Is the platform economy about to take over?

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Similar but not identical to the “gig economy,” the platform economy is a system of software platforms that allow independent consumers and producers to find each other and exchange goods or services. More than a few of these platforms have become household names (even verbs, in some cases).

The platform economy has expanded a lot in the wake of the pandemic. But will its momentum keep up?

But unlike the real big tech of Amazon, Google or Apple, you don’t see these companies in everyone’s stock portfolios. Why is that? And — more importantly for investors — is it likely to change anytime soon?

As of right now, there’s still a long way to go:

But growth can happen very fast, as many of the current giants have shown in the past. And if Uber or Airbnb is the next Amazon, then now is the time to buy their shares — before they get “yuge” and therefore expensive.

So, is it that time? In some ways the outlook is promising, but there are a few things to keep in mind.

The profitability problem

The main thing holding these platform firms back is that they still aren’t profitable – not even juggernauts like DoorDash, Airbnb and Fiverr. Despite years of worldwide recognition and a massive user base, Uber has only just managed to squeeze out a profit. Barely. If you squint.

That’s not to say they’re a bum deal, though. Profitability can take a loooong time to achieve and depends on many, many variables. For now, the easiest way to judge their profit potential is consider their product — and for many platform firms, the product sure looks successful.

For example, even if you’ve never driven for Uber yourself, you’ve more than likely used or at least heard of it before. Many of these apps are popular to the point of ubiquity and have been for a while. In other words, lots of customers clearly like them and keep liking them. But that’s not the whole story.

Does it work for workers?

The thing is, every platform has two (if not more) types of customers. There are the consumers seeking rides, vacation rentals, homemade jewelry or wedding DJs; and then there are the providersseeking buyers for their vacation rentals, chauffeuring services or whatever else.

Again, the popularity of these services with consumers is pretty self-evident. But how does the platform economy look from providers’ perspective?

Various PR dustups over the years (e.g. with UberAirbnb and Fiverr) have highlighted providers’ grievances. But on the other hand, a recent Pew Research survey indicates that they’re generally happy with their lot:

Workers especially appreciate the flexibility and independence that platforms offer. On the other hand, they report feelings of financial instability and don’t love the lack of employment benefits:

Of course, this list of pros and cons has been the same for all freelancers since forever. So the real question is whether the platform economy can offer its providers anything new?

Like, say, more money?

Without a compelling, long-term incentive to make them stick around (and offset inflation pressures), the pandemic’s surge of gig workers may dwindle back down to where it was before. Platform gigs will, once again, be a side hustle for most and an actual livelihood for only a lucky few.

That said, if anything can get platforms over the hump, it’s our “new normal” of high mobility and remote workflows. Just a bit more momentum may be all it takes to kickstart the chicken-and-egg cycle of higher earnings, higher wages – and profits.

Unfortunately, there’s no way to predict whether that will happen. And that’s why trying to find the next big thing is such a bummer.

— Graham