How will the sharing economy evolve?

This post first appeared on GE LookAhead.

In June, photos of Parisian anti-Uber taxi drivers standing victoriously atop capsized cars were spread across the front pages of newspapers. Within days, French police had arrested two of the company’s in-country execs. Meanwhile, Airbnb was facing lawsuits in the US, Europe, India and Latin America — some still ongoing. Is this the end of the sharing economy as we know it?

“The regulatory issues are a blip on the radar, if you think of it in the long term,” says Chelsea Rustrum, an author and strategy consultant on the sharing economy. “The challenge is that the companies themselves are getting away from the principles they were founded on for the sake of living up to valuations and driving return for investors.”

For many, the sharing economy started as a way for people with a little spare time or underutilised assets to bring in extra cash. Today, however, independent contractors routinely work more than 40-hour weeks, with some earning more than $90,000 a year in cities like New York City. Sharing-economy companies now also rank among the most prevalent of Silicon Valley’s “unicorns” — start-ups with billion-dollar-plus valuations. Created just six years ago, Uber is among the fastest growing start-ups in Silicon Valley history, valued at $50bn in its latest financing round. Facebook took an additional year to achieve that figure.

These companies don’t offer benefits like health insurance or retirement plans, leaving many wondering if the figures behind soaring valuations are driven by exploitation of its contractor-based workforce.

“The value isn’t coming from the app. It’s coming from the people who participate on it. It’s coming from their assets. It’s coming from their time,” says Ms Rustrum. Organisations like the California app-based Drivers Association, a nonprofit that advocates for sharing-economy drivers’ rights, are taking a stand. And, more important, their supporters are winning in court. In June, a California Uber driver won a suit against the company; the ruling mandated that she be classified as an employee, not an independent contractor. Barring a reversal during the appeals process currently under way, the ruling could affect millions of drivers working in the ride-share economy — and workers in the sharing economy more generally.

In part as a response to these concerns, some entrepreneurs are setting out on an ostensibly different path: worker co-operative business models. Much closer to the sharing economy’s roots than the present grow-at-all-costs model, co-operative models offer workers a share of company profits—as opposed to just earning payments for each job done.  Green Taxi, which opened in Denver in 2015, represents a co-operative alternatives to services provided by Uber, for example. Others, like Canadian co-op Incipe Coworkers’ Cooperative, are trying set up alternatives to Wework by offering co-operative coworking space in Vancouver.

While little data are available on the number of worker co-ops or their rate of growth, researchers at the University of Wisconsin estimate that some 300-400 worker co-ops are established in the US alone, employing more than 3,500 people and generating more than $400m in annual revenues.

Many of these are local and relatively small (the average size is 50 employees v 3000 for Airbnb), making them a negligible threat to global giants like Uber in the short term. Still, the value proposition that they offer is appealing; therefore, it may be just a matter of time before one cracks the code to scaling up.

Add to that the increasing—and legitimate—demands of workers and the general public, and it seems clear that the behemoths of the sharing economy will have little choice but to evolve. Ms Rustrum offers four key strategies: “First, distribute value amongst value creators on your platform. Second, place human interests at the forefront of decision-making. Third, pay a rate that reflects, at minimum, a sustainable, local living wage. Finally, listen to and act on the needs of the crowd—a company’s customers’ suppliers and workers.”

By tapping into its roots, the sharing economy could not only spread the wealth created, but continue to increase it as well.

Publication does not imply endorsement of views by the World Economic Forum.

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Author: Andrew Trabulsi is a consultant, author, and entrepreneur with a background in technology forecasting, geopolitics, and economic development policy.

Image: An employee counts Indian rupee currency notes. REUTERS/Adnan Abidi.