It wasn’t so long ago that Uber started a revolution in work: managing workers—or is it freelancers?—via an algorithm-driven app. The gig economy was born. Its promise was to save consumers money and enable anyone with a car to earn quick, easy cash. And, of course, to make Uber’s founders and investors rich.
That was then. We know better now.
Oh, the model is more popular than ever. Thanks to the COVID-19 pandemic, for example, food delivery services exploded: 60% of US consumers now order delivery or takeout once per week from DoorDash, Uber Eats, Grubhub-Seamless, or their minor competitors. There’s only one little problem. All those gig economy promises turned out to be lies—an important lesson for smaller firms that might be tempted to try to mimic all that “success.”
Sure, consumers sometimes saved money, though at other times surge pricing tore holes in their wallets. Workers justifiably feel screwed over. And, except for the founders who scooped up venture capital like an elephant does peanuts, the gig companies have largely not turned a profit.
For example, Airbnb, the top algorithm-driven vacation rental service, had a net loss of about $1.1 billion in the first quarter of 2021. Uber? It had a “good” 2021 first quarter. Its net loss was only $108 million. And DoorDash, the first food delivery service to IPO, lost a mere $110 million in Q1 2021.
We’re over a decade into the gig economy. You’d think someone, other than a founder who cashed out, would have turned a real profit by now.
Yeah, yeah, I know all about growth over profitability. But even so, at the end of the day—or decade—you need to show a profit.
As New York Times tech columnist Kevin Roose recently pointed out, these companies know this, too. For years, investors “flooded these companies with cash, which often got passed on to users in the form of artificially low prices and generous incentives.”
Now, the money downpour has dwindled to a trickle. The result? “The average Uber and Lyft ride costs 40% more than it did a year ago, according to Rakuten Intelligence, and food delivery apps like DoorDash and Grubhub have been steadily increasing their fees over the past year. The average daily rate of an Airbnb rental increased 35 percent.” The cheap ride is over.
Even when another conventional business is involved, they’re not paying the full freight. For example, as a recent New York Magazine and The Verge investigative story by Josh Dzieza pointed out, “The main reason restaurants weren’t already letting you order a single bacon, egg, and cheese from 50 blocks away for almost no charge is that it’s a terrible business model. Expensive, wasteful, labor-intensive—you would lose money on every order. The apps promised to solve this problem through algorithmic optimization and scale. This has yet to happen—none of the companies are consistently profitable.”
They also don’t play well with other businesses. For example, DoorDash is suing rather than giving restaurants access to such basic consumer data as their customers’ names and addresses. (If my business depended on delivery services I, for one, would really want to know who my customers were.)
The painful truth is that while algorithms sound all technical and efficient, they’re not. The major pain point is that the workers behind the algorithms—the faces and hands behind the quick, easy service—are underpaid and abused by unforgiving programs. Instead of a bad boss, they have bad algorithms.
Is it any wonder that gig workers are joining the great resignation? Oh sure, they’ll take a gig job to get by. But loyalty? Good work? Please! The algorithm just cares about X numbers of trips in Y time. The workers know this, and they’ll quit the minute they can leave because they know the program will dump them the minute they’re no longer efficient.
Worse still, despite the lousy business track record of management by algorithm, it’s now on its way to other kinds of businesses. Some companies are turning to facial recognition and real-time scheduling; smart badges and QR codes; and employee GPS tracking and wristbands to track office workers. Personally, I wouldn’t care if my employees were at their home office from 9 to 5 so long as they get their work done.
If you’re thinking of turning over some level of management to an algorithm, think twice. Instead of digital efficiency, you’ll end up alienating staffers. And, with workers deserting jobs at record rates, do you really want to take that chance?
Instead of pivoting to algorithms, turn to good, old-fashioned personal management that shows that you value your employees and their work. People respond a lot better to being treated as people rather than numbers. I believe respect between bosses, workers, managers, and employees has always been the best way for a company to run its business. When it comes to management, algorithms are useful tools but terrible masters.
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