Blue Whale is a blockchain project that promises to revolutionize the gig economy by cutting middleman costs and introducing traditional concepts like benefits and pensions to freelancers around the world. As a freelancer myself, this project seriously caught my interest. In this first post, we’ll take a look at the current state and weaknesses of the gig economy.
What is the Gig Economy?
Before we dive into the details behind Blue Whale, let’s take a moment to understand what “gig economy” means. If I understand it correctly, “gig economy” refers to the various participants in the freelancing industry.
- A business uses Fiverr to find a graphic designer to create a new logo.
- A local guide uses Airbnb to sell experiences to tourists.
- A driver uses Uber to locate customers who need a ride somewhere.
In the examples above, there are always three or more parties that make up the gig economy — freelancer, client, and a marketplace platform.
The world is becoming more Internet-centric each year, and the global surge in the number of freelancers reflects this fact. Between 2012 and 2017, the number of Internet users globally grew from 2.4 billion to 3.58 billion. In other words, over 1 billion new people were presented with the opportunity to market their freelance skills and services to the world in the last five years.
I believe there’s also a cultural shift going on, especially in my current age demographic (22–28). The previous generation placed heavy emphasis on securing a stable 9–5 job immediately after graduating from university. This is simply not the case anymore for us “millennials”. Many of us value freedom above financial security, and choose to live and work as freelancers. In fact, 36% of the USA’s workforce already classify themselves as freelancers, with a staggering 50% of millennials committing to the freelance lifestyle. This number is projected to increase even further in the coming years.
What’s Wrong with the Gig Economy?
Millions of people around the world are making a successful living in the gig economy, so it must already be perfect, right? The Blue Whale Foundation doesn’t think so, and their primary arguments revolve around reliance on centralized marketplace platforms, job security and benefits, and expensive advertising and marketing costs.
Centralized Marketplace Platforms
Airbnb, Uber, and Fiverr are three examples of centralized marketplace platforms. These tech giants match freelancers with clients, and provide communication and transaction services. In exchange for this service, these platforms charge a commission rate or service fee.
In Blue Whale’s white paper, they state that Uber charges up to 42.75% and Fiverr charges up to 22.9%. I have a few friends who use Airbnb Experiences to market their own tours, and they told me Airbnb’s commission rate is 20%. Depending on how you value these platforms, the presented commission rates could be considered reasonable to exorbitant.
In my opinion, Airbnb’s 20% commission on Experiences is completely reasonable —especially in highly penetrated markets. Japan currently has over 55,000 Airbnb listings, and this number is projected to increase as we inch closer to the 2020 Olympics in Tokyo.
Let’s say Tokyo accounts for 60% of Japan’s listings — that’s ~33,000 properties. With a 50% booking rate (my guess is the actual booking rate is much higher) and an average three night stay with two guests per property, you’re looking at an exposure to ~4 million people who may find your Experience as a result of their Airbnb accomadation booking.
It’s also important to assign value to the legal hurdles that Airbnb had to jump through in order to penetrate a popular market like Tokyo. They spent A LOT of money to build the number one accommodation platform in the world, and now they’re enabling tour guides and skilled people around the world to host experiences for an established user base. This doesn’t even take into account the fact that Tokyo’s hotel industry is severely overcapacity and overpriced, and many tourists are essentially forced to use Airbnb to get a good deal. I think a 20% commission rate is okay.
On the flip side, Uber charging up to 47.25% as a result of booking fees in addition to the advertised 25% commission rate is bull****. This means an Uber driver only nets $18,462.50 from $35,000 worth of fares, and this doesn’t even take into account other things like gas expenses and insurance. Now I really don’t understand how people can try drive for Uber “full time”.
While I agree that some centralized marketplace platforms (Uber) are gauging users with ridiculous fees, it’s important to realize that some platforms (Airbnb) actually charge reasonable rates that are in line with the services and exposure they offer. Decentralizing marketplace platforms and eliminating the middleman may be beneficial to certain industries, but it’s definitely not a blanket solution for every industry—at least not in the foreseeable future.
Job Security & Benefits
Freelancing platforms don’t offer much job security and traditional employee benefits. For example, Uber treats their drivers as independent contractors. This means drivers do not receive health insurance and other employee benefits. Uber offers low-liability car insurance when the Uber app is on, but drivers must provide their own car insurance when the app is off.
Other downsides of freelancing include lack of traditional benefits like paid time off and retirement pensions. If a decentralized blockchain platform can generate enough value to offset funds to provide these benefits to freelancers, this would be truly amazing.
Advertising & Marketing Costs
Blue Whale claims the average small business spends ~$10,000 per month or ~$120,000 per year on Google Adwords and Facebook ads. According to Sageworks, the average small business spends 1–5% of revenue on advertising. With this in mind, a business with a $10,000 per month ad budget should be bringing in between $2.4 million to $12 million in revenue. I wouldn’t classify these numbers in the small business category.
While the presented numbers may be a little inflated, I do get Blue Whale’s point. I ran a small business in the past, and it was difficult for us to spend our hard earned profits on Facebook ads ($1.72 Avg. CPC) and Google Adwords ($2.32 Avg. CPC). Another thing to consider is that CPC costs in freelancer-saturated industries are likely to be on the higher side due to more competition. For example, a freelancer running a web hosting or web design business (two highly saturated niches) may have a difficult time marketing their business without significant ad spend.
If a decentralized blockchain could help reduce advertising costs and level the playing field when it comes to the relationship between ad spend and ad display, that would certainly be a relief to many small business owners.
In the next post of this series, we’ll take a closer look at Blue Whale’s WORK System, and how it will be used to change the gig economy.