us. Gaining access to consumers, getting them to trust and open up to share what they want or need, and moving them along to making a purchase takes time, money, patience, and enthusiasm that the hardest working engineer could hardly bear. And selling is changing.
Amazon’s growth, from early e-commerce pioneer with $511,000 in revenue after 17 months to $177.8 billion in 2017, has always turned on its success in bringing new products to market through digital channels. Product managers, now frequently assisted by machine learning tools, have had to find ways to communicate and sell remotely. Amazon is so big it can’t put all its marketers in one city.
But in recent years, Amazon has purchased physical retailer Whole Foods and opened bookstores, grocery pick-up, and automated grocery stores to establish a physical relationship with consumers. One of the rumors heard at the Direct Selling Association meeting last month: Amazon has been asking direct selling companies how they build their networks.
Retail is under the gun from e-commerce, and Amazon is certain to claim more share from physical stores. As commerce becomes more intimate and socially driven — which, as we’ve seen in the past two years, is a fraught road for brands, politicians, and celebrities — a human face representing brands and local businesses will become a trusted interface. They need tools and training to be successful, but people are the key to extending the growth of online markets into physical neighborhoods.
The myriad small businesses growing in the gig economy now are the bricks out of which retail market share will be rebuilt. Loosely connected, mobile-enabled salespeople can take sales relationships almost anywhere. Sales will migrate to gig models as full-time and part-time compensation and benefits converge.
Online sales now total approximately 10 percent of all U.S. consumer revenue. If, over the next decade, Amazon doubles or even triples its revenues, well over 80 percent of the market will be up for grabs each day.
Postmates is working with Instacart, a competitor, to deliver groceries in the Bay Area during peak-demand times. Here are two home delivery companies, who probably have overlapping workforces (many giggers use several marketplaces to keep work flowing) with largely unique customer bases (if standard brand thinking holds and consumers do gravitate to single-brand relationships for convenience and to simplify their decision-making.
Postmates, obviously, has offered delivery-as-a-resolve for merchants and brands since its inception, and some of those brands, such as Walmart, offer their own delivery services. But this marks the first time that Postmates has offered delivery-as-a-service to a business that itself is already a delivery service. – TechCrunch
At some point, apparently this week in the Bay Area where all this gigging started, marketplace platform companies run into the unavailability of human resources when they have consumer demand for those resources. Then, they will start to partner to find local people to do similar services, as Instacart has with Postmates. Now that they began a financial relationship Instacart will likely explore acquisition to improve margins in the geographies where delivery services are in highest demand. The Bay Area is just the first example of the emerging trend in deilvery, but it will spread to other on-demand segments.
Logistics services, mass transport-scale driver-manned or autonomous vehicles, and a variety of home-focused services will discover improved profitability — and deliver their service at lower prices — through mergers & acquisitions. One bet about which I’m confident is that local selling capabilities will be distributed to , for example, as brands seek influential sellers who can sell their communities products and services.
Just imagine the mind-bending antitrust questions that will come up as the personalized relationship with consumers could be monopolized by a platform.