Co-author: Ali Serag
Monopoly breeds inefficiency and distrust.
Once upon a time, there was a world dominated by inefficiencies. Here lived a single type of taxi service — yellow cabs 🚕. To summon these transports, you had to find their number, wait on hold for varying periods of time, talk to an operator and pray that they could grant you the ride you so desperately needed. In this world, time was constantly being wasted despite being the most important resource one could hope for. Few restaurants delivered, and the time-strapped denizens of this world no longer had the interest or capacity to cook at home; most of the time, they had to physically go to their favorite restaurant to pick up that gastronomic dish they craved.
Eventually, this realm of inefficiencies was torn asunder. Uber, Doordash and the like appeared, slaying long-standing monopolies, providing immense value to customers, and adding new revenue streams for businesses. But most importantly, they kickstarted the gig economy, a revolution that provided a flexible livelihood for so many folks across the world — new types of work that simply did not exist prior.
But is the world really better off? Most of these popular apps today are successful gig economies operating at a massive scale. However, they have also opened a Pandora’s box of a new set of problems.
Ironically, these apps have become monopolies themselves — a special type of monopoly — a data monopoly. Each of these apps have created their own walled ecosystems that act as black boxes, which tend to take a disproportionate share of profits from participants by exploiting information asymmetry. For example, on paper, Uber says that it takes 25% from rides, but there are also fees and various additional factors that can increase this in some cases up to 56%. There is also a booking fee that the driver cannot see. Lyft has been reported to go further, taking up to 67%, that’s two-thirds of the total cost of the trip (source)! Drivers hate this. Don’t believe me? Just ask your Uber driver next time how happy he/she is with their earnings.
So, why is being a monopoly such a bad thing?
First, being a data monopoly raises many ethical questions about privacy. They own all of the personally identifiable information (PII) of the end users and gig workers, providing them with little to no oversight on how their data is being used.
Secondly, there is an inherent conflict of interest here — these businesses are incentivized to grow the network at all costs while keeping the bar for entry very low and easily letting in bad actors while censoring negative feedback.
Finally, the monopolies stifle innovation by acting as a monolith and barring other applications from being built on top of them — mods/addons/plugins that could add more value for the user.
Enter stage left — blockchains
What if there was a way that all the benefits brought forth through the gig economy could be amplified while eliminating the aforementioned challenges? I believe there is a massive opportunity to disrupt this $455B (source) industry through blockchain technology and decentralized applications (dApps) — essentially web3. Designed to be open, decentralized and transparent, blockchains are built to be trustless, where there is no need to rely upon a third party. Moreover, it puts the proverbial horse — data in this case — in front of the cart — service(s). Not the other way around.
Already, decentralized exchanges have proven to be shining examples of how blockchain helps build far superior two-sided markets while making the middlemen redundant. The next evolution of gig economy apps will likely remain a two-sided network connecting gig workers to end users. However, these apps will be built on blockchains where no one owns the platform or the data, and instead, everyone adds value to the network while also benefiting from it.
The blockchain will serve as a transparent open ledger. Brokers, acting as decentralized applications (dApps), will facilitate the connection between end customers and gig workers, akin to market makers like Uber or Upwork. These brokers will depend on a range of services to function efficiently. Essential services include user authentication and digital wallets, while other non-critical yet valuable services could be analytics, data modeling, and reputation management.
Gig workers, the independent contractors who actually execute the tasks, will have the freedom to associate with or disengage from any broker of their choosing whilst maintaining their listing on other platforms. Ultimately, and most importantly, the end customers will have the autonomy to select any broker.
The financial aspect will be transparent and proportionate. Every dollar spent by the user will be allocated between the broker, service providers, and the gig worker. This distribution will be based on the terms explicitly coded within the smart contract, ensuring all parties receive their fair share. What does this foster?
- Open market — Since everyone in the ecosystem will have access to the same data, market forces will help converge to the real price of services based on demand and supply and reward all participants proportionately. If one broker decides to charge surge pricing, the users can switch brokers — ‘’multi-homing’, or the use of multiple apps like Lyft and Uber at the same time, will be built-in instead of a user hack.
- Data privacy — User privacy is protected, and PII user data is only shared with chosen authentication services that they trust. The brokers are only privy to user information that the user allows the authentication services to expose, and the user actually owns their data.
- Unbounded innovation — Blockchains such as Flow provide composability out-of-the box which means applications can be built on other applications. So one could build an app or a service that combines, say Uber and Doordash and provide a service which recommends Uber drivers on food delivery orders they could execute as they go around picking and dropping off riders. Moreover, there will be competition in every aspect of the value chain — brokers who provide services, value-added services of the same type etc and competition will further drive innovation.
This new world, of course, will have its own set of challenges. For starters, there would be an explosion in the number of accounts every user and gig worker will have to create — one for each broker and each service. Imagine having to self-custody so many accounts just to use a ride-sharing app or order food, the alternative being relinquishing control and only having non-custodial accounts. This could be mitigated by something like Flow’s account abstraction which provides an easy on-ramp for progressive onboarding by allowing users and gig workers to link all accounts and decide where in the spectrum of full self-custody and full non-custody they want to be.
Another challenge would be the paradox of choice — given the fragmented nature of the solution. If there could be several brokers and services, how would a user choose which one to use? This could be solved by curating bouquets of brokers and services. Users could then simply choose from one of these pre-bundled sets that best aligns with their interests or preferences.
Though monopoly breeds inefficiency and distrust, web3, with its openness and transparency, is poised to dismantle the data monopoly incumbents of the gig economy. The new systems that replace it promise to create more value, more efficiency and greater transparency. By cutting out the middleman, drivers can take home triple what they currently make on rides, prices for customers could also be reduced, or perhaps exciting game theory scenarios would be allowed to play out that result in optimal allocations.
Finally, I leave you with what a ride-sharing app could look like in this new world. What type of new world do you envision for the gig economy?