The Global Gig Economy: Capitalizing On A 500B Opportunity

FIGURE 32018 Gig Economy Volume by Sector (Billions USD)Gig Economy platforms can be segmented into one of four sectors based on the type of services theyprovide their customers 7.7 16.73.8%8.2%TRNSASSET 61.8 117.830.3%57.8%HGHMPRFSTransportation-Based Services: The lucrative performance of this sector comparedto the others can be explained by the ubiquity of ride-sharing globally – from majorplatforms in North America such as Uber and Lyft to those in Asia Pacific such asGrab, Go-Jek and Ola. With ride-sharing now available in many urban environmentsacross regions, consumers are able and willing to use such platforms as frequently asmultiple times a day. Despite having a lower ticket size per customer, ride-sharing88%platforms offer the scale and frequency of services to produce large amounts ofrevenue. The popularity of ride-sharing around the globe has enabled TransportationServices to become the leading Gig sector, and it currently generates a Grossof Gig Economy Gross Volume isgenerated from Transportation-BasedServices or Asset-Sharing platformsVolume 15X the size of that of Professional Services.Asset-Sharing Services: Though major Asset-Sharing platforms as a whole offersignificantly fewer hosts than Transportation platforms do drivers, the Asset-Sharingsector generates 30.3% of Gig Economy GV due to its high ticket size per homerental, which is often hundreds to thousands of dollars per booking. Even on globalplatforms (e.g., Airbnb, TripAdvisor Rentals), a significant portion of home-sharingproperties are located in Europe and North America. Because the cost of living isgenerally higher in these areas, hosts in popular tourist areas charge customersmore expensive nightly fees, which contributes to a greater amount of revenue forthe platform as well.6MASTERCARD GIG ECONOMY INDUSTRY OUTLOOK

Handmade Goods, Household and Miscellaneous Services: HGHM, the mostnascent and diverse of the Gig sectors, features many newer niche platforms thatare still working toward brand awareness. Much of the on-demand services (e.g.,TaskRabbit) within this sector are again currently concentrated in North Americaand Western Europe – precluding these platforms from reaching a global base ofconsumers and freelancers without dedicated operational expansion efforts.However, this industry does show significant potential for greater contributions, asthe past few years especially have witnessed the entrance of a number of nichestartups. These companies seek fill a specialized gap in the services markets – fromareas such as on-demand message services to in-home tech support.Professional Services: Lastly, this sector generates the smallest share of Gig GV at 7.7B. The transnational nature of the digital professional services industry isperhaps the greatest contributing factor to the lower GV; while many of theconsumers of services are individuals or businesses in developed markets (e.g.,U.S.), a significant portion of their contracted freelancers are based in developingnations (e.g., India, Indonesia, the Philippines). As such, the cost per “gig” such asonline microwork, translations or data analysis is significantly lower, which is oftenFIGURE 4the reason U.S. customers seek to outsource such services from the start.Projected Gig GrossVolume by Sector(Billions USD)Additionally, with increasing internet access across developing nations, customersare often faced with an abundance of freelancer options who may undercut oneanother’s prices.Comparison of Gig Economy GV at the end of 2018 bysector to GV at the end of 2023.Composition of the Gig Economy in the Future 455.2 17.4 29.8By the end of 2023 when the global Gig Economy has reached 455B, the ordinalcomposition of the industry sectors is expected to remain constant. TransportationBased Services are estimated still to the lead the Gig Economy by a significantmargin, followed by Asset-Sharing Services, then HGHM, followed by Professional 143.6 123.2%Services. The growth rates for Gross Volume, Disbursement, and freelancerparticipation are projected to be positive across all sectors, with GV CAGRs rangingfrom 12-18% by sector. 204.0Similar to today’s composition, 58.1% of Global GV, or 264B, will come from 7.7 16.7Transportation-Based Services, in large part due to the continued expansion effortsinto underpenetrated regions from top companies. In turn, these well-funded 61.8 264.4initiatives from global behemoths will spur reactive growth efforts from incumbentlocal players, contributing to a cycle of rapid acquisition campaigns until the marketreaches saturation. Additionally, sub-sectors within Transportation, such as 117.8restaurant delivery services and goods delivery, will also contribute at anaccelerated rate to the 17.5% industry CAGR. Major ride-sharing platformsYE2018TRNSASSETespecially are continuing to expand into these adjacent sub-sectors (e.g., GrabYE2023HGHMPRFSlaunched “GrabFood” in 2018), leveraging their existing infrastructure of a networkTotalof drivers to perform additional services that can bring in a new source of revenue.7MASTERCARD GIG ECONOMY INDUSTRY OUTLOOK

However, despite Transportation’s continued lead, the Asset sector is projected tohave the highest growth rate of the four types of platforms that were analyzed –133% GV increase in 5 years. This higher growth rate aligns with current sectortrends of longer durations of guest stays, more premium priced listings, andincreasing stays for business travel – in addition to greater participation rates of“hosts” listing their property on sharing platforms around the globe.Though growth in the Gig Economy is anticipated to remain positive globally, the“We have been growing riderequests by double digits monthover-month and our top concern is toaccelerate our penetration into [newcountries] to continue supporting thisrider growth” – TRNS PLATFORMdegree to which this growth may accelerate varies by region. The U.S.’s leadership isanticipated to remain constant; however, developing regions will demonstrategreater contribution to global GV. India is projected to grow its Gig GV by 115% byYE2023, and Brazil has a projected growth of 129% by that time. In contrast, France,being a more mature Gig market, is estimated to grow its GV only by 68% through2023.Despite regional differences, as Gig platforms worldwide strive to achieve theirgrowth potential through aggressive expansion efforts, they continue to facecommon challenges in developing sustainable operations. As such, the latter portionof this research studies the Gig platforms’ journey to identify what those challengesare and how they could be resolved so that platforms can unlock their full growthpotential.Gig platforms’ journeys to expand into to new marketspresents similar patterns of business needs across regionsIn-depth conversations with representatives from key Gig companies indicatethat the nature of platforms’ journey to achieve their desired growth targetscan be agnostic to qualities such as region or size. In expanding to newmarkets, platforms often share a set of strategic objectives they perceive asnecessary to be successful in their growth endeavors – such as increasingfreelancerFIGURE 5Gig Platform Journey in Entering a New MarketOverview of the steps a Gig Economy platform takes as it expands to launching its services in a new geography.1Market Assessment & Entry2Supply Acquisition3Demand Growth48MASTERCARD GIG ECONOMY INDUSTRY OUTLOOKOperational Sustainability

engagement with the platform, achieving profitable operations, and providingMarket Assessment & Entrya seamless UX for workers and customers.STRATEGIC ACTIONS UNDERTAKEN BYPLATFORMS INCLUDE:More specifically, platforms that have monopolized their primary market areseeing their once rapid growth plateau, prompting them to seek alternative Size the market opportunity in terms ofconsumer demand based on freelanceravailabilityavenues for expansion. However, such platforms are also well aware of the Assess how platform fits in with localmarket dynamics, current competitivelandscape, population demographics, etc.potentially lucrative environments as quickly as possible.accelerating participation in the Gig Economy by alternative players, creatingcompetitive pressure for companies to rapidly scale and gain market share inAt a high level, when a Gig platform looks to expand operations to a newmarket, the company’s journey often resembles a similar form. Understand local regulations to gaugebarriers for launch Develop plan to receive customer pay-insas well as facilitate Gig worker payouts,given local market needs1) Market Assessment and Entry Estimate how particular fixed costs mayvary drastically in international markets(e.g., insurance)locations for expansion fit into their long-term growth strategy and will bringBefore launching in a new environment, Gig platforms look to analyze whichto the company the greatest ROI.Developing markets are often target entry points, especially for leading globalplatforms that may be reaching saturation in their country of origin. However,small- to mid-sized companies seek regional expansion as well, especially asthey see their industry peers succeeding in specific localities. Regardless of theimpetus for entering a new market, all Gig platforms will require informativeSupply Acquisitionresources to calculate the potential costs, payoffs and obstacles in expandingto a new environment.STRATEGIC ACTIONS UNDERTAKEN BYPLATFORMS INCLUDE:Specifically, Gig platforms look to take a variety of critical actions in assessingnew potential markets (see left figure). Once a platform has selected a target Identify target freelancer segments (e.g.,demographics) and tailor an attractivevalue proposition to this groupentry market that is ripe for success, it can then prepare for launchingoperations though supply generation efforts. Implement freelancer acquisitionmarketing campaigns (though theseinitiatives often have limited funding)2) Supply AcquisitionEspecially when expanding into geographies that are particularly foreign to a Differentiate company from competitorsto convert freelancers from peerplatformsplatform’s origins, a Gig player’s strategy is often to first build up a supply of Efficiently onboard freelancers to theplatform so they can appropriatelycomplete servicesdelaying their subsequent demand generation efforts. Enroll freelancers in preferred disbmt.method to ensure timely payoutuniversally challenging for Gig Economy platforms – let alone in a new market.freelancers to then encourage demand by customers. This sequence requiresplatforms to develop an efficient freelancer acquisition strategy, or they riskHowever, attracting and then converting the appropriate freelancer talent isPlatforms small and large cite the current climate is that of a “freelancer’smarket” where competitive intensity provides a multitude of substitutes forfreelancers. As a result, companies are pressured to differentiate theirplatform to their current supply, but they struggle to add services to thefreelancer9MASTERCARD GIG ECONOMY INDUSTRY OUTLOOK

experience that truly add value. Especially among highly commoditizedindustries (e.g., ride-sharing, restaurant delivery), platforms are challenged to“[The ride-sharing] industry burns a lotof money on customer incentives toincrease size of our market; our goalsare to gain market share regardless ofprofit margins” – TRNS PLATFORMattract talent through strategies other than providing freelancers with greaterearnings – which would typically be at the expense of the platform’s bottomline.Furthermore, onboarding freelancers can be particularly cumbersome forplatforms and is often the point of attrition for potential freelancers. It istherefore critical that the onboarding process is as simplified and streamlinedDemand Growthas possible while still accurately capturing freelancers’ information andproviding them with any necessary training.STRATEGIC ACTIONS UNDERTAKEN BYPLATFORMS INCLUDE:Once a baseline of freelancers has been secured, the company then looks tolaunch its digital platform to customers. Identify target customer segments (e.g.,demographics) and tailor an attractivevalue proposition to this group3) Demand GrowthIn establishing a sufficient supply of freelancers to fulfill potential demand Implement consumer acquisitionmarketing campaigns to boost brandawarenessrequests, platforms look to attract and grow local consumer interest in usingtheir services. For platforms focused on growth, reaching beyond “earlyadopters” into mainstream consumer segments is critical to continue Communicate platform’s advantagesfrom its competitors in a given marketexpanding. Offer promotional incentives for newcustomers to join platformMost companies cannot rely on brand name alone to garner consumer Efficiently onboard consumers to theplatform, including linking their preferredpayment method when applicableto inform the customer population. Especially given the nascency of certain Encourage word-of-mouth referralsto the public – in addition to expressing their own brand’s value proposition.attention in new regions, and therefore need to invest in marketing resourcesGig sub-sectors (e.g., boat-sharing, on-demand cleaning services), suchplatforms must utilize their marketing efforts to introduce the business modelThese outreach efforts to potential consumers include traditional direct-toconsumer campaigns utilized by retail companies (e.g., social media ads),often with a more digital focus.Another strategy beyond promoting brand awareness is to acquire customersvia aggressive promotional discounts. While this is a common practice offeredby newly launched businesses, mature platforms in highly competitiveindustries – such as ride-sharing – also employ this strategy. However, the“An easy way to lose a host is if their[property] is damaged and then theycannot get ahold of us immediately toresolve the issue. Minimizing terribleexperiences like this for our hosts isabsolutely critical for keeping them” –consequence of these actions are losses from the company’s net profit,ASSET PLATFORMFinally, once a Gig platform has launched into a new market and haspositioning the platform in a dilemma of choosing between securing customergrowth and operating profitably.4) Operational Sustainabilityfreelancer and customer acquisition efforts underway, the company seeks toreach a state of sustainable – and eventually profitable – operations. In itsmost basic form, sustainability in a new market is achieved when freelancersupply and customer demand are equally met. However, the growth of bothsupply and demand is10MASTERCARD GIG ECONOMY INDUSTRY OUTLOOK

rarely ever parallel, with customer demand often being steeper thanavailable supply to fulfill those requests.Operational SustainabilityIn order to achieve this equilibrium, platforms have a variety of complexbusiness needs to fulfill. Such needs include creating a seamless experienceSTRATEGIC ACTIONS UNDERTAKEN BYPLATFORMS INCLUDE:for all platform users, controlling the quality of services, and encouraging asense of trust between freelancers, customers and the platform. Forexample, Gig platforms emphasized the necessity of providing a holistically Offer value-added services to workers andconsumers to create stickiness in brandrelationship and minimize attritionpositive experience for freelancers and customers; if the CX does not alignwith user expectations, or users cannot access the support they need, thenthe platform risks that user permanently switching to a competitor. Address and resolve consumer /freelancer complaints in timely mannerHowever, what platforms often cite as the most pressing unmet need toachieve sustainable operations is increasing freelancer retention. Attrition Maintain high quality of freelancerservices to standardize a desirable CXrates are notoriously high for Gig Economy platforms – for example, a 2018study found a six-month attrition rate of 68% for new Uber drivers.5 To Promote freelancer retention by ensuringfast and frequent payoutssome degree, attrition is a necessary consequence given the nature the GigEconomy, which deliberately attracts transitory workers. But a company’s low Track and promote consumer loyaltyworker retention rates also can result from freelancers perceiving a lack of Offer incentives for increased freelancerengagement with platformvalue from participating on the platform.Because acquisition marketing efforts can often be costly, it is critical that Gigcompanies offer workers a platform that provides differentiated value tofreelancers. Some methods of creating platform “stickiness” with Gig workersinclude offering value-added services that improve freelancers’ earnings,experience on the platform, or even improve their lifestyle. Yet platformsstruggle not only to identify the types of services that would drive freelancerbehavior, but how to implement these benefits into their CX.Related to platforms’ need to increase freelancer retention are their effortsto boost freelancer engagement – i.e., how much Gig workers utilize theplatform for services. A greater number of “gigs” completed by a singlefreelancer can boost supply availability without requiring the platform toacquire and onboard a new freelancer. To encourage greater engagement,some platforms have developed a tiered system for their freelancers, offeringhigher earnings potential and additional benefits for freelancers who use theplatform most frequently. However, Gig platforms have commented thatthese loyalty programs are often underdeveloped or lack the appropriaterewards to sustain freelancer engagement in the long term.With this array of unmet needs across the Gig platform’s expansion journey,there exists a viable opportunity for innovative resources to amelioratecompanies’ most cumbersome pain points as they strive to grow.11MASTERCARD GIG ECONOMY INDUSTRY OUTLOOK

Serving the Gig Platform’s JourneyDuring in-depth interviews, most Gig platform representatives indicated thatthey would be interested in provider solutions that expedited the necessaryprocesses they find burdensome to growth objectives. Interviewees oftenshared an extensive wish list of hypothetical resources – primarily productsthat could boost freelancer satisfaction or tools to reduce operational costs.While discussion of some solutions were more relevant to particular sectors,platforms universally indicated interest levels in resources aligning with thevarious points in their expansion journey.FIGURE 6Resources and solutions to aid Gig platforms in strategicexpansion actionsIn-depth conversations with Gig platform representatives indicated an industry need for an introductionor improvement of the following products or servicesPhase inJourneyCurrent Strategic Actions Size the market opportunity in terms of consumer demandbased on freelancer availabilityMarketAssessment andEntry Assess how platform fits in with local market dynamics,current competitive landscape, population demographics,etc. Develop plan to receive customer pay-ins as well asfacilitate Gig worker payouts, given local market needsPotential Resources & Solutions Analytics on regional consumerspend to aid in assessing market sizeand understanding populationdynamics Local networks of banking partnersfor

“Freelance Economy,” varies by academic and business publications alike. Yet while research entities have not quite aligned on a collective definition of this industry, the positive growth of digital freelancer