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Opinion | Social distancing could aid the rise of IT marketplaces

IT service firms, as we have come to know and accept them, could get outmoded by new trends

The Covid-19 outbreak could forever change how people work in the Information Technology (IT) world. Every tech business throughout the world, whether a startup, IT services company, or Big Tech behemoth, is currently facing what will no doubt be a challenging year.

Silicon Valley’s Big Tech firms were among the first to respond to the crisis of Covid-19 contagion with work-from-home policies. Many prominent technology companies in the US have swiftly moved from recommending that employees work from home to issuing diktats requiring them to do so. There is no doubt that businesses and governments the world over are taking “social distancing" very seriously. Even the Islamic State was reported to have issued a warning to its terrorist cadres to “wash their hands" and run away from people who they thought had the disease, just as they would “run away from a lion".

The Nobel Laureate economist Ronald Coase gave the world a theory called “The nature of the firm", in which he posited that the only reason for firms to exist was that external economic conditions forced entrepreneurs or owners to employ people and organize them so as to produce goods and services that could be traded in a more cost-effective way than in an atomized, free-for-all market. The prevailing economic conditions then meant that the overall cost of thousands of buyers trading with thousands of sellers in order to put together, say, a motor car, was simply too great; the transaction costs themselves would probably far outstrip the cost of the car itself.

So, instead of thousands forming independent relationships for the production and procurement of cars, Henry Ford formed a company, which in turn employed thousands of people in order to produce and sell motor cars to individual buyers. This meant that thousands of car producers (the employees) traded with just one entity—Ford Motor Co.—and thousands of buyers also traded with the same company, making Ford a “nexus of contracts".

Well, prevailing economic conditions have certainly changed now. Even before the viral outbreak, the US and other Western nations’ unfriendly visa policies toward long-established Indian IT service firms had slowed the crush of IT service employees trying to find new jobs abroad. The move to as-a-service contracts as well as the increase in automated “bots" that now perform many IT functions have also served to keep most of the workforce offshore—ergo, remote.

I have asserted in this column before that IT service firms, as we have come to know and accept, will inexorably become outmoded models for the grouping of contracts into a nexus. Technology has expanded into areas that would have seemed unimaginable 25 years ago, when acceptance of the work of Ronald Coase, who received his Nobel prize in 1991, was perhaps at its peak.

Publicly available platforms are being increasingly used for the requisitioning and delivery of services. Service requests are being filled on Twitter and LinkedIn posts are being used to generate sales leads. The organizational overhead and contracting cost of software development is plummeting. A large amount of software development today is done with the use of “open source" libraries which are free.

Large tech firms have not been oblivious to these trends that are reshaping the industry. For instance, Microsoft Inc. has acquired GitHub, a source-code hosting service, and Wipro Ltd. has acquired Top Coder, which is a large platform for dispersed computer programmers to come together to work on specific projects.

To add to this, the “social distancing" that has now been made a reality by the Covid-19 pandemic will further push the acceptability of remote work, which would create in its wake a “new normal" from the perspective of actually running an even more aggressively distributed IT operation.

This calls into question whether service companies need to have the same nexus of contracts that they did before, or whether the future will be one where service firms increasingly become simply platforms for buyers and sellers to collaborate.

Let’s consider the prospect of the latter. It is possible that such a platform will itself only provide a few signature processes that are unique and that all participants in the services market (buyers and sellers) will subscribe to, agree with, and pay for.

There are only three signature processes that each such platform will need to provide and do it better than its competition in order to thrive: first, resource allocation (by managing the bidding process for skilled human resources); second, an ability to accurately predict operational risk as an indicator of the potential performance of a worker; and third, a feedback mechanism as an ex-post measure of the performance of the worker, which over a period of time will provide an ever-improving database which could be used to predict the second signature process of operational risk.

Interestingly, this shift to the gig economy that has held observers agog in recent times was actually born during the world’s last big economic crisis of 2008-09, when firms such as Uber, Lyft, Airbnb, and other marketplaces were established.

Covid-19 might ensure that the hundreds of thousands of full-time employees at IT firms are staring at becoming gig economy contractors very soon.

Welcome to the new marketplace.

Siddharth Pai is founder of Siana Capital, a venture fund management company focused on deep science and tech in India

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