TAt the moment, more than one third of the workforce in the United States works (part-time) as freelancer (Muhammed, 2019). Almost half of the freelancers over the age of 55, use supplemental gig work as a means to finance their retirement. It is expected that by 2020, almost half of the entire population will (part-time) perform gig work.

These facts are caused by the rise of the gig economy. A gig economy is an economy in which temporary, flexible jobs are common. In the gig economy, employees usually work part-time as contractors and freelancers, whilst in a classical economy employees work full-time, rarely switch jobs and often work for the same company their whole career (Kenton, 2018). During the last decade the gig economy has experienced a significant rise, caused by three major developments: First, Millennials have a different attitude towards working than the traditional workforce, as they prefer to have variety in work and a good balance between working and private life. Second, since the financial crisis of 2008, companies increasingly use gig workers to lower labor costs and to improve flexibility. Third, due to technological advances and the digitalization of the world, gig economy platforms were introduced, improving the access to gig work and workers for both firms as the labour force (Muhammed, 2018).

However, whereas the rise of the gig economy has several welfare benefits (Jennings, 2018), there are also possible downsides to it. In the paper “Can you gig it? An empirical examination of the gig economy and entrepreneurial activity.”, authors Gordon Burtch and Seth Carnahan researched a possible downside, whether the introduction of a gig economy platform in a geographical area would lead to a decrease in entrepreneurial activity.

Context & methodology

The authors used the introduction of Uber X into a specific geographical area as measure of an introduction of a gig economy platform. Uber X was chosen for two reasons: First, Uber enters the economy city-wise, meaning that for a specific area, the service might be available in one city, but might not be in another. This makes it possible to directly analyse the results of the entry of Uber X in a certain area. Second, Uber X is used instead of the (premium) Uber Black service because of the lower entry barrier and a larger network of drivers. Additionally, to measure the influence of entry barriers of the gig economy on the observed effect, the results gained by researching Uber X are compared to those of Uber Black.

The research was conducted as a natural experiment. The authors used real life examples of entries of the gig economy and measures of entrepreneurial activity. The researchers measured entrepreneurial activity by combining 2 data from 2 sources:

• First, the US Census Current Population Survey (CPS). In this survey, self-employment is measured.
• Second, Kickstarter campaign data was used, where the volume and size of Kickstarter campaigns were measured.

Results

The research found a significant negative correlation between the introduction of the gig economy and the entrepreneurial activity within the same geographical area. This negative correlation can be explained by the fact that gig economy platforms offers a source of income for the unemployed with a very low entry barrier, so there is no direct need for them to engage in entrepreneurial activity in order to ensure an income.

However, the research also found a significant increase in the average quality of entrepreneurial activity. According to the findings, this can be explained by the fact that people with mediocre or bad ideas that would engage in entrepreneurial activity without the entry of a gig economy platform, are now participating in that gig economy. The people that are still convinced of their own entrepreneurial qualities are pursuing their idea and don’t give it up to start driving for Uber X. These people apparently have a higher quality entrepreneurial activity, which increases the average quality of the entrepreneurial activity.

Additionally, a significant positive correlation was found between lower entry barriers of a gig economy platform and its effect on entrepreneurial activity. The research found that the introduction of Uber X (which has a low entry barrier), leads to a bigger decrease in entrepreneurial activity and a higher increase in average quality of entrepreneurial activity, as opposed to the introduction of Uber Black (which has a higher entry barrier: you have to buy a black car).

Strengths

The paper written by Burtch and Carnahan (2018) included several strengths. First, the paper included several robustness checks regarding the validity of data. By making use of multiple measures for the same phenomena, it is more likely that the correct effect was captured. Second, another strength of this paper would be the novelty of the research, as the paper is the first to examine the supply side of the gig economy. By researching novel subjects, the added-value to literature of this particular research area is higher. Third, as the paper makes use of two different data sources to measure entrepreneurial activity, the reliability of the data used in this paper is higher.

Weaknesses

Besides several strengths, the research done by Burtch and Carnahan (2018)  has several weaknesses as well. First, a weakness of this paper would be the low generalizability of the sample. The research is solely performed in the United States, which is a country with low unemployment benefits. According to Cowling and Bygrave (2002) has a significant correlation with entrepreneurial activity. Having only performed research within the United States, the generalizability of the results is lower, which reduces the findings’ value.

Second, the paper’s assumption that Uber drivers would otherwise engage in entrepreneurial activity, might be too big of an assumption. As Uber offers low-skilled jobs, its drivers might not be the people who would otherwise engage in entrepreneurial activity. People might even start driving Uber X to make some money, but use the flexibility in planning to actually start a business next to driving for Uber X. Moreover, the paper assumes that the entry and timing of Uber X is exogenous with respect to entrepreneurial activity. These assumptions both deteriorate the research quality, but proved necessary to perform the research.

Lastly, the paper contains data issues. For the first time, the volume of Kickstarter campaigns was used as a (partial) measure for entrepreneurial activity. Kickstarter campaigns may be run multiple times, which implies that the quality of the data might be lower than expected. Another reason why the data from kickstarter might not be generalizable, is that it was obtained during a period of economic recession, during which unemployment rates are higher than normal, which could mean that the impact might be different than it would be during a ‘normal’ period of time.

Implications

The paper proves worthy both in research and in practice. For academics, this paper proves valuable as it is one of the pioneers in researching the supply side of the gig economy. On top of that, the researchers also pioneered in using kickstarter as a measure for entrepreneurial activity, despite its limitations. For policymakers debating about the legality of gig economy platforms as Uber, this paper could provide relevant insights for crafting legislation around gig economy platforms.

Conclusion

The paper provides new information towards research about the gig economy as it offers insights on the supply side, which was rarely researched previously. The insights of this paper are relevant but should be taken cautiously however, as there are multiple notable concerns towards the validity, despite the efforts of the authors to ensure the quality.

References

Burtch, G., Carnahan, S., & Greenwood, B. N. (2018). Can you gig it? An empirical examination of the gig economy and entrepreneurial activity. Management Science, 64(12), 5497-5520.

Cowling, M., & Bygrave, W. D. (2002). Entrepreneurship and unemployment: relationships between unemployment and entrepreneurship in 37 nations participating in the Global Entrepreneurship Monitor (GEM) 2002. In Babson College, Babson Kauffman Entrepreneurship Research Conference (BKERC) (Vol. 2006).

Gooch, K. (2018). More Americans turn to crowdfunding for medical bills: 6 things to know. Many Americans struggle to afford their medical bills and are increasingly turning to crowdfunding for support, reports Yahoo Finance. Retrieved from https://www.beckershospitalreview.com/finance/more-americans-turn-to-crowdfunding-for-medical-bills-6-things-to-know.html

Jennings, M. (2018). 7 Reasons Why the gig economy is a Net Positive. Retrieved from https://www.entrepreneur.com/article/310685

Kenton, W. (2018). gig economy. Retrieved from https://www.investopedia.com/terms/g/gig-economy.asp

Muhammed, A. (2018). 4 Reasons Why The gig economy Will Only Keep Growing In Numbers. Retrieved from https://www.forbes.com/sites/abdullahimuhammed/2018/06/28/4-reasons-why-the-gig-economy-will-only-keep-growing-in-numbers/#6344d33e11eb

“When people think of Airbnb, they visualize accommodation. However, Airbnb itself is nothing more than a tech company, cleverly using software that translates into more than a million rooms across the globe” (Eventige.com, 2019).

Whilst Airbnb was founded 11 years ago, it has become one of the leading companies in the hospitality industry. Contrarily to traditional firms in the hospitality industry, Airbnb does not own any property, but offers a platform on which users can rent their own houses and property to each other (Guttentag, 2015). Between 2016 and 2018, the estimated value of the company has skyrocketed to approximately 31 billion dollars, worth more than multi-billion traditional hotel chains Marriott and Hilton (Smith, 2018).

Sharing economy
The phenomenon of the sharing economy refers to the “sharing of both physical and nonphysical goods and services through the availability of various information systems on the Internet” (Hamari, Sjöklint and Ukonnen, 2016). Airbnb is seen by most as the precursor of the sharing economy, being an inspiration for other firms which have built their business model around the concept of the sharing economy (Proserpio and Tellis, 2011). As the hospitality industry was disrupted by the innovative tech company Airbnb, the transport industry has been disrupted by several companies with similar business models. Uber and Lyft are examples of such companies, both to have disrupted the taxi industry with peer-to-peer platforms (Cramer and Krueger, 2016). Along with the disruption of traditional industries, new concepts came to life as well. An example of such a concept would be the carsharing industry. Car2go is one of the leading companies in the carsharing industry. Originally founded as a subsidiary of automobile producer Daimler AG in the late 2000s, Car2Go enables a user to commandeer a shared vehicle and only charges a fee for the time driven (Martucci, 2018). Car2Go has experienced tremendous growth and reached 3.6 million members in 2018 (Martucci, 2018). After noticing the success of Car2go and the rise of the sharing economy, two Dutch entrepreneurs thought off a similar concept which resulted into the successful start-up Felyx.

Felyx profits by charging a 30 cent per minute fee for the time the scooters are used. Furthermore, in case of incidents, large fees are charged to the users responsible. By the end of 2018, Felyx has grown to 50 thousand members and has expanded its business to Rotterdam and The Hague (Van Raemdonck, 2018). Furthermore, Felyx is planning an expansion to cities as Utrecht, Den Bosch and Eindhoven, as well as a move to outside of the Netherlands, where it has to compete with E-Scooter sharing companies as Cityscoot (France) and Emmy (Germany)(Govecsgroup.com, 2018).

Felyx
Felyx was founded in 2017 by Quinten Selhorst and Maarten Poot and is one of the pioneers in the e-scooter sharing industry (Govecsgroup.com, 2018). By collecting a starting capital of 700 thousand euro via a crowdfunding campaign, Selhorst and Poot were able to place the first 108 e-scooters in Amsterdam (Boerop, 2018). Felyx’s concept is as follows: within the service area users can rent a scooter for 30 cent per minute. Through the mobile app users can find the location of the parked scooters, unlock them and thereafter they can drive the scooter wherever they would like. Parking the scooters and ending the drive, is allowed anywhere at any time. If the drive has ended, the scooter will appear once again on the mobile app as available with its renewed location (Van Raemdonck, 2018).

Being similar to the concept of Car2Go (however with scooters instead of cars), Felyx offers a new way of transport, forming an alternative to public transport and the traditional taxi industry, as well as forming an alternative to disruptive companies as Uber. Felyx is unique in the Netherlands, as it is the first company in the Netherlands to offer the possibility to make use of shared scooters (Govecsgroup.com, 2018). Whereas most companies in the transport business which have built their business model around the concept of the sharing economy offer services involving the use of cars (e.g. Uber, Car2Go), Felyx offers a service involving scooters, which are perceived by many to be more convenient for transport within a city (Brustein and Lanxon, 2018).Furthermore, whereas companies like Uber had the regulatory struggle with entrenched taxi industries about unfair advantages, Felyx does not oppose an incumbent industry which could sue them about similar issues (Brustein and Lanxon, 2018). This offers Felyx an advantage in gaining market share.

What is the value created?
Felyx creates value for users in several ways. A first example, as mentioned above, would be that they introduce a new kind of shared transport, which is perceived as more convenient within cities than their competitors as Car2Go (Brustein and Lanxon, 2018). Second, as Felyx’s scooters can be rented per minute, they offer a cheaper alternative to rental companies which usually rent per whole day (Martucci, 2018). Third, as all of Felyx’s scooters are electric scooters, they are better for the environment than most of their competitors. This ensures a sustainable advantage for Felyx.

What are the challenges?
Besides Felyx’s strengths, the company faces several challenges as well. The main challenge Felyx faces, would be the regulatory struggle it has with municipalities. In Amsterdam, Felyx was ordered to remove all its scooters from the streets in line with the removal of four shared bike services in a battle with nuisance caused by the shared transport services (Kruyswijk, 2017). Even though Felyx was able to fight the above-mentioned decision (Boerop, 2018), if in the future similar decisions will be made by municipalities or the government, Felyx will face a gloomy future.

Additionally, another challenge for Felyx would be that the expansion possibilities might not be too big. The concept is expected to work only in the bigger cities of the Netherlands (Keunen, 2018) and the competition in the rest of Europe is fierce (Govecsgroup.com, 2018). Moreover, outside of Europe, riding a bike is not considered as mature way of transport, let alone driving by scooter (Brustein and Lanxon, 2018). These factors might limit Felyx’s potential growth.

References:

Boerop, L. (2018). Hoe twee 29-jarigen met elektrische deelscooters Amsterdam een beetje schoner willen maken. Retrieved from https://www.businessinsider.nl/hoe-felyx-met-elektrische-deelscooters-amsterdam-een-beetje-schoner-wil-maken/

Brustein, J., & Lanxon, N. (2018). How Electric Scooters Are Reshaping Cities. Retrieved from https://www.bloomberg.com/news/articles/2018-09-07/are-electric-scooters-the-future-of-urban-transport-quicktake

Cramer, J., & Krueger, A. B. (2016). Disruptive change in the taxi business: The case of Uber. American Economic Review, 106(5), 177-82.

Eventige.com. (2019). How AirBnB Became the Largest Hotel Chain. Retrieved from https://www.eventige.com/blog/airbnb-largest-hotel-chain

Govecsgroup.com. (2018). GOVECS boosts e-scooter fleet of Paris-based sharing provider Cityscoot. Retrieved from https://www.govecsgroup.com/presse/detail/news/govecs-boosts-e-scooter-fleet-of-paris-based-sharing-provider-cityscoot/

Guttentag, D. (2015). Airbnb: disruptive innovation and the rise of an informal tourism accommodation sector. Current issues in Tourism, 18(12), 1192-1217.

Hamari, J., Sjöklint, M., & Ukkonen, A. (2016). The sharing economy: Why people participate in collaborative consumption. Journal of the association for information science and technology, 67(9), 2047-2059.

Keunen, Y. (2018). Rotterdam krijgt ook een deelscooter. Retrieved from https://www.ad.nl/rotterdam/rotterdam-krijgt-ook-een-deelscooter~a273ca1b/

Kruyswijk, M. (2017). Ook deelscooters Felyx moeten van de straat. Retrieved from https://www.parool.nl/amsterdam/ook-deelscooters-felyx-moeten-van-de-straat~a4522009/

Martucci, B. (2018). Car2Go Review & Promo Code – Flexible Self-Serve Carsharing. Retrieved from https://www.moneycrashers.com/car2go-review/

Proserpio, D., & Tellis, G. J. (2017). Baring the Sharing Economy: Concepts, Classification, Findings, and Future Directions. Classification, Findings, and Future Directions (December 28, 2017).

Smith, J. (2018). From broke to billionaires: The rise of Airbnb founders. Retrieved from https://www.dailymail.co.uk/news/article-5918039/From-broke-billionaires-rise-Airbnb-founders.html

Van Raemdonck, H. (2018). De deelscooter rukt op – newmobility.news. Retrieved from https://newmobility.news/2018/12/12/de-deelscooter-rukt-op/