Commentary

Is The Sharing Economy Terrible For Sellers?

Technology is awesome. No, seriously: awe-some, as in, I am continually in awe of what is possible. In moments, you can create your own versions of famous movie intros. For $5, you can hire someone to paint your logo on their body. You can contribute toward a campaign to make a woman’s “relentlessly gay yard more relentless, gayer.” We live in truly magical times.

These three examples are quirky, edge-case examples of a major, mostly wonderful shift in our approach to transactions and exchange, a shift exemplified by phrases like, “sharing economy” and “enabling platforms.” Suddenly, we aren’t dependent on one giant company owning all the product. Instead, we’re dependent on one giant company owning the technology to connect buyers with sellers.

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For many reasons, this shift is fantastic. We can stay in a stranger’s house, way cooler and more interesting than a soulless hotel room, for a cheaper rate than we’d pay for a soulless hotel room. We can easily find the exact hand-crafted product we want, and buy it from an artist anywhere in the world. We can listen to the music we want, when and where we want, without having to buy an entire album. And we can order up a personal car service anywhere, anytime, for way less money than a cab.

Better for the buyer -- and surely better for the seller. The more easily you can connect with a customer, the better life is going to be, right?

Maybe. Not necessarily. To compete in this space, to provide this kind of connection, to achieve the kind of scale that makes an Uber or a Spotify work, a platform company has to deal in volume and be extremely cost-competitive. As a result, sellers can easily get squeezed.

Consider the Spotify model: providing a platform to connect music lovers with music they love. You don’t need a major record label to sign you in order to be on Spotify. But you do need to have a LOT of people listen to you if you want to make any money at it: over 4 million, every month, if you want to make minimum wage. But to make minimum wage with a high-end royalty deal, you need to sell just 1,161 albums a month. So are you better off under the new, democratic, eliminate-the-middleman system? Or were you better off under the old, gatekeeper-riddled, kingmaker-driven system?

Or consider Uber, which, according to USA Today, “currently saddles its drivers with major vehicle costs -- including the vehicle itself, maintenance, insurance and gas -- by labeling its drivers independent contractors rather than employees.”

Wait a minute… That sounds familiar. Oh, yeah! It was on "Last Week Tonight” last month. Speaking about contract chicken farmers, John Oliver made this observation: “You (the farmer) own everything that costs money, and we (the company) own everything that makes money.”

This is the risk: that, as a winner takes all in each vertical (think Spotify, Uber, Airbnb, Etsy), the sellers end up with no choice but to participate in the platform. The capital investment and ongoing costs get passed onto them, and the razor-thin margins are set by the company. And the sellers have no recourse, no option to negotiate a better deal. You’re not David against Goliath; you’re David against a whole world of Goliaths.

But perhaps things will be different. Earlier this week, a judge ruled that an Uber driver was an employee, not a contractor. Uber will be appealing, of course, to avoid setting precedent. But as we shift more and more toward an economy structured around this kind of participatory platform, it might not be such a bad thing for precedent to be set.

1 comment about "Is The Sharing Economy Terrible For Sellers? ".
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  1. Steve Baldwin from Didit, June 19, 2015 at 11:29 a.m.

    We live in the Golden Age of the value-extracting, cost-offloading, socially unconscious elecronic middle man. Eventually this model will collapse because sellers (which is a lot of us) will be so squeezed that they'll lack any funds to buy anything, no matter how low-priced. 

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