The Grim Gig Economy

Hunkering down has harmed some industries more than others. The past few months have been particularly tough for companies that make up the so-called sharing economy. Stay-at-home orders have devastated businesses that over the past few years have become so popular, especially with millennials as they looked for convenience, speed and transparency from services that provide flexibility.

The sharing economy, sometimes referred to as the gig economy as it has provided millions of people with short-term freelance work, has become a hugely valuable industry and one whose services many people came to depend on every day. It developed to the point that many of the brand names that made up the industry — including the likes of Uber, Couchsurfing and Airbnb — have become commonly used verbs in our modern vocabulary.

But as fears grew over the spread of Covid-19 and quarantine requirements began kicking in around the globe, consumers didn’t need the many services made to help them move around. The same flexibility that these companies created is now making them the most vulnerable.

In the past few weeks, the pandemic has taken its toll on some of the major players in the sharing economy. Its most valuable companies, which started the year with near assurances of a rush to profitability, now say that consumer demand has all but dried up. Businesses that were built on the notion that they should become as big as possible, in the shortest possible time and worry about making a profit somewhere down the line now face an uncertain future. And their timelines for turning a profit have been changed by circumstances well beyond their control.

Airbnb, Uber, Lyft and WeWork, all of which were founded in a four-year period starting after the financial crisis of 2008, have all announced staff cuts. Uber, for example, recently laid off 14% of its employees as it cut 3,700 people from its recruitment and customer service teams. Days later, it axed another 3,000 workers. At the end of April, Lyft said it would cut 17% of its workforce, or close to 1,000 employees. Airbnb, which at one time was valued at a staggering $31 billion, and had planned to go public in 2020, laid off 1,900 employees, about 25% of its staff. And, of course, there are the millions of freelancers whose gigs have vanished.

The impact of the pandemic is also being clearly felt by investors in the gig economy, most clearly seen in the disastrous financial results last week from SoftBank’s Vision Fund. SoftBank is the largest and most consistent investor in players in the gig economy around the world.

An industry that’s based on constant interaction is badly hurt during a pandemic that calls for social distancing and confines people to their homes. But we don’t doubt that at the end of this crisis, larger companies will bounce back, although it’s highly uncertain how long this recovery will take. Each economic downturn becomes a brutal stress test, and few businesses are being tested as brutally as those that make up the sharing economy.