COVID-19 has exposed the vulnerabilities of firms like Airbnb and Uber. It’s also an opportunity for cities to recalibrate their policies.
As has been made abundantly clear, coronavirus touches all aspects of urban life – including the platform economy. Before the spread of COVID-19, the rise of platform firms such as Uber and Airbnb presented a contentious, yet increasingly accepted set of activities with a regulated presence in most Canadian cities. Now, unanticipated change in cities associated with lockdown, recovery and reopening is having a dramatic impact on their business models. The result is direct and indirect employment losses and associated impacts on urban real estate markets, mobility and logistics.
While some say “good riddance and go away” – platform economy firms and the challenges and opportunities they present are likely to outlive coronavirus. As a result, the pandemic offers a crucial and time-limited opportunity to revisit the prospects for cities to derive benefit from these businesses.
The platform economy encompasses activities that are facilitated and can grow rapidly at little additional cost, as a direct result of digitization. For example, digital technologies enable firms to connect riders with drivers, renters with borrowers and restaurants with eaters.
The meteoric rise of platform economy firms over the past decade, particularly in the areas of rides and rooms, has been inspiring and disruptive at the same time. Remarkably, we have witnessed ride-hailing and electric bike and scooter firms estimated to be worth a billion dollars or more, despite the fact that they have not made it clear that they can become profitable. Privately held Airbnb dominates in the field of short-term rentals, and is estimated to account for more than one-fifth of the US vacation rentals market.
Before the pandemic swept through cities around the world, much of the luster was already coming off platform economy firms. Lyft and Uber, both publicly traded, reveled in estimations of multi-billion-dollar value before going public, only to witness their stock prices decline considerably – and that was well before coronavirus hit.
Furthermore, both firms have been fighting legal challenges on numerous fronts, including most notably a new law in California that classifies drivers as employees rather than independent workers. For Airbnb, increasing evidence demonstrating the destructive impacts of short-term rentals on housing supply and real estate markets pushed municipalities and provinces to enact increasingly stringent regulations – with mixed success.
Platform economy in a pandemic
Like so many other sectors, coronavirus has devastated large swathes of the platform economy. The shutting down of workplaces, bars and restaurants, international borders, business and vacation travel has translated into demand for rides and rooms essentially falling off a cliff.
Uber reports that rides are down by more than 80 percent globally, while Airbnb rentals were banned in Ontario and Quebec as part of the economic shutdowns implemented in an attempt to slow virus transmission. Even without these bans, the decimation of nearly all global travel has significantly dampened demand for short-term rentals, with the possible exception of housing for frontline workers and those who required spaces to physically isolate.
Retrenchment of platform economy activity in the rides and rooms sectors has resulted in, unsurprisingly, income and job losses. Although a range of platform firms has cut permanent staff since the pandemic began, the lion’s share of cuts is at Uber and Airbnb. Furthermore, the shedding of labour continues.
Uber has announced multiple rounds of staff cuts, trimming a total of 6,700 employees to date (representing one-quarter of its global workforce) and emphasizing firm realignment given uncertainties and realities around what reopening will look like.
Given that platform economy models focus on matching customers with individuals providing services, the impact of dramatically decreased demand has direct and negative repercussions for gig economy workers such as drivers and short-term rental hosts. The immediate impacts for precarious workers are difficult to quantify given a lack of publicly available data, yet it is clearly damaging.
All is not dreary, however. One area of increased demand for mobility firms in particular are increases in food delivery for those shut in at home. Platform firms’ ability to help serve food delivery markets translates into revenues, jobs for gig economy workers and in some cases, a lifeline for otherwise empty eateries. Yet, high commissions of up 30 percent or more, take money directly out of the pockets of small business owners and may make their operations financially unviable.
Will the platform economy persist post-pandemic?
Observers have noted that the pandemic has effectively placed society at a fork in the road. This is a moment of renewed reckoning. It is a time to ask if the future we want is the one we are leaning towards. Given this moment, it is up to us to ask: How can we design policies that ensure reciprocal benefits from the presence of platform economy firms in our midst?
Together with notoriety, comes scrutiny and expectation. Platform economy firms are known for taking risks, for asking forgiveness rather than permission and for leveraging technology to innovate with respect to processes, services and products.
It has been demonstrated that platform firms can negatively impact labour and wages, neighbourhoods, existing industries and climate change goals. There continues to be disagreement regarding whether or not these firms should be permitted to operate.
Importantly, the pandemic makes crystal clear the significance of mobility as the underlying force behind economy and society. Ride-hailing firms are transitioning to a “new normal,” at least until a vaccine or antiviral is available, that includes requirements for drivers and riders to wear masks as well as added cleaning protocols.
Ride-hailing may indeed be especially appropriate for vulnerable people, including frontline workers. Using ride-hailing during this interim new normal as an in-between mobility alternative to both public transit and private automobiles, while incorporating new safety measures, may mean a safer alternative for those who need it most.
In the pivot to food delivery, ride-hailing firms have enabled some restaurants to stay in business by offering digital ordering and matching drivers with customers. Rather than imploring platform firms to charge less, governments should explore capping delivery fees so that restaurants, delivery personnel and digital matching firms can all benefit.
This article is part of the Building a More Inclusive Innovation Economy After the Pandemic special feature.