Airbnb and DoorDash IPOs leave gig economy issues unresolved

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The odd-job economy – aka the sharing economy – has been one of the most significant online phenomena of the decade. It also caused a sensation on Wall Street this week, as the delivery company’s stock listings By Dash and house rental company Airbnb met a euphoric reception.

But for an industry that is already long in the tooth, there are a surprising number of unresolved questions. Of particular interest this week: are these good companies? And, as their sometimes deleterious impact on society provokes a backlash, will they make good businesses in the future?

It is an important moment of transition. Following last year’s initial public offerings from ride-sharing companies Uber and Lyft, prime examples of this new style of online marketplace can now be found in public markets.

It is difficult to discuss the impact of the odd-job economy. In the year leading up to their IPO, the four companies generated more than $ 100 billion in trips, deliveries and house rentals between them (although some bookings declined during the pandemic).

The use of apps to organize informal markets has undoubtedly resulted in significant new forms of competition and freed up additional resources in the economy. This includes giving more people the opportunity to participate in a part-time workforce (this is the “gig” part) and expanding the use of assets like private cars and cars. houses (the “sharing” part).

But it did not translate into profits. Even the flattering financial measure these companies prefer to be judged by – adjusted earnings before interest, taxes, depreciation, and amortization – showed the four to be in deficit in the 12 months prior to their listing, with about $ 3.3 billion to l red ink between them.

So, are their business models half-baked or half-evolved?

While Airbnb has a strong gross margin above 80%, the pre-IPO range of 45 to 57% for the other three shows just how burdened their supposedly ‘light’ market models are with the costs associated with the IPO. demand creation.

These include subsidies given to consumers in vicious battles for market share. It may not have generated clear financial returns for shareholders, but it has undoubtedly generated benefits for consumers. For many people, going for a walk whenever you want or ordering a meal from a smartphone has become part of everyday life.

Regulation will undoubtedly increase costs further and limit business flexibility. The benefits of arbitrage in the labor market – paying lower costs for informal workers – are likely to erode as the political heat intensifies. Meanwhile, city officials are starting to realize that it may not be in the best interests of their residents for the streets to be full of empty carpooling cars, for apartments not to be available at rental to local workers and restaurants closing due to excessive fees charged by delivery companies.

The stock market has a way of exercising discipline. Even as the current euphoria rewards applicants for the nonprofit IPO, the pressure will increase to refine their business models. Uber’s share price has more than tripled from its low point in March, but it is still not above making reasonable financial decisions. This week, He quitted on its costly in-house attempts to develop autonomous driving and flying cars.

There are two obvious ways to achieve profitability. Consolidation has already swept away rideshare and delivery apps, and there’s more to come. The survivors will be in a better position to raise the prices.

The other way is to use their intermediary power to withdraw further from the value chain. The history of the Internet has been one of relentless disintermediation and reintermediation. That is, newcomers cutting off old businesses from supposedly “free” consumers, before settling in as the new bottlenecks. By consolidating consumer orders, mobile apps are starting to find themselves in a strong position.

This may not be a welcome development for some service providers who are sucked into the orbit of the odd-job economy. Restaurants, for example, have come to rely on online orders and deliveries during the pandemic. But if a handful of apps come to represent a significant portion of their sales – and if those apps have the power to redirect customers to other meal providers with better terms – the results could be painful.

For investors in the new public concert business, this seems like a work in progress for some time.

richard.waters@ft.com

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