The ‘crowdsourcing’ aspect of how the site attracts content, which in turn attracts advertisers, is not dissimilar, at least at its heart, to other models that have disrupted commerce by using a ‘digital’ alternative. Photo: Sneha Srivastava/Mint
The ‘crowdsourcing’ aspect of how the site attracts content, which in turn attracts advertisers, is not dissimilar, at least at its heart, to other models that have disrupted commerce by using a ‘digital’ alternative. Photo: Sneha Srivastava/Mint

The dark fringe of online crowdsourcing

Is it possible that there is something desperately wrong at the other end with how market power over the crowdsourcing model is being used online for a range of services, from content to retail to rides?

Last week, a woman attacker fatally shot staffers at YouTube. Not enough is known about the shootings just yet, and the only reason being proffered for this horrific act, at least the time of this writing, is that the woman shooter was a regular poster to the social media site who was miffed with how the site has changed its rules on giving a portion of the money it charges advertisers to those who originally publish content.

The “crowdsourcing" aspect of how the site attracts content, which in turn attracts advertisers, is not dissimilar, at least at its heart, to other models that have disrupted commerce by using a “digital" alternative. Their genius lies in making the worker toil on their own, after having internalized what their “supervisors" want from them, and the models run across content, retail, rooms and cars for hire, and much else.

For instance, with taxi aggregators like Uber, Ola, and others, individual free agents are encouraged to set themselves up in “business" by buying a vehicle, or by using one they already own. I am stunned how these aggregators can offer truly astonishing pricing for rides. Air-conditioned rides in aggregator cabs can often cost marginally less than a ride in a hot, noisy autorickshaw that is open to the elements.

The aggregators have moved into the autorickshaw market as well. On my way into work today, I was struck by an advertisement on an autorickshaw, which promised a 4 kilometre ride for just Rs25. This is a 50% drop, considering that the meter flag-fall for an autorickshaw in Bengaluru is a minimum of Rs25 for two kilometres, followed by which the meter kicks in at the rate of Rs12.50 per kilometre.

If the end customer is paying a price that is significantly less than the prevailing market price before the “crowdsourcing" aggregator set up business, then who is holding this bag? Is it the aggregator or the “independent business owner" who works for the aggregator?

One supposition is that it is the aggregator that is using vast funds from its investors to buy market share for its platform and compensates the owner/operators on their platform for the low pricing through “incentives". Another supposition is that these “incentives" probably doesn’t last long, and that it is the owner/operator who is eventually left holding the bag after the “incentives" from the aggregator company run out. According to a report last year by research firm RedSeer Consulting, Ola and Uber had reduced driver incentives by 30-40% by March 2017 and simultaneously increased the minimum number of trips drivers need to complete to avail themselves of “incentives".

Just last week, an owner/operator whom I know, called to ask for Rs6,000 to treat his daughter who had contracted dengue and urgently needed a blood transfusion. I made arrangements for him to collect the sum.

Within a few days, he called again with the news that his child had died, despite the transfusion, and that he was now still in need of a couple of thousand rupees to arrange for her burial. I gave him the money, and when I asked him what had reduced him to such penury, his answer was that his venture to become an owner/operator at an aggregator had caused him financial ruin.

Given that aggregators have ubiquitous performance feedback mechanisms and are rumoured to have algorithms to effectively shut out a driver if his or her ratings fall, it would appear that all the leverage is actually in the hands of the aggregator, and not the independent drivers. The fact that the aggregators have almost no “employees" among the crowdsourcing population, makes it difficult for those who have not been able to profitably run their “independent businesses" to organize and retaliate in any meaningful fashion.

While we worry about surge pricing and the non-availability of cabs at peak times, is it possible that there is something desperately wrong at the other end with how market power over the crowdsourcing model is being used online for a range of services, from content to retail to rides?

Siddharth Pai has led over $20 billion in technology outsourcing transactions. He is now founder of Siana Capital, a venture fund management company focused on deep science and tech in India.

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