No encore for the gig economy

Apps for sharing stuff were going to change the world. Now they're looking rather more prosaic. What went wrong? Simon Wilson reports.

What is the gig economy?

The term is something of a catch-all, covering everything from Uber (an app for hailing cabs) and Airbnb (for hiring rooms) to the multitude of websites that help you rent out your power tools, dogs or whatever else to your neighbours. But a good starting point is the idea of "underused assets" and the exploitation of them (or "sharing" them if you prefer). Sharing economies, according to a lengthy analytical report on the subject from PwC last year, "allow individuals and groups to make money from underused assets". In this way, physical assets are shared as services.

For example, a car owner may allow someone to rent out her vehicle while she is not using it, or a home owner may rent out his flat while he's on holiday. The sharing economy is currently worth £9bn, estimates PwC, but this could rise to £230bn by 2025.

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How's the sharing going?

Not well. A recent article in Fast Company by Sarah Kessler has great fun documenting the trope of the power drill, which has been breathlessly cited for years as the archetypal underused item that is only switched on for about 12 or 15 minutes over its lifetime. As such, the cheerleaders have maintained, power drills and a vast array of similar items would in future be "rented" not bought as part of the emerging trend of "collaborative consumption".

But of all the US companies set up over the past few years to facilitate this kind of local sharing (Ecomodo, CrowdRent, Share Some Sugar, and lots more), only one still exists, NeighborGoods, and it has only a few thousand members. "Everything made sense except that nobody gives a s**t. They go buy [a drill]. Or they just bang a screwdriver through the wall," as Adam Berk, Neighborrow's founder, puts it.

Why does anybody care?

The sharing economy has been in the news after Uber was given a bit of a dressing-down by a London employment tribunal. The tribunal was unimpressed by its argument that Uber drivers are autonomous self-employed car owners who simply want to share their underused assets. Its ruling found that the drivers are workers, rather than being self-employed, and are therefore entitled to the minimum wage, holiday pay, and paid rest breaks.

It also concluded that Uber resorts "in its documentation to fictions, twisted language and even brand new terminology" memorably concluding that "the notion that Uber in London is a mosaic of 30,000 small businesses linked by a common platform' is to our mind faintly ridiculous".

So what is Uber then?

A taxi firm, whose model is simple and clever, but highly replicable and arguably not sustainable, according to some critics. One long-term sceptic is Izabella aminska of the Financial Times. What is it, she asked earlier this year, that makes Uber such a disruptive force in the taxi market?

Its app technology might be the obvious answer, and indeed it is that technology that has made its model possible. But what really makes Uber's model distinctive is that it attempts to flood the market with supply and "transfers the ball-and-chain costs of capital, vehicle rental and maintenance, risk, tax and insurance costs over to taxi drivers, who often don't appreciate the all-in operating costs until they're far too invested in the scheme".

What does this imply?

In terms of viability, what it implies is that the sharing economy can't last as the case in the UK has just demonstrated. The fundamental truth, says Kaminska, is that "exploited labour always wises up"; that open-ended supply markets always form licensed communities to protect jobs and wages; that unregulated markets inevitably self-regulate from the bottom up; that workers always have an interest in aggregating and sharing the cost of risk and insurance between them, which is ultimately factored into the cost of service.

What happens now?

As Uber drivers become aware of how they are losing out, the current glut of drivers in the ride-sharing market should shrink. Indeed, of the two British drivers who brought the case to the tribunal, only one is still working for the company. This will means that Uber can no longer be a near-perfect substitute for owning your own car. That's because the certain availability of ride shares even at peak times that still charge rates lower than traditional taxis depends on there being lots of Uber drivers who are prepared to carry the cost of having their car sitting idle much of the time.

Is this the end for Uber?

It may be unwise to write off the firm yet. It has got off to an astonishing start, with its notional value ballooning to an implausible $63bn. But as with Airbnb, the other star of the sharing economy , these kind of legal woes may presage the end of a brief era in which the usual rules of business did not seem to apply and the start of something much more constrained.

Air hisses from Airbnb's bubble

New York has become the latest big city, after Barcelonaand Berlin, to take some of the air out of room-letting site Airbnb, says The Economist. Last month, the city introduced new fines for the (existing) offence of letting whole units in residential blocks for less than 30 days.

New York is the firm's largest US market, with around 35,000properties available for rent, and its gripe against Airbnb isthe same as the firm is encountering in Europe: that Airbnbrentals are in effect unlicensed and unregulated hotels. While the site was conceived as a marketplace to let out a spare room to tourists, 27% of listings in New York are now from people who have listed more than one property. In London that figure is 40% and in Rome and Barcelona it's almost two-thirds. Critics say that this trend is changingneighbourhoods and driving up house prices.