The Gig Is Up!
Financial success is more than finding the best investments and monitoring our cash flow. It’s understanding the world around us and using it to our advantage. This starts first with understanding our world and how it is changing.
Over the next several issues, we will analyze our world a bit to help us get the building blocks for good financial decisions in the future. They may not be 100% relatable to typical “financial” articles we may publish, but I hope you enjoy them just the same.
Every few years, our family vacations in Disneyworld. As you may imagine, Disney can be very expensive. Food alone costs a fortune.
Typically, we will rent a car to visit the park. We stay on-property, so it isn’t vital to have a vehicle. In fact, most folks staying at Disney don’t bother with a car at all. But we like eating at the local restaurants to get away from The Mouse and to save a bit of money. In the long run, what I spend on the rental car is about what the added cost of food would be at the park. I’m basically buying flexibility.
We are planning our next trip for 2020. We won’t be renting a car this time. A car service will pick us up at the airport and drop us at our resort. And when we need a vehicle, whether it be to go to a restaurant or to expedite our travel to a new part of Disney, we will use Uber or Lyft to get us there.
By my estimates, we will save about $300 that I’m sure my kids will try and spend on nachos and Dole Whip sundaes.
Uber and Lyft are at the forefront of a new revolution in the economy nicknamed the gig economy. In the gig economy, people work when they want as independent contractors going through a third-party service (like Uber and Lyft) that links providers with customers. For their part, the third-party sets the prices paid, arranges the connection and pays the independent contractor.
And while the ride-sharing services are the most popular, there are segments of the gig economy that rent out your home, walk your dog, deliver your food, clean your home; even segments that can make you a graphic for your website or write a bit of computer code for you.
The promise to these gig economy entrepreneurs is that they can make a living working when they want, where they want.
There is some major disruption going on because of this economy. Due to the popularity of Uber and Lyft, values of taxi companies (and their coveted medallions) are plummeting in major cities. On top of that, road congestion has skyrocketed due to the increased number of vehicles on the road. Short term house/apartment renting via apps such as Airbnb is becoming so popular that local and state governments have begun regulating and taxing those rentals.
It seems, with all of the growth, people working in the gig economy must be making a fortune. But for those trying to make this gig work, that isn’t exactly how things are panning out.
Despite Technology, Some Things Never Change.
Back in the early 1980s, my brother and I watched Taxi on TV. It was well written, won several awards and launched several successful acting careers. Taxi glorified an otherwise mediocre job and made it seem glamorous. What is interesting is that of the 4 main characters driving, only one worked full time. You had the boxer, the actor, the artist and Alex. Alex was the only one of them that drove full-time. Interestingly enough, Alex could still afford to live in Manhattan while driving a cab full time.
What most gig economists are finding out is the model on Taxi is very accurate. It’s hard to make regular money ride-sharing or delivering food or walking dogs. Most folks find, after trying to work for several services, that the gig economy is part-time at best. They still need a full-time job to pay the bills. The gig is just for extra money.
What is even more fascinating is that the third party companies, Uber, Lyft and the others, are having a hard time making money as well. Plenty of money is being invested in these firms but profitability seems to elude many of them.
There is a monumental effort to make this gig economy work. The corporate players are very well funded despite their losses. Some very smart people in the business world continue to funnel money into them. And these people know that in order to create a sustainable customer base, prices need to be kept low in order to entice new customers.
On top of that, in order to keep gig workers working, these companies are finding it necessary to share more of their fees with the providers. The companies are feeling the squeeze from both sides.
What this allows for the consumer is a bit of arbitrage. (Arbitrage is a fancy term for “getting something for nothing.”) In many segments of this new gig economy, the prices charged just aren’t commensurate with the service provided.
I would never consider calling a cab every time I wanted to go to a restaurant outside of Disneyworld. It isn’t economical. In addition, I would wait 30 minutes or more for my taxi to show up. I know, with ride-sharing, my ride will arrive within minutes. Uber and Lyft drivers are cruising popular areas looking for a ride to pick up. Obtaining another ride at the end of the evening is just as simple and quick with just a few swipes on my smart-phone.
So while these new companies may be highly risky, we can all certainly benefit as consumers at least for the next couple of years.
Is the gig economy going to create a new segment within our economy the way that the automobile or the smartphone did? I doubt it. But it will play a part in changing the way we live our lives and the services we use while it provides a secondary source of income for many.
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