What If You Gig a Lemon?

As the gig economy continues to evolve, how do we define value in it?

I had this link come across my newsfeed today.

It looks like seminal gig economy facilitator TaskRabbit is pursuing a strategic sale.

From the article:

One of the earliest and most prominent startups of the so-called “sharing economy” or “gig economy” is evaluating the possibility of selling itself. As reported by Recode, freelance work marketplace TaskRabbit acknowledged that it is contemplating a sale after receiving inbound interest from a possible strategic buyer.

Now, I won’t comment on the merits fo the report other than to say that “inbound interest” usually means “we put ourselves up for sale and somebody called.”

Usually.

But it raises the question in this whole gig economy concept.  How do we place value on freelance contractors?  This issue is one that certainly matters to anybody contemplating the valuation of TaskRabbit as a company (because, one would assume, the value of a broker is in its ability to consistently snag a vig out of a high-value transaction for both the buyer and seller of a service).

When it comes to well-defined services like Uber, one can establish real regulating metrics for the service and scare out poor quality relatively quickly (especially when it comes to competing against taxis in most cities, which are decidedly…crappy). And, as with the mountains of venture capital that have underwritten Uber’s below market prices show, you can incite trial use of almost any simple service.

But, when it comes to more trust-oriented services, like those TaskRabbit sells, the ability to assure value becomes a big issue.  If I’m going to invite someone into my house to assemble furniture (one of the tasks that TaskRabbit puts right on its front page as an example), I have to know what risk I’m actually taking for the price.

And, you know what?  That risk is highly variable.  The person might break the furniture, soil the carpet, and scratch the floor.  Sure, TaskRabbit can reimburse for that, but who takes the risk of time, disappointment, and re-work?

You do.

And that’s where the gig economy will face its biggest challenge:  quality assurance a priori.

The more complex and critical the task, the more difficult the quality assurance mountain to climb.  Move from a contractor who assembles your furniture to one who builds your financial plan, and you start to see how trust gets built into the equation.  You always seek references (or the backing of a big balance sheet) when looking for a new financial advisor.

The problem with mass-market matching services (in both the consumer market, like Task Rabbit, and in professional markets, like any number of talent agencies out there), is two-fold.

First, the discerning buyer who cares deeply about quality and who is likely far more loyal to high-quality experiences–we at WGP call these the “clients you want”–won’t take the risk on a mass-market service. They will either demand a barebones price, or just go on about their business.

Second–and this is the real challenge for gig-talent-markets–people with real high-quality and trustworthy talents are usually already busy.  There’s a reason the A/V contractor all your friends like is booked 4 months out.

He’s a good one.

The confluence of these two factors leads gig-market-makers like TaskRabbit to face a version of the classic “lemons problem” in used car markets:  Because sellers can hide the true quality of their services ex-ante, buyers demand pricing that assumes the service is already a lemon.

This is a problem for any broker, and acts as a weight on prices (to the benefit of the buyer, to be sure…but to the detriment of the seller and the broker). So, companies focused on brokering services that are increasingly ambiguous will face the biggest issues and talent validation costs.  Talent markets for high profile independent consultants are already seeing some of these cracks.  Those services place, on average, very strong consultants with their companies. But that’s on average, which means not systematically.  And, it only takes one “oh crap” to screw up a whole lot of “atta boys.”

The solution?  The more critical the task, the more intense the background check and validation of the service needed. In the home furniture assembly market, it probably only means a handful of 5 star ratings on an app.  In the independent consulting market, it probably means a handful of real, solid references not coming from the broker themselves.

It’s the same as it ever was.  The outer circles may (and should) get contracted out through efficient means (like Uber, Lyft, etc.), but for the inner circles?

Trust is king.

I suppose this spells danger for the “strategic buyer” evaluating TaskRabbit today. In-home services are a challenge, and risk sharing in that world is doubtless fraught with concerns.

What do you think?