How the On-Demand Economy Will Impact the Future of Work
November 22, 2017
For the audio recording of the interview, connect via our iTunes Podcast: “How the On-Demand Economy Will Impact the Future of Work”. An edited transcript of the interview follows.
Knowledge@Wharton: We are in an incredibly amazing time in this country where the on-demand economy has taken hold, and the need by many people to take advantage of ease of access is on the rise. But that also brings up several questions about how the on-demand economy, as well as automation, will affect the future of the workforce. There have been many people concerned that the numbers of jobs available in the future will dwindle. Vikrum Aiyer is a visiting fellow at the Penn Wharton Public Policy Initiative. He is also Strategic Communications and Public Policy Lead for Postmates, a company that specializes in the on-demand food delivery sector. He was previously Chief of Staff to the Under Secretary of Commerce in the Obama administration and served as President Barack Obama’s Senior Advisor for Innovation and Manufacturing Policy in the White House National Economic Council. It is great to have Vikrum here in the studio with us. Nice meeting you. Thank you for coming in.
Vikrum Aiyer: Good to be with you.
Knowledge@Wharton: I am sure you have heard the story about Uber buying 24,000 self-driving vehicles. How do you think that affects the on-demand economy? Because, as I have previously mentioned, Uber has primarily relied on people having their own vehicles. Now we are talking about a fleet of vehicles for Uber.
Vikrum Aiyer: That’s right. And the numbers alone are a really stunning demonstration for where automation is moving not only American industry forward, but the transportation industry on a world-wide scale forward. But it also underscores something pretty remarkable—how the way that commerce, goods, and people are moved around in the 21st century is evolving in real time. Even before the announcement this morning by Volvo and Uber, we have been seeing the testing of driverless vehicles, whether it is right here in the state of Pennsylvania, in Pittsburgh, or in Arizona where Google is testing its driverless car Arm Waymo. You definitely see a lot of investment in this space. Large original equipment manufacturers, the big three auto companies including Ford, GM, and Chrysler, are examples here within the U.S. Also a lot of companies internationally, and a lot of new tech entrants. You have Apple, Google, Uber all experimenting in R&D in this space. There are even smaller driverless vehicle car startups, including Zoox, which is based out in the Silicon Valley.
But there is another major element of this that we have to consider, which goes beyond passenger concepts. If you actually zoom out just a tad, you realize that the same cargo bay of a car that could autonomously move people around town could be filled with goods, re-tooling the way transportation exists. Impacting how we purchase items and how those goods move around cities. This is an example of follow-up impact. And I think it is important to recognize that, while there may be an important conversation to have around the job implications of this landscape, there is also an important understanding that needs to be had in terms of the commerce impacts of this landscape. Notably, if all of a sudden, you have the ability for a small mom and pop bakery or a local taqueria or a local hardware store to plug into this massive and amazing network of delivery services, whether it’s through on-demand tools like Postmates or through automated delivery functions, like those that the Volvo deal underscores, these small businesses now have a new way to reach customers in a way that they’ve never been able to do before.
Almost immediately, retail sales seem promising in a new direction. Consequently, there is a need to maintain a fleet of these vehicles. If you conceive of the auto mechanic who currently has to understand how to poke under the hood to fix a car or fix a truck, now the auto mechanic needs to be skilled-up in software or how to edit the operating system that will now navigate and power what is underneath the hood.
Knowledge@Wharton: But it is the understanding of that process that is really where the potential growth lies. I was going to ask you about the concerns a lot of people have about the prospect of jobs loss in the economy in the years to come. But we also have an up-tick in the number of technology jobs in this country, which then that touches on the topic of how we are educating our kids, and what their expectations should be going through high school and into college and beyond.
Vikrum Aiyer: Absolutely. And it couldn’t be more critical than to start that investment today. So there are a couple of ways to approach it. For one, the early childhood education approach. At the K through 12 level, massive investments need to be made in the STEM spaces, the computer sciences, and technology in general. But also, do not forget about the arts. Because right now, what we’re seeing when it comes to technology is a beautiful blending of both design concepts as well as technological applications.
But then there is a really important alternative model which is the later stage approach. In general, education models world-wide, America included, tend to plateau after graduate or undergraduate education. But when we are talking about a whole new onslaught of technologies that could impact the way you or I approach a normal function at a job, or the concept of work in general, it means that there may very well be a need for us to have a later stage understanding of some of these new tools. So continuous education models for individuals that are at a later point in their life, or apprenticeship programs where someone can plug in and shadow somebody else’s work to up skill a new understanding are really going to be necessary for jobs of the future.
And I will say one last thing to commend the mayor of Philadelphia. During the Obama administration, there was actually a program called Tech Hire that was launched in which a conglomerate of universities, incubators, coding classes and apprenticeship programs took shape right here in this city to try and plug in individuals of all ages to get understanding and training in these new skills. That’s an example of the investment that is going to be necessary to power the future of work.
Knowledge@Wharton: The benefit of such examples, is that companies are now more willing, it seems, to partner with governments locally, to be able to do those types of projects. They’re more willing to work with various organizations, in general, because they understand the path that we have to take in the next 10 to 20 years or so.
Vikrum Aiyer: Absolutely. And I would take that one step further and say that the public/private partnership model between governments and industry is going to be core to defining that path to the future. Notably, in Germany for example, the university system works very closely with industry to say, “Hey, if these are the advanced manufacturing jobs of the future, here are the jobs you need for 3D printing. Here are the jobs you need for advanced textiles, or wearable technology,” then backing into that, what does the curriculum or curricula really need to look like at the college level? And they work very closely, both among industry and the government administrators of this education to figure out the right type of path forward.
I would say that, within the United States, there’s a huge moment for the private sector to not shirk their responsibility and just say, “Hey, we’re just a tech platform. Whatever happens to the jobs downstream happens to the jobs downstream,” but really to step up and say, “We need to have investments in education, and let us work with you, government, either locally or federally, to figure out what that partnership could look like.”
Knowledge@Wharton: I think some people would ask, “Why hasn’t that happened 20, 30, 40 years ago?” I mean obviously, technology has kind of developed, and we know how important it is. But a lot of people would say, “This could be something that we could have been doing years ago, and it could have been improving our economy, where we wouldn’t have what it feels like is such a larger leap to be able to get where we need to be.”
Vikrum Aiyer: Yes. It’s a great point. And I think there are no excuses for any amount of catch-up that needs to be made right now. The one difference is, and maybe this is the silver lining or the optimist in me, but we’re having these conversations today. And right now, under the last administration, President Obama directed his Department of Labor to actually focus on apprenticeships. So that way, the very concept of an apprentice that you or I might think of, of the 17th century cobbler teaching a future family member the family business, is no longer the vision. Now it is when an individual who has a very baseline level in, say, design skills or computer engineering skills, but is self-taught and didn’t get into Penn or Stanford CS or have an engineering degree. They are now able to plug into a local startup or a technology firm, shadow someone, and build up their own skill ability. That’s the type of apprenticeship model that we’re talking about now and seeing more and more of.
And I’m heartened to say that even this current administration under President Trump is continuing to direct its department of labor to encourage much more private sector apprenticeship learning. That is only one example, but those are the types of investments that are being made currently. There is a long way to go. But hopefully that sets us towards a path in which automation offsets can be accounted for today.
Knowledge@Wharton: : What is your expectation for the on-demand economy in the years to come? Because obviously, it’s become an incredibly important piece of what we do on a variety of different fronts, whether it’s in retail, whether it’s in your industry. I mean, it has come in like a bear and it has had a great impact. And it has obviously, I think, increased the awareness of a lot of people in terms of being able to use technology, and being able to connect with companies or individuals in a much different manner than we’ve ever been used to before.
Vikrum Aiyer: Yes. And I’ll answer that in two parts. One, I know this show loves numbers. So in addition to the number of the day on the Volvo Uber sale, another number for all listeners is that, last year alone, within the United States, $1.5 trillion was spent on grocery and food purchases. But of that total amount, only 2 percent was purchased through the internet, which means that, whether it’s an app based platform like Postmates, or whether it’s online commerce like an Amazon or a Wal-Mart.com, there’s a lot that’s ripe for the taking.
The second point, though, is an interesting concept concerning retail sales in general. And this is, not to paint a target on their back by any means, but if you consider an Amazon model or a Google Fresh model, what they will do is build warehouses on the outskirts of cities and then funnel those goods into town. What a Postmates model does, or what more app based on-demand delivery services do, is treat the entire city like a warehouse. So they’re giving brick and mortar retail, local stores, the tools they need to distribute their goods. And for Postmates, for example, and this is only, again, one slice of the pie, we’ve actually seen that our retail partners have seen a three to four times increase in sales when they use on-demand delivery. And this goes well beyond food, because we’re actually servicing hardware stores and beyond. And that’s actually because of a new reach of their customer potential in which geographically, if they were located on one side of town, they’re now reaching customers at another side of town. This validates the thesis that the on-demand economy and automation are going to really change, and are changing, the way commerce is connecting communities.
Knowledge@Wharton How does Postmates do in terms of not only retention of customer, but retention of retail partner, as well.
Vikrum Aiyer Yes, it’s an incredible story, and one that, again, can be told by the numbers. Right now, we’re in 250 U.S. cities. And we perform over two million deliveries every month. And actually, of all the partners that we have that are both partner merchants and non-partner merchants, the distinction being that, you know, you could get something from a Chipotle that we do partner with, or something from a local electronics store that maybe we don’t partner with, we are offering those businesses $23 million worth of sales each month within the United States. So that kind of stickiness or desire to stay on the platform has really increased in the six years that we’ve been in operation.
And I think the reasoning is quite simple. If you think of a local Chinese store or taqueria, once upon a time, their customer base was confined to who visited their dining room, in which customers could sit, or the average passersby knew the restaurant because it was in their community.
Knowledge@Wharton And all of a sudden we’re hungry.
Vikrum Aiyer: And now, if you are sitting around on a Sunday afternoon at home and realizing that you’re in the mood for something to eat, the Chinese restaurant or taqueria can reach you via courier. They have a brand new customer base, extending far beyond just those who happen to know about it in their neighborhood. It means that these individual businesses are seeing brand new sales in a way that they’ve never seen before. So the desire for them to compete is not only driven by sales, but it goes back to that concept of the Amazon contrast. Because now, all of a sudden, if you or I are buying our light bulbs from a local hardware store instead of getting it wholesale via Amazon, it means that local brick and mortar merchants have the ability to compete in an era of eCommerce.
Knowledge@Wharton Which is important, because even though we have seen an amazing run in terms of entrepreneurship in this country over the last decade, there is the concern of whether or not the small business is going to be able to survive because, let’s just think about the hardware industry. The mom and pop hardware store, which has been such a key component to this country for 100 years or so, feels like it is being pinched more and more because of the fact that you have the Home Depots and other large hardware companies in the world.
Vikrum Aiyer: Yes. And big box retail is a real threat. And that is the core, actually, I should say the heart of what is powering on-demand platforms like Postmates—the option for you or I to buy local and support local retail. And taking it one step further, in San Francisco, California, for example, where Postmates is headquartered, a lot of thriving innovation is going on in that community. Retail is down 35 percent. But when you see that the sales rate for those that partner with a platform like ours going up by four times, now you have new dynamics in which the individual companies can compete. So I think the goal that we should have as a community is not only investing in the convenience that an on-demand delivery platform can give us with instant access to the goods of our town, but is also investing in the community that powers a lot of our towns. And if we start to shift our thinking in our ethos to not just prioritizing one versus the other, but wedding both together, then you have a real ball game when it comes to competition against an Amazon like Goliath.
Knowledge@Wharton: So then you believe that the government, and obviously, there’s a level of government that’s involved in a lot of elements of this, you believe that the government is kind of caught up, they are at a point where they understand the transition that is going on within our culture, within our economy, and they understand the importance of it. But they also understand the various avenues of this conversation, to the point where they’re not playing catch up right now.
Vikrum Aiyer: I think that there’s a lot more work to be done when it comes to government engaging the private sector around these issues. But the conversation is underway. We do know that, for example, Congress right now is entertaining two bills that were specifically eyeing the on-demand industry and figuring out how to tax it appropriately, as well as contemplating new types of benefits models for the independent contractors that perform deliveries off of the platform. But at the same time, government needs to understand that not all of the on-demand businesses or sharing-economy businesses are alike. It is very easy to start to define everything as an Uber for X, or a lot of these matching services as monolithic in some way.
But in the same way that it’s incumbent upon us in industry to approach government, engage them and not avoid them, and define what the distinctions are between a number of these platforms, it’s also incumbent upon government to realize that they should not be painting the technology industry or all these platforms with one broad brush. And most notably right now, when you do have the federal attention on companies like Facebook and maybe their activity or contributions to how news was disseminated in the last election, or Amazon and concerns around antitrust challenges or monopolistic behavior, it is very important that folks see that there can be tech platforms for good. And specifically, when you have an on-demand platform that’s powering “buying local”, “selling local” and increasing the prospects of local brick and mortar retail, then all of a sudden, you can have a more robust conversation around that application.
Knowledge@Wharton: Is the back and forth between public perception swinging from being very positive to very negative, is it as simple as people’s resistance to change in our culture? I mean, it’s almost inbred in us as a people here in the U.S.
Vikrum Aiyer It’s a great point and a great question. I think that it has to do with challenging the concept of work and the dignity that we invest in work. I think that there’s very much a difference between the dignity of a J-O-B and a traditional job as we see it, and the dignity of working on applications that we’re interested in. A job, traditionally defined as a 9:00 to 5:00 model where you work hard, you invest in a basic social compact, put food on the table, and that your children should be better off from you, is being now pulled at and questioned. Last year alone, 34 percent of all tax filers, according to Intuit, were actually independent. So this includes both the Postmates courier and the Uber driver, but also the freelance plumber or the freelance entrepreneur, him or herself. So when the nature of work is shifting away from a traditional employment model, people get reticent to that change. And of course the government needs to figure out how you provide benefits for that type of workforce. But if, all of a sudden, I’m working on my own terms and I’m able to stitch together disparate incomes, and that work can be applied to a dignity for the life in which I want to live, however I want to live it, outside of a traditional labor market dynamic or format, then there’s a difference between the work we’re doing and the jobs of the past.
Knowledge@Wharton: How important is the social component to this? I think social media and contact through people, whether it be through Facebook, Twitter, texting, how important is that right now? And how much more important will that continue to be, especially when you see things that pop up on Facebook in terms of needing information on, as you mention, a good plumber? That connection, seemingly, has taken over for the old yellow pages ad.
Vikrum Aiyer: That’s very true. And the concept of the crowd, or each of our peers informing us who that good plumber might be, or where you can get a good sandwich at a local deli, is powering a good chunk of what we call this modern on-demand or sharing economy. We’re sharing our assets, like our home or our car for rides and housing. And we’re also sharing our insights when it comes to recommended tips. I think that this is going to continue to be core to our modern economy. And I think that part of what’s powering this is the concept that all of that is now pocketed into our phones, and these mobile applications mean that people are constantly seeking information right away. But the easiest way to create a communication forum around that information is the fact that we’re constantly transmitting data out through our mobile applications and devices. So it’s going to continue to be core to it. I think one question that is really going to be on the radar of governments, both local and federally, is as that information gets disseminated, are we packaging it in a responsible way? Is that data being biased in any way? Is that intentional? Or is that an exploitative approach? I think that’s going to continue to be a conversation that we’re going to see in the road ahead.
Knowledge@Wharton Which brings up an interesting question I wanted to broach. And it’s a perfect time to. When you see what is going on overseas with Amazon and Google, and some of the issues that they’re running into, or Uber, which obviously is having issues in London right now, there seems to be a much different approach to this in those parts of the world than there is here in the United States.
Vikrum Aiyer The regulatory environment is definitely evolving at different speeds and with a different motivating philosophy in different markets. But I do think it underscores one basic principle, which is that the private sector industry, and most notably, technology communities, really do have an obligation to engage local regulators, government and community stakeholders, in a very responsible way of managing stewardship of the people that they’re touching. And I think that, oftentimes, what you’ve seen in the past is a very easy willingness to say, “We are just a marketplace. We are just a platform. What happens to the downstream impacts is not controlled by us, it’s controlled by the behavioral use of our users on these platforms.” And I think that is the exactly incorrect approach. The more that you do that, the more you’re going to draw the ire of those with power or those in a position to crack down on you.
And one thing that we are seeing in this moment, not just in American history, but in the eyes of the world, is are we going to see technology firms stand up and own their responsibility of how they’re contributing to the communities around them, or are they going to continue to back away? If we see more behavior in the latter category, then you may very well see more bans like you’ve seen in the U.K..
Knowledge@Wharton Getting back to the U.S. here for a second, it sounds like the conversations that are being had by companies in the on-demand economy, when you’re thinking about policy and regulation, are ones that need to happen more at the local level than they do even at the federal level.
Vikrum Aiyer: Absolutely. The federal conversations are important, just to inform our national regulators as to what’s going on, share data, and just have that connectivity with them. But right now, the era of the mayor, the state assembly member, couldn’t be more important, not only because there might be inertia going on in Washington D.C., but putting that topic aside –
Vikrum Aiyer: Inertia, yes.
Knowledge@Wharton: I was thinking of a few other words, but yes, exactly right.
Vikrum Aiyer: I’m going with a diplomatic synonym there.
Vikrum Aiyer: But locally, you have a very willing population of lawmakers who are willing to civically innovate and experiment. Right now, you have the state of New Jersey, for example, that has been entertaining a conversation around a new benefits model for the independent workforce that Lyft and Uber and Postmates have given rise to. In the city of Los Angeles, one of Postmates biggest markets, you have a very interesting vision from Mayor Eric Garcetti, who is willing to test and wants to embrace the testing of new transportation modes, including robotic deliveries and more automated deliveries. So right now, I think taking a look at local mayors, and this is not just in big cities, even rural suburban parts of town, that’s going to be where a lot of the experimentation goes. But again, to your earlier question and point, it is going to demand that industry, private sector companies and on-demand tech platforms, are willing and open to engage them, so that way, they can create that petri dish of experimentation that has driven a lot of their models to begin with.
Knowledge@Wharton: The speed factor, and obviously it plays into a degree what you guys do with Postmates, especially when you’re talking about food items and delivery, the speed factor, though, seemingly, has kind of enraptured our communities more and more than ever before. I mean I think we had a certain pace that what we were used to back in the ’70s and the ’80s, that pace has been ramped up twofold, threefold, fivefold, whatever that ratio is, especially in the last few years. And I don’t think there’s an expectation that we’re going to plateau, that that speed is going to continue to ramp up as we move forward.
Vikrum Aiyer: That’s right. I think most historically Moore’s Law was the rule that governed the pace at which micro processing chips and power would multiply over time. There’s no precise ratio being contemplated around all of the tech and innovation that we have right now, whether it’s on the automation side, the on-demand delivery side, the fintech side. But what we are seeing is a really, really golden age of the knowledge economy, in which all types of knowledge can be shared instantaneously, leveraged, built into an app, offered as a new insight for a customer or a consumer like you or I. And I think that the United States has a real responsibility to continue to invest in that R&D, to make sure that research and development takes shape here on U.S. soil, so that way, the jobs continue to take root right here on U.S. soil. But, at the same time, we are going to have to put our hands around how do we regulate some of this artificial intelligence that’s coming out from algorithms, how do we regulate the job impact of automation. But it is really, really important that the public sector and the private sector work together, because if they don’t, then those two prospects are going to sound increasingly mutually exclusive, that R&D can’t take shape at the risk of impacting jobs down the road or, conversely, for the sake of preserving an old world model of how the jobs should be configured, we can’t enable R&D to take shape. That would be an incredible misguidance, and it would really only give rise to countries like China, India, Russia or South America to actually beat us. And I think that we’re going to have to create what those balances are. And of course there’s going to be a tension between those competing interests.
Vikrum Aiyer: But that tension has really been where America has shined at its greatest moments, staring that in the face and figuring out a path forward.
Knowledge@Wharton: Nice meeting you. Thank you for coming in today.
Vikrum Aiyer: Thanks for having me.
Knowledge@Wharton: Vikrum Aiyer, a visiting fellow here at the Penn Wharton Public Policy Initiative, also leads strategic communications and public policy at Postmates.