Are Uber And Deliveroo Building Gig Economy Castles In The Air?

It's been a week of talking to venture capitalists, and I have to say it's been a blast that has ended with one of those "thank goodness it's not only me" type of conversations.

If, like me, you're old enough to remember when boys asked girls to dance and made them mix tapes of their favourite songs, rather than just swiping right to hook up, you'll often have those moments. I frequently have them around Twitter -- great idea, but why aren't they trying to sell more ads, where's the income? Same with Snapchat -- how can they be worth tens of billions of dollars when they have not made a penny profit and the kids will be using something else in a couple of years?

So some VCs and I got into a chat about how the app economy, the sharing economy, and the gig economy were all leading to a lot of overinflated pipe dreams. It's always worth remembering that whenever anyone mentions FinTech to you, for example, the big change in everyone's lives was heralded by the banks themselves bringing in online banking and a smart guy two decades ago launching PayPal. 

If you take a look at the gig economy, you might well come up with the same questioning stance. The trendy bike delivery companies, like Deliveroo -- what do they actually own? Can it be scaled? Put it another way, these latest darlings of the city have everyone interested -- just think about Uber, but there are a couple of questions.

First, there is the very obvious question of what it is they actually own. The restaurants have contracts, but ultimately they just have a bunch of guys on zero-hours contracts cycling around. Same with Uber. What does it own? OK -- it has reached a scale in many big cities where it's indispensable, which is a great place to be. But when push comes to shove, what is the business?

It's worth asking in the EU because it has always occurred to me, and some of the VCs I have been talking to, that some gig economy, app-driving businesses have a problem in the post. The UK is probably the most liberal labour market in the EU, but even here we're starting to get court cases won by people on zero hours contracts taking part in the gig economy who claimed they are actually staff and so are due benefits and protection.

Put another way, more bluntly, as one VC did to me this week -- how long do you think the likes of France and Germany will let companies pretend not to employ people so they don't have to pay social security or pay them for holidays or sick days?

It's an intriguing question because the gig economy apps rely on people agreeing to zero-hour contracts that pretend they're not employed when, let's face it, if they didn't turn up to work they would be fired. Sounds a lot like being employed, doesn't it? If the authorities take stance on this, you can expect a gig economy app's margins to disappear overnight.

It may be a case of some dinosaurs not realising the world has moved on but I can't help but think a lot of these gig economy darlings of the digital marketing world will find the going is a lot tougher in the future. They have valuations based on hype and hope, and the regulators have yet to catch up with them. 

Everything to date has focussed on the tech and scaling up the busines, but what about the EU's favourite -- regulation? The moment the major governments decide to classify people as employed, expect billions to fall off the valuation of the gig economy's bubble.

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