Small Business Labs

The Growth of the Multi-Earner Trend

Morgan Stanley's Goodbye Gig Economy. It's a Multi-Earner Era describes the long-term trend towards people having multiple sources of income instead of relying on a single traditional job.

Key quote from the article:

"The concept of working multiple jobs isn't new. But what has changed is the desire to eschew or supplement traditional employment, as well as the ability to do so cheaply and at scale using platforms that reach large and growing audiences."

The article has an interesting taxonomy describing the various online platforms used to earn money today. They call it the X to Earn Ecosystem:

• Create-to-earn platforms include everything from YouTube and TikTok posts, to original music, art, and more.
• Sell-to-earn platforms represent two categories: merchants selling or re-selling products via large marketplaces and small businesses using platforms to run or amplify their businesses.
• Deliver-to-earn platforms focus on delivery, takeout food, and other staples.
• Rent-to-earn platforms make it easy for owners to rent their vacation rentals and personal car rentals.
• Invest-to-earn platforms represent two categories—traditional and crypto investing.
• Gig-to-earn platforms are among the more established in the segment and include such areas as ride-sharing, task sharing, and professional outsourcing.
• Play-to-earn platforms, also known as P2E, have been growing in popularity, in part out of enjoyment but particularly because players are rewarded in a variety of cryptocurrency tokens for their participation.

The article also points out that many of the multi-earners hope to be able to leave their traditional job and focus on X to Earn activities. Key quote:

"An average of 40% of people earning across all X-to-Earn categories surveyed suggested that they aspire to leave their full-time jobs in the coming six months to focus on these income streams."

We've long covered the trend towards multiple sources of income.

In 2014, in conjunction with Intuit Corporation, we released Small Business Success in the Cloud. As part of that study, we discussed career portfolioists, which we described as:

"Successful cloud-adapted freelancers will bring together multiple income streams to create a career portfolio."

The chart below (click to enlarge) is from that study.

The proliferation of X to Earn platforms has made it cheaper, easier, and less financially risky to generate revenue from various activities.  

And as we know from economic theory, when things become cheaper and easier, their use tends to grow.

That's certainly the case with multi-earners.  

Pew Research on The State of the Gig Economy in 2021

The Pew Research Center, a highly regarded non-profit, non-partisan D.C. think tank, recently released The State of Gig Work in 2021 report.  

The report covers the results of an in-depth survey of Americans who earn money from the gig economy, which Pew defined somewhat narrowly.  They only included workers who earned money by providing the following services via online gig platforms: 

"... driving for a ride-hailing app; shopping for or delivering groceries or household items; performing household tasks like cleaning someone’s home or assembling furniture, or running errands like picking up dry cleaning; making deliveries from a restaurant or store for a delivery app; using a personal vehicle to deliver packages to others via a mobile app or website such as Amazon Flex; or doing something else along these lines.

This leaves out many independent worker segments and platforms, including professional services.  

But by only looking at a subset of consumer services platforms, the study zeros in on the most controversial online gig platforms and work - ridesharing, deliver services and personal errand services.  

Pew found that 16% of adult Americans have earned money at some point via platforms included in their study, with 4% currently earning money via these platforms and an additional 5% saying they've earned money via these platforms over the past 12 months.  

Since there are about 258 million Americans 18 years and older, these percentages translate to roughly:

• 10.3 million Americans currently earn money as gig workers
• 23.2 million earned money as gig workers over the past year
• 41 million have done this type of gig work at some point in the past

The study's results echo the results of almost every other study done on the gig economy.  The quick summary is:

• Most (78%) report having either a very positive experience (24%) or a somewhat positive experience (54%) doing gig work.  Only 17% report a negative experience.
• Most work part-time, with only 8% saying they do this type of gig work more than 30 hours per week.
• Most (58%) say the income they earn via gig work is either essential (23%) or important (35%) to meeting their basic needs.

The study chart below (click to enlarge) shows the reasons gig workers take on this type of work. 

Just as other studies have found (including ours), most gig workers do this work because it's a flexible way to supplement income.   

The Pew report has a lot more information and detail, including a section on how Americans in general view the gig economy and related policy issues.  See the report for more information and details.  

The Pandemic Accelerated Rise of Ghost (Cloud) Kitchens

The global marketing agency Wunderman Thompson's article Ghost Kitchens covers the growing popularity of delivery-first dining and the related growth of ghost kitchens, which are also called cloud kitchens.

Ghost restaurants are delivery only, online restaurants that skip storefronts and deliver food straight to the customer. 

And one reason we're covering this topic is yesterday the food delivery firm Door Dash went public in spectacular fashion, ending the day worth a stunning $60 billion.

The food delivery business has been growing for about a decade and the rise of ghost kitchens was already a trend prior to the pandemic.  But COVID-19 has massively accelerated this trend and greatly expanded the market.

And according to Euromonitor, the growth trend will continue. They're predicting food delivery will be $1 trillion global business by 2030.  Key quote from a Restaurant Business article on the forecast:

The firm predicts that by 2030, food delivery could account for up to a third of consumers’ $3 trillion food spend globally. That includes roughly 50% of drive-thru business, or $75 billion, and 50% of takeout, or $250 billion. It will also take share from frozen meals (35%),  packaged cooking ingredients (30%), dine-in (25%) and packaged snacks (15%).

The Wunderman Thompson article does a nice job of covering the trend, so we'll not bother rehashing their article.

But they end with a very positive view of the long term outlook for ghost kitchens:

Global head of food and beverage research Michael Schaefer predicts that ghost kitchens will define the restaurant industry over the coming years in the same way that third-party delivery services have marked the industry over the past 10 years.

Food Delivery Firms Continue Fund Raising and Expansion

Over the past couple of weeks both DoorDash and London based food delivery company Deliveroo announced substantial funding rounds. 

Amazon led a $575 million funding round in Deliveroo and DoorDash is raising a new round of financing that could value the company at as much as $13 billion.

This is up from a $7.1 billion valuation DoorDash got in February when it raised $400 million and almost 10x it's valuation in early 2018. 

Given what many say are lackluster IPO's by Lyft and Uber, these are impressive fund raising rounds.

There's 2 key reasons food delivery is considered a big opportunity and attracting these investments.

First, the potential is huge and the market is rapidly growing. Key quote from Manhattan Venture's research report on Postmates, which is yet another food deliver company:

The current U.S. food delivery market is estimated to be around $30 billion and will likely grow to $365 billion or more by 2030. Food delivery is a small fraction (5% to 10%, depending on ranking criteria) of the overall restaurant sales and is set to grow at a CAGR of roughly 20%. 

Second, investors believe food delivery business models can be profitable. This is confirmed by food delivery firm Grub Hub's financial performance. It's been a profitable, public company for several years.

Amazon's renewed interest in this space - Amazon Restaurants pulled out of the U.K. last year and is only available in a limited number of U.S. cities -  is worth watching. It's clear they see the delivery of anything and everything as within their target market.

But the consensus among investors so far is food delivery is a big enough market with room for multiple players to be successful. 

Food Delivery Continues to Boom

It's been an interesting couple of weeks in the food delivery industry. 

Controversy swirled around grocery delivery company Instacart and their policy on tipping, witch many called wage theft.

While this led to Instacart changing their policy, other food delivery companies so far are continuing with their tipping practices despite complaints by both drivers and customers. 

The furor over tipping overshadowed a lot of news showing that the food delivery industry continues to boom. Examples include:

• Doordash is in the process of raising roughly $500 million at a valuation of more than $6 billion. This is a substantial increase in their valuation.
• Postmates has filed to go public. This is after recently raising $100 million at a $1.85 billion valuation.
• Walmart is partnering with delivery companies to provide same-day grocery delivery to 40 percent of households across the United States.
• Uber's financials suggest its delivery service, Uber Eats, is likely going generate $1 billion or more in net revenue in 2019.

And as the chart below from the Forbes article Uber's Secret Gold Mine shows, Uber Eats is about the same size as U.S. industry leader GrubHub.

The rapid growth of food delivery is also creating opportunities for a new kind of restaurant.

Referred to as "ghost" or "cloud" Kitchens, these restaurants prepare food for off-site dining only and use firms like GrubHub and Uber Eats for delivery. 

This, BTW, is an excellent example of how digital transformation is changing industries. 

The on-demand economy continues it's rapid growth. And, of course, it's not just food on demand. Everything is on demand and everything is being delivered.

And we see no reason why delivery shouldn't continue its rapid growth.

What Highly Skilled Independent Workers Want

The global accounting and professional services firm EY has developed GigNow, an external online talent platform. 

Like PWC's Talent Exchange and Deloitte's Open Talent Community, the goal of GigNow is to help EY find and engage skilled independent workers - both for EY's internal use and for use on client projects.

They recently released a short video (below) that we think nicely captures 3 key things highly skilled independent workers are looking for in terms of assignments. These are:

1. Access to diverse and interesting gigs
2. To be welcomed by the client and treated as part of the team
3. The opportunity the learn and build skills

In a 2016 Harvard Business Review article on external talent platforms we said:

We expect to see many other large corporations deploying independent external talent platforms and exchanges over the next two to three years, as 21st-century social, economic, demographic, and technological trends change the way we all think about talent.

GigNow is another example of this growing trend.

Use of Online Talent Marketplace by Independent Workers Continues to Grow

According to the 2018 MBO Partners State of Independence study, the use of online talent marketplaces by independent workers has substantially increased since 2012.

As the chart below shows (click to enlarge), in 2018 about 1 in 5 (22%) full-time independent workers reported using online talent marketplaces to find work over the past year, up from just 3% in 2012.

Relatively few (6%) report using online talent marketplaces as their primary source of work (word of mouth continues to be the primary source of work for most independent workers). 

But online talent marketplaces have become important secondary and tertiary sources of work. Independent workers use them to fill in gaps in their work schedules, explore new markets and find new clients. 

Online talent marketplaces are also used to learn new skills and build expertise.

Not surprisingly, Millennials are the most active users of online talent marketplaces. Having grown up as digital natives, they are more comfortable with this technology than the older cohorts.

Millennials, because they are younger, also generally have less developed networks and a greater need to turn to online talent marketplaces to find work.

Overall, independent workers plan to expand their use of online talent marketplaces next year.

24% report planning on using them over the next year and over a third of those using them (35%) plan to expand their usage. Only 8% of users say they plan on using them less, with the rest (53%) saying they will use them roughly the same amount.

Emergent Research (that's us) contributed to the 2018 MBO Partners State of Independence study. 

Food Delivery Forecast to Grow Rapidly

A new research report by financial giant UBS suggests that millennials are ditching the kitchen and instead opting for food delivery in a report titled “Is the Kitchen Dead.”

The report is not available to the public and we haven't seen it.

But it's nicely covered the Forbes article Millennials Are Ordering More Food Delivery, But Are They Killing The Kitchen, Too?

According to the article, time starved millennials in particular are cooking less because it's so easy to order food from platforms such as Uber Eats, Door Dash and Grub Hub.

Key quote:

UBS forecast delivery sales could rise an annual average of more than 20% to $365 billion worldwide by 2030, from $35 billion in 2017. 

UBS is even suggesting this forecast could be low, saying:

"There could be a scenario where by 2030 most meals currently cooked at home are instead ordered online and delivered from either restaurants or central kitchens.”

The Forbes article points out the counter trend of more people saying they are “cooking enthusiasts”. And this is certainly supported by the popularity of TV and online cooking shows.

 

But it's easy to imagine a future where most or many meals are delivered while at the same time cooking enthusiasts cook at home some of the time.

 

Whether UBS is right or wrong, the rise of food delivery is another clear signal that the on-demand economy is continuing to grow rapidly.

Financial Shocks Lead to Gig Work

One of the most important findings from our gig economy research is the role financial hardships and shocks play in the decision to become a gig worker. 

These include things like job loss, work hours being cut, inability to work due to an illness or the need to care for someone, etc. 

Our surveys show that 21% of on-demand gig workers - those that get work through online marketplace such as Uber, Upwork and Task Rabbit - reported they participated in this type of work to help them get through a financial hardship or shock.

We also found that 41% of on-demand gig workers had faced a financial shock or hardship in the last year.

We were reminded of how easy it is for many to face a financial shock by the Car & Driver article Cash-Strapped Shoppers Enter the Used-Car Market on the Losing End.

The article covers AAA data that about one-third of American drivers cannot pay for the average car repair, which is between $500-$600, without going into debt. 

So a simple break down could lead to major financial problems for many Americans.

It also could lead to a 2nd job in the gig economy to help pay for the repair.

The reality is despite a strong economy and labor markets, a growing number of Americans live on the edge. 

It’s also clear that our traditional safety nets are not working as well as they need to.

This means more people will face financial shocks and need highly flexible sources of supplemental income to get through them. 

Which means more people will look to the gig economy for work.

Do Uber Drivers Only Make $3.37 Per Hour? (The Quick Answer is No)

A study on ridesharing drivers - The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes - was released last week by the MIT Center for Energy and Environmental Policy Research.

Their finding that the ridesharing drivers working for firms like Uber and Lyft have median earnings $3.37 per hour was widely covered in the press.

The only problem was their analysis was flawed, something they conceded this week. 

The main flaw was pointed out by Uber in a post by their chief economist. It's a technical flaw, so we won't bother covering it here. See the Uber post for the details.

After reviewing Uber's rebuttal, the MIT researchers re-ran their numbers and are now saying ridesharing drivers median income is between $8.55 per hour and $10.00 per hour.

Both Uber and Lyft say this is still too low, and point to several studies showing higher earnings. In response, the MIT researchers say they are going to spend a few weeks reviewing their revised results. 

Our research 18 months ago on ridseharing driver earnings (net of expenses) found a $12-$14 per hour range for an average Uber/Lyft driver. 

But our data - like the data used in the MIT study - was based on survey questions asking rideshare drivers what they estimate their hourly gross earnings to be.

It's well known that people often misstate their earnings (intentionally and unintentionally) on surveys, which makes this data imprecise at best. 

It's also important to point out that there is no "average" or "median" rideshare driver. Most work part-time, drive different types of vesicles, pay different amounts for insurance, gas,etc. This means rideshare drivers have different cost structures. So using a set of average costs - as the MIT study and our study did - also leads to imprecise results.

Combining these two factors means any findings using surveys to get revenue and averages for the cost data are going to have large margins of error.

So large, we believed, that didn't publish our rideshare earnings study results. We simply didn't have enough confidence in the data.

All of this points out how hard it is to study this stuff.

After all, the folks at the MIT Center for Energy and Environmental Policy Research are obviously smart, talented researchers. But even they got it wrong. 

So, do Uber drivers only make $3.37 per hour? No.

But we still don't know how much, on average, they actually make.

For more this, see The Rideshare Guy's article on the study. In addition knowing the rideshare industry as well as anyone, their data was used in the MIT study.