Internet startups have moved to protect employee salaries, but who will take care of the drivers and deliverymen?

As far as drivers and blue-collar workers are concerned, the crisis makes it clear that it’s much safer and more lucrative to seek employment in traditional forms rather than in the gig economy.

Driver entrepreneurs. Delivery partners. Hosts. On-demand. Flexible hours.

The clever corporate jargon was just one of several strategies deployed by new-age online marketplaces—like Uber, Ola, Airbnb and Oyo—in order to persuade blue-collar workers and suppliers to sign up with their platforms. They were convinced by the gig economy companies to ditch traditional forms of employment and instead adopt a new way of working in which they supposedly had greater control of their time, money and lives.

Asset-light platforms would provide technological, marketing and, sometimes, logistical support, while workers and suppliers would become freelancers on these platforms, providing on-demand services to customers.

But after an initial boom for cab drivers, hotel operators and others in the form of cash incentives funded by venture capitalists, the dream sold to workers and suppliers by the marketplaces soured quickly. As these companies moved to cut expenses, drivers were left with little after paying off car loans, while sellers and hotel operators complained of delayed payments and broken promises.

Signs of simmering discontent were evident for quite a while—in the form of a #logout campaign by restaurants against food delivery aggregators; strikes by cab drivers; and increasing instances of customers getting stranded at the doorstep of a hotel after a last-minute cancellation.

Now, a global pandemic has only made things worse. The question is: will the fault lines in the relationship between the online marketplaces and the cheap labour behind their rise reach a point of no return in the coming months?

With India in the midst of a 21-day lockdown, demand has collapsed at transportation and hospitality marketplaces. And questions are beginning to be asked about the differential treatment that is being meted out to the full-time employees at these internet startups and their service providers. While one category of workers were quickly moved to a work-from-home arrangement and were reassured about salaries in the months ahead, the driver partners, the delivery executives and the hotel-room suppliers stare at crippling losses.

In effect, what this crisis proves is the strength and resilience of the marketplace model for firms and investors relative to the disproportionate risk that their workers and suppliers bear. When times are good, marketplaces see their valuations soar as they attract large amounts of capital, a fraction of which goes to their drivers and suppliers. When the bad times come, platforms simply wait for them to pass, leaving workers and suppliers to foot the bill. “Some marketplaces may have to raise more funding and cut salaries temporarily and, in the worst scenario, cut jobs,” said Shriram Subramanian, founder of proxy firm InGovern. “But for the participants of the marketplaces, like sellers on Amazon and Flipkart, or hotels on Oyo, or the cab drivers on Ola and Uber, their livelihoods are threatened by the lockdown.”

Official figures are unavailable but according to companies and analysts, millions of blue-collar workers are associated with online marketplaces. Indian cities witness 4 million app-based cab, auto and bike rides each day, for instance, according to RedSeer Consulting. Most of these workers already miss out on paid leave, health insurance and provident fund contributions—all of which could offer a safety net during a crisis. But since lack of employment is an everyday crisis in India, those limitations were overlooked. And online marketplaces ended up becoming some of the largest creators of jobs. Will the covid-19 economic crisis change all that?

Earnings vanish

In the internet business, among the worst affected by the coronavirus outbreak and the ensuing lockdown that began on 25 March are hotel operators, Airbnb hosts, cab drivers of Ola and Uber, and the thousands of sellers and delivery workers who work with online retailers.

Cab drivers are especially vulnerable because most of them have taken loans to buy vehicles.

Tanveer Pasha, founder-president of a Bengaluru-based large driver’s union, said that according to his estimates, drivers in Bengaluru alone had lost ₹200 crore in income in the first 15 days of March. The loss of income will be exponentially higher in the succeeding month given the lockdown. Bengaluru has around 200,000 cab and auto drivers on Ola and Uber, according to Pasha.

“The numbers of rides have been falling constantly since March first week. In the first 15 days of March alone, drivers told me that daily rides have dropped by 80%. So, clearly many drivers are going to default March month’s EMI,” Pasha said.

Many of these drivers, who were earlier electricians, painters, and even meat sellers, have invested their entire savings for a down payment to lease or buy their cabs, he added.

Apart from disappearing earnings, owners of small fleets of cabs on Ola and Uber are struggling with an additional problem: a shortage of drivers. These drivers are among the millions of migrant workers who fled back home to the hinterland from cities in panic after the lockdown threatened to deprive them of work and food. “Some of my workers have gone back home and they won’t be returning soon,” said a Mumbai-based owner of cabs that operate via Uber. “It’s going to take months (before normalcy returns).”

In 2017, Kumar S., who was studying in the National Institute of Design in Ahmedabad, dropped out of college to launch a hostels business after reading about the booming budget travel business in India. Teaming up with a friend, Kumar set up hostels in Varanasi, Manali and Bengaluru. The two have invested ₹0.7 crore in the business. In March, after people started cancelling bookings, Kumar suspended his plan to open a new hostel in Rishikesh. Through the month, cancellations and refunds kept increasing, and finally, when the lockdown was announced, it became clear that revenues would collapse completely for the foreseeable future. Kumar continues to pay salaries and other fixed costs that amount to ₹10 lakh every month.

“We have only received motivational messages from the OTAs (online travel agencies), and that’s all,” Kumar said.

Even after the lockdown ends, demand is unlikely to return to pre-coronavirus levels any time soon. Demand from international travellers may take more than a year to bounce back, and even domestic demand may take at least nine months to return to old levels, Kumar estimates.

“Travellers might start completely avoiding going to some cities, and if that happens, hotel and hostel and resort owners in those places are looking at a bleak future,” he said, adding that a local hotel owners’ association would soon ask for a bailout from the government.

“We are at least hoping that the governments forgo rental or lease payments and electricity charges for some months, as this will go a long way in helping businesses come back on track since rent is a major chunk of the expenses for entrepreneurs in hospitality,” Kumar said.

“The key growth drivers are the wider assortment, lower prices, localised marketing strategies, and convenient returns/exchange policies.

“Where they lack is customisation according to local tastes – but so do Western CBT players.”

In response to Mint queries, Airbnb pointed to financial relief measures like a $250 million fund to cover covid-19-related cancellations, which was announced by its parent company in the US over the past week. The company declined to specify India-specific steps, saying that the global measures include the India market.

Stakeholder capitalism

To be sure, similar to Airbnb, a few other marketplaces are trying to do more than proffering motivational messages.

Late last month, Zomato CEO Deepinder Goyal announced that the firm was launching a fund “to cover up the lost earnings for thousands of our delivery partners.” Last week, Ola, too, announced the launch of a fund to help drivers tide over the crisis. Ola employees contributed ₹20 crore to the fund and the company’s CEO Bhavish Aggarwal said he would forgo one year’s salary.

After the lockdown was announced, Ola wrote to the government, asking for temporary loan waivers for its drivers. “The driver partners associated with ride-hailing companies who are dependent on such services for their daily livelihoods are already experiencing a near-complete loss of income,” Ola said in its note, which was reported by Reuters on 25 March. Ola and several other internet firms did not respond to queries seeking comment.

The steps by these companies to offer some relief to the workers on their platforms seem generous, and are a nod to the idea of stakeholder capitalism that is gaining traction in some western countries.

But for their delivery workers, service partners and drivers, these steps come across as grossly inadequate in light of the size of the crisis facing them.

Pasha, the driver union head, warned that many drivers may fail to make EMI payments for months to come, even if they receive some financial relief from the government and the marketplaces. If drivers’ vehicles are seized, they won’t return to Ola and Uber after the lockdown, Pasha said.

The inadequacy of the measures by marketplaces to help workers become starker when they are compared with the treatment of the actual employees of marketplaces.

Many days before the lockdown was announced, all of the companies mentioned above, along with other marketplaces, including Uber, Flipkart and Amazon India, had already initiated work from home for their employees. None of these firms has cut staff, who have also not suffered any loss of income.

As far as drivers and blue-collar workers are concerned, the crisis makes it clear that it’s much safer and more lucrative to seek employment in traditional forms rather than the you’re-on-your-own version enforced on them by the gig economy companies.

Earlier this year, Pasha said he presented the labour-related flaws inherent in the gig economy to the Karnataka law minister and urged him to classify Ola and Uber drivers as full-time employees.

In the US, California has moved to enact legislation to give workers of gig economy companies and other blue-collar contractors more benefits like insurance, overtime pay and leave. Though the enforcement of the law is riddled with complexities, other US states like New York and Washington are considering similar measures.

In December India, too, introduced a labour bill in Parliament that would cover contractors and gig economy workers. The bill proposes to set up a fund that will provide health insurance, pension and other benefits to gig economy workers. The fund would be set up through money set aside for corporate social responsibility (CSR) by companies.

More pain ahead

The covid-19 spread represents the biggest health and financial crisis India as well as the world has faced in decades.

Last month, Sequoia Capital published an open letter in which it called the outbreak “The Black Swan” of 2020. Warning that the global economy will take many quarters to “recover its footing,” the fund urged its portfolio companies to consider cutting jobs and spending.

Analysts and investors unanimously hold the view that India’s economy will suffer badly because of the outbreak. “There will be a consumption slowdown over the next year or two, and discretionary spending especially will take a big hit,” InGovern’s Subramanian said.

Many online marketplaces that are facing the spectre of slowing growth and crashing valuations are sure to do what Sequoia advised—cut expenses and conserve cash.

That means more pain for their suppliers, who will be squeezed by marketplaces to extract higher margins, and especially for their blue-collar staff, who will be more reliant than ever before on the whims of the gig economy companies for survival.