by Kunal Mehta
No longer is working nine-to-five for a single employer with a structured payroll the predominant way today’s workforce makes a living. The rise of independent workers has created what is called the gig economy or the on-demand economy. According to MGI, there are over 160 million people in Europe and the US — or 20%-30% of the working-age population — who participate in the gig economy. Many other reports have projected that over half of us will be engaged in the gig economy by 2020. While these freelance workers span across demographics, they tend to be divided into two segments: those who make their primary income from independent work and those who do independent work to supplement their income.
This model is continuing to become mainstream due to driving factors such as the Millennial workforce, advancements in technology, and income and education inequality. Simply put, the gig economy is the culmination of mobile and Internet access becoming democratized, a highly connected Millennial generation seeking flexibility and autonomy, and the need for additional revenue streams in order to cover education, student debt, and increased costs of living. As a result, independent work is quickly evolving as digital platforms create online marketplaces that facilitate on-demand connections between workers or service providers and customers.
Whether it is the ability to hail a ride through Uber or Lyft, access software developers to build a website through Upwork, get at-home meal delivery through DoorDash, or even have your dog walked using Wag, the rise of digital platforms is providing millions of individuals independent work while generating billions of dollars in revenue by facilitating services. Both entrepreneurs and investors continue to find it an attractive market as still, only 15% of freelancers are using these marketplaces to find work (MGI). With 61 million Generation Z’ers expected to be joining the American workforce in the next few years, many more will opt to join the gig economy. In fact, 46% of the generation’s workers are already freelancing according to Upwork. Other factors such as traditional workers pursuing their desire to become independent, an increase in demand from businesses and consumers for independent services, and the population of unemployed and inactive workers freelancing for employment are expected to fuel growth in the gig economy.
While the rise of the gig economy could have many economic and financial benefits, there are still various challenges and opportunities that can be addressed by entrepreneurs and their venture capital counterparts. According to the US Bureau of Labor Statistics, 10.6 million people whose primary source of income is independent contractor work do not currently have access to health insurance. Because policymakers are not keeping up to speed with this shift in work, freelancers are ineligible for existing financial products and government programs. Therefore, startups like Trupo are being built to protect independent workers. Sara Horowitz, the founder and former director of the New York-based Freelancers Union, launched Trupo to provide a short-term disability insurance product that will cover up to half of an independent worker’s typical income in the event of a serious injury or illness. As Horowitz declares, “We’re not waiting… government can’t or won’t do it. We’re building the safety net ourselves.”
However, it’s not only health insurance that needs to be addressed in the gig economy. Other companies like Catch and Joust are extending beyond portable benefits and are building financial products to counteract wage and income variability. Catch’s curated and simplified benefits services offer health insurance, retirement savings plans, and tax withholding directly to freelancers, contractors, or anyone uncovered. As Catch co-founder and COO Kristen Tyrrell states, “In order to stay competitive as a society, we need to address inequality and volatility. We think Catch is the first step to offering alternatives to the mandate that benefits can only come from an employer or the government.” Additionally, Joust has built a digital bank platform specifically for the needs of the independent professional and freelancer providing a range of centralized services including tax payment tools, income and invoice smoothing, and the ability to incorporate a business in minutes.
Since the use of gig work platforms has also grown by more than 30% in emerging economies, new freelancers now span beyond the traditional strongholds of IT, mobility, delivery, and data processing to all industries (BCG Henderson Institute). We are seeing a rise of independent work in virtually every industry including finance, healthcare, agriculture, construction, business-to-business (B2B), retail sales, and education. For employers, freelance workers are often less expensive because they don’t require the added 25-50% overhead of a 401(k), healthcare, and other benefits while allowing for a nimbler workforce. While the first wave of the on-demand platforms has led to investment opportunities focused on worker wellbeing, the gig economy penetrating additional industries and regions raises new and exciting questions.
How will workers receive professional development, ongoing training, and worker classification and credentials? What is the software infrastructure needed to support the enterprises shifting to a contingent workforce? What other industries are ripe for the gig economy? What countries? How do we improve and sustain freelancer productivity through collaboration, communication, and connection?
As we look to the future of the gig economy and questions such as these begin to emerge, venture capitalists will be in search of the founders who are building the answers.
The Creator Economy
Picture this: you are seven years old; you film yourself opening new toys and explaining all the features while playing with them. You upload them to YouTube and a few years later you are earning $22 million dollars a year from pre-roll advertising and sponsored posts. Sounds like a fantasy, right? Well, for Ryan of Ryan ToysReview, it’s a reality. When Forbes released their list of the highest paid YouTube stars of 2018, the seven-year-old sat at the top with his channel, which has 17.3 million followers. How is this possible?
We have entered a new era of our economy called the creator economy. Again, looking at history to understand the present, we can determine that in the first half of the twentieth century we were in the producer economy categorized by industrial manufacturing driving the economy. As we optimized for productivity through the assembly line and other innovations, we began to shift towards the consumer economy. Production costs fell, technology began to permeate across the public, delivery of media went from newspapers and the radio to television and the Internet. The question was no longer how do we raise production and improve efficiency, but rather how do we reach consumers in order to increase sales? Where businesses’ successes were once characterized by mass production, these new consumer-oriented businesses forever shifted the ways companies operated. To grow sales and profits, organizations prioritized advertising, offered installment credit, and created regional and national chains to reach more consumers.
Enter the creator economy: an individual is now able to monetize their skills, passions, and interests through their creations by leveraging today’s technology and global reach. Unlike previous times, today’s economy is defined by individual interactions, engagement, and data. Why is this the future of work? As long as an individual or community is able to maximize interactions while reducing friction for a user or consumer, prospering no longer needs to be tied to a traditional occupation within an organization. Take Ryan for example. He is able to leverage the YouTube platform to acquire hundreds of millions of views on his videos generating data and thus, a remarkable income.
YouTube is just one of the many companies enabling today’s creators. Companies like Shopify, Wix, Mailchimp, and Facebook/Instagram are providing the software infrastructure that allows a creator to set up an e-commerce store, build a website, engage consumers through email, and acquire new consumers through marketing. Platforms like eBay, Etsy, Indiegogo, and Patreon permit individuals to reach a mass audience in order to sell their creations or collections as well as have their consumers and fans support them financially.
While we are still in the very early stages of the creator economy, we are seeing
opportunities spring up across a diverse set of categories. Individuals who have learned how to optimize for interactions and engagement are now able to make an income in areas such as playing video games (Twitch), hospitality experiences (Airbnb), teaching resources (Teachers Pay Teachers), skill sharing (Masterclass), and more. Splice, an audio sample marketplace and music production collaboration tool with 2.5 million users has now paid out $15 million to artists since 2013. As the CEO and co-founder states, their platform lets “people behind the scenes get an opportunity to step into the light with an amazing revenue opportunity, but also an opportunity to be seen for their creative contributions.”
With the progress of technology, more individuals will be able to gain access to powerful tools and platforms that will empower the digital-savvy workforce to participate in the creator economy. There are still many industries, shared interests, skills, and arts that will drive interactions and engagement across the world, giving birth to a new model for making a living.
The Automation Economy
“In the new technology, machines and automated processes will do the routine and mechanical work. Human resources will be released and available for new activities beyond those that are required for mere subsistence. The great need is to discover the nature of this new kind of work, to plan it, and to do it.”
Although it is believable to think this quote is from today, in fact, it was written by Howard R. Bowen, the Chairman of the National Commission on Technology, Automation, and Economic Progress, a group that was established by President Lyndon B. Johnson in 1964. The Council was enacted in order to identify aspects of technological change and recommend legislative and administrative steps to be taken by the government. While it was a period of growth for national income, wages, urban populations, and access to education, it was also a time of conscious social change. One of the conclusions of their assessment was the fact that “technology destroys jobs, but not work.” The narrative that large-scale automation will lead to mass unemployment and economic uncertainty has become a common thread of nearly every major technology shift. However, automation is not a new occurrence and historical evidence suggests that the long-term effects on employment have actually been positive. Advancements in technology have allowed workers to do their jobs better and faster, which in turn, has increased output, incomes, and raised living standards.
Whether we realize it or not the automation economy is already here. Impressive developments have been made in artificial intelligence and the technology that powers automation. This is driven by exponential increases in computing power and by the immediate availability of a massive quantity of data, providing improved and novel automated capabilities. From discovering new drugs to algorithms that are able to predict our personal interests, to the development of self-driving cars and drones, to virtual assistants and software that can translate languages or invest our finances, we have seen the potential of new technology.
To date, the digitally connected consumers are the ones who have primarily benefited from automation. This technology has improved the efficiency, convenience, and arguably quality of lives through new products and services. Everything from hailing a taxi, booking a flight, and buying, receiving, and returning a product, to accessing nearly unlimited entertainment and ordering groceries and meals is being powered with elements of automation.
However, with a projected $8 trillion to be invested in automation over the next decade, businesses will also be rewarded for entering the automation economy (Bain & Co). Leveraging automation, companies are disrupting large sectors of the economy such as transportation, logistics, human resources, healthcare, finance, real estate, manufacturing, and agriculture. Depending on the industry and type of problem they are solving, automation investment opportunities tend to fall in two buckets: an application that makes work more efficient, productive, and accurate, and an end-to-end autonomous solution that replaces humans entirely.
For many entrepreneurs applying artificial intelligence and other technologies to the application layer of their business, they are finding ways to optimize and automate workflows and create a competitive advantage. Founders who combine a unique insight or domain expertise in their target industry with strong technical capabilities will ultimately have the recipe to drive massive degrees of improvement against incumbents. For example, Convoy is leveraging automation to tackle the highly fragmented $260 billion trucking industry in the US, which according to McKinsey & Company is 20% of the $1.2 trillion global total. CEO Dan Lewis and his co-founder Grant Goodale came from Amazon, where they gained domain expertise working on a massive logistical task. Through this, they recognized the proliferation of mobile phones amongst truck drivers and the power the devices could have in addressing the 40% of miles driven without a load. As a result, Convoy’s apps use automation to match trucks and shipments. They enable drivers to bid automatically for loads, submit their bills, and get paid, and shippers to post a job, get real-time quotes, and track their shipments. Although their revenues are still dwarfed by the incumbents, in less than five years they have already raced to a valuation over $1 billion while raising $265 million from venture capitalists.
With autonomous vehicles in the not too distant future, the several million truck driving jobs are expected to be highly impacted but, according to Lewis, it’s unlikely they will become obsolete. “It’s not just about driving,” says Lewis. “You need a driver’s knowledge about a guardhouse or signing documents. The driver’s role will definitely change, but he’ll be around a very long time.”
Companies like Waymo — the autonomous-vehicle developer that spun out of Google — has taken a different strategy within the automation economy by building the infrastructure needed to remove the human altogether. As their Chief Technology Officer Dmitri Dolgov stated, “We’re not building a car, we’re really building a driver.” By partnering with car manufacturers and ride-hailing companies like Lyft, they are able to scale their technology at a more rapid pace than competitors such as Tesla and Uber (which is building its own self-driving technology.) This method of building self-driving software that other companies can utilize is helping make autonomous cars a reality.
While automation in some domains (such as driving) has the potential to displace a large number of jobs, the technology is arguably still a ways off from reaching its potential. As entrepreneurs, investors, software developers, and engineers continue to invest capital and resources to its development, there is a growing demand for companies that help build the automation tools of the future. As a result, the robotic process automation (RPA) sector — tech that tasks intelligent agents with performing repetitive, often tedious tasks usually undertaken by humans — has been drastically growing. UiPath, which raised its most recent round of venture capital at a valuation of $7 billion, develops automated software workflows meant to facilitate the highly repeatable activities in a common workflow of legacy systems. For example, they are able to integrate modern tooling in areas like accounting where they can automate a process such as scanning a check and recording the payer and amount into an Excel spreadsheet, enabling the human worker to increase their bandwidth and productivity. Their capabilities to assist customers in entering the digital economy have paid off for the founders, employees, and investors alike as they went from $1 million to $100 million in annual recurring revenue (ARR) in less than two years and are on track to do $450 million in ARR in 2019. With big insurance companies, financial services, and other workflow-intensive organizations looking to digitization to stave off growing competition, other RPA startups have also found rapid success. Automation Anywhere, which has raised $550 million that values the company at $2.6 billion, has machine learning-powered systems to automate tasks that normally take hundreds of thousands of employees. In March 2018, it launched its IQ Bot solution that learns by observing human behavior and has already accumulated more than 65,000 users. CEO and Co-Founder Mihir Shukla is confident they will “help bring AI to millions.” He bel
ieves that “like the introduction of the PC, we see a world where every office employee will work alongside digital workers, amplifying human contributions. Today, employees must know how to use a PC, and very soon employees will have to know how to build a bot.” This process of humans teaching machines is a critical part of the investment to deploy automation. Ironically, we are entering a period where humans are working with the machines that may just ultimately replace them.
One of the more exciting areas of the automation economy is collaborative automation. While there are many short-term gains to be had from the other methods of automation, companies and humans will see the most significant improvement in performance when machines and humans work together. Through understanding one another’s collaborative intelligence, humans and AI will be able to enhance each other’s complementary strengths. Where humans have soft skills that cannot be replicated by technology (e.g. collaboration, abstract thinking, leadership, creativity, and social skills) machines are able to analyze and react to quantities of data at speeds that are impossible for humans. H. James Wilson and Paul R. Daugherty of Accenture believe the key to collaboration at the human-machine interface involves three necessary roles from both the human and the machine. The latter is responsible for “interacting” with humans to give workers more bandwidth, “amplifying” our cognitive skills, and “embodying” human abilities to broaden workers’ physical strengths. On the other hand, humans need to “train” machines to accomplish tasks, “explain” the outcomes and objectives of those activities, and “sustain” the responsible and ethical use and application of machines.
Montreal-based Age of Minds is built based on the thesis that ethics in AI is one of humanity’s biggest challenges this century; one of the answers is to have AI augment humans, rather than replace them. CEO and Co-Founder Dorian Kieken believes “that a full circle of learning: AIs learn from humans who learn from AIs who learn from humans, can lead to vast and continuous improvements for both.” He insists that, “human and AI collaboration is crucial because not only can we achieve more but it’s our best insurance against AI/human misalignment and so, a good investment in the future of our species.”