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This article was published on May 18, 2014

The rise of the ‘Uberized economy’ and what it means for business

The rise of the ‘Uberized economy’ and what it means for business
Matthew Faustman
Story by

Matthew Faustman

Matthew Faustman is Co-Founder & CEO of San Francisco-based startup UpCounsel. Matthew Faustman is Co-Founder & CEO of San Francisco-based startup UpCounsel.

Matthew Faustman is co-founder & CEO of San Francisco-based startup UpCounsel.

The world of labor is changing. Through laptops and mobile devices, a new world of services is becoming more accessible. The platforms enabling such services are also providing new homes for a rising entrepreneurial class of worker who is no longer being defined by the cubical. It’s becoming clear, that in a not too distant future, our companies and corporations will be built on virtual networks vs marble lobbies.

While we have seen an explosion of “Uberized” labor marketplaces that make things like grocery delivery and home cleaning a mobile click away, labor marketplaces are quickly moving in more sophisticated directions.

While the oDesks of the world have defined “virtual labor” for the past decade, a new generation of virtual labor marketplaces is rising – even in the most old-school industries – and unlocking highly skilled services in a whole new way.

Our vision of the future is that these vertical marketplaces will make even the most white-collar professions accessible to every individual and business, and will provide new homes for highly skilled individuals where the traditional corporate life is no longer a fit or an option.

The rise of online labor & limits of horizontal marketplaces

The world certainly seems to be viewing online labor differently these days. Thanks to increased demand for, and access to, online workforces, the value of the online labor market reached $1B in 2012, and is projected to hit $5B in 2018.

The rise in online labor seems to be paralleling the general increase in freelance labor in a sluggish economy. “Between one-fifth and one-third of American workers are now freelancers, contractors or temps,” according to Accenture.

Up until a couple years ago, most online labor had been contained within large horizontal marketplaces like oDesk and Elance, which, for the most part, were the first entrants into the online labor space. Even hyper-localized labor started on horizontal platforms like TaskRabbit.

But, horizontal marketplaces are just the first chapter in a multi-trillion dollar story. While horizontal marketplaces can make sense for many types of labor, they have their limitations within certain verticals. These limitations include inconsistent product experiences, demand- and supply-side quality control, and a lack of specialized resources for skilled providers to improve their delivery of service.

Entrepreneurs are now focusing their attention on the specific problems within these niches. But, some of these verticals represent billion-dollar opportunities like medical, legal, and accounting.

Vertical over horizontal

Vertical marketplaces present numerous advantages over their horizontal counterparts for both consumers and service providers. Simply put, vertical marketplaces can focus on getting few things really right rather than doing hundreds of things decently, resulting in a better experience for both sides.

While these vertical marketplaces are still in their infancy, some of the deliberate differentiations they are making from horizontal marketplaces are becoming standard practice.

Consumers: Standardization & increased trust

Many of the successful vertical marketplaces are taking steps to dramatically differentiate the experience for consumers from the Wild West of horizontal marketplaces. Two of the biggest changes that these marketplaces are making are process standardizations and increased focus on enabling trust.

The traditional RFP process, seen in an oDesk-like model where a user receives 20+ bids, is a slow, variant and sometimes jarring experience. While maximizing choices for a customer, it is not always the most optimal experience. Sometimes fewer choices are favored over other experiential elements, and can improve convenience, speed and simplicity.

This is why vertical marketplaces are making more of the decisions for you. Scripted, a written-content platform for businesses, is a classic example of this shift. A user of Scripted merely needs to pick the type of written piece they are looking for (i.e. blog post, tweets, white paper, etc.), and Scripted does the rest by setting pricing, a defined scope of work and an assigned writer for the project.

Through oDesk’s RFP process, this could take up to three days to just to get the project started. With Scripted, you can get your project started in one sitting, and in under 15 minutes.

Vertical marketplaces are also going out of their way to create trusted relationships with their customers. Guarantees, ratings, transparent pricing, great customer service and company swag are just some of the things these companies are doing.

At the end of the day, however, it is all about quality. Tim Ferris, the author of the 4-Hour Workweek, admits that oDesk can require churning through a few people before you find someone good. For more trusted activities, many consumers are not willing to throw chance to the wind.

As vertical marketplaces move into more sophisticated disciplines, the need for quality will be a necessity with users, who cannot risk a bad experience.

Service providers: Dual curation & commonality

As more and more service providers take their practices online, they too are looking to create long lasting relationships with customers. Just as consumers wish to avoid low-quality service providers, service providers wish to find high-quality, reliable clientele.

This parallels providing high quality to customers. You can only attract the best service providers by providing them great clients to work with.

Vertical marketplaces also provide a consistent environment themed around their service providers. This offers two distinct advantages.

First, service providers can access tools and resources within the marketplace that are consistent with their profession. Not every profession needs a time-tracking tool, and some industries have specific regulations on how their craft can be performed, requiring a customized experience to accommodate them.

Medical marketplaces, like Healthtap for example, must comply with HIPAA regulations in order to protect their doctors. Secondly, providers within these marketplaces can access a common community for overflow work and industry knowledge (something most people leave behind when they exit a firm).

Accessing a community for knowledge and interaction is a huge perk for the growing class of independent workers.

The new “firms” of the future and their impact

For centuries, we have relied upon brick-and-mortar professional institutions to deliver trusted services and employ the masses. But, as vertical marketplaces move from the simple to complex, it seems that these traditional bastions may be facing the same fate as brick-and-mortar retail ten years ago.

It’s not inconceivable to think that the world’s largest accounting, marketing and law firms could one day be vertical marketplaces built on software. We see this as a good thing. One of the major themes these new labor marketplace share is their ability to provide access to services that would otherwise be too expensive or inconvenient to procure consistently.

In the small-to-medium business world, increased access to these core services is vital to growing businesses and a thriving economy. Virtual marketplaces will make available powerful resources that only large corporations have traditionally enjoyed. SMBs are thus equipped to better compete with very large companies, harnessing what General Catalyst Partner Hemant Taneja refers to as “economies of unscale.”

The future certainly looks bright in our eyes. In coming decades, vertical labor marketplaces will open up important resources for consumers, and hundreds of thousands of employment opportunities for the growing freelance community. It’s the global flywheel at the heart of our new labor economy.

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