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1. Uber & Lyft may suspend services in California if they have to classify drivers as employees
  • On Aug 10, a California judge ruled that Uber and Lyft were in violation of Assembly Bill 5 (AB-5) and ordered them to convert their drivers to employees, in agreement with a suit filed by the California Attorney General (May 2020). AB-5, which took effect on Jan 1 2020, is a California state law codifying a stringent version of the “ABC” test determining whether a worker is a contractor or an employee entitled to employee benefits. Uber and Lyft have taken the perspective since the law went into effect that their drivers are able to meet the ABC test. Now they have 10 days to appeal before enforcement of the injunction.
  • In response, both Uber and Lyft have said they will suspend services in California if forced to reclassify the 200K+ Uber drivers and 325K Lyft drivers in the state, citing operational complexity and costs. Uber, as a point of reference, previously estimated that classifying all their drivers as employees globally would raise costs by 20%. In California, prices could go up by as much as 120% in less populated areas, according to an Uber analysis. The injunction comes at a challenging time, with Uber recently reporting a 29% decline in revenue and Lyft an even steeper 61% decline (year-over-year).
  • Both companies, along with DoorDash, Instacart and Postmates, are spending a combined $110M on the upcoming Proposition 22 ballot initiative during the Nov 3 election, which could classify app-based drivers as contractors. It would also enact certain labor policies such as a net earnings floor of 120% of minimum wage (based on “engaged time”), healthcare subsidies, and accident insurance. According to Uber, 75K+ of its drivers support Prop 22. Both Uber and Lyft cite a survey suggesting drivers may prefer to be independent by a 4-to-1 margin. Lyft at least has implied that it is waiting on the outcome of Prop 22 to decide whether it will continue to operate in California.
  • Shortly before this week’s court ruling, Uber CEO Dara Khosrowshahi penned an op-ed in the New York Times contending that classifying drivers as employees would result in fewer jobs, less driver flexibility, higher ride prices, and fewer cities with access to ride-hailing services. He proposed an alternative: State-mandated benefits funds that give workers additional payments for their choice of benefits, such as paid time off. Khosrowshahi points to survey results indicating that health insurance, which is often cited by policymakers, is not among the top 5 benefits requested by drivers. Gig companies would be required to pay into the funds and workers could draw on them based on hours worked.
  • With the current situation highlighting gig workers’ vulnerability to economic shock, we’re seeing greater acceptance of the need to provide gig workers with some backstop and security. During the pandemic, app-based delivery firms such as Uber and Lyft have come forward to offer gig workers up to two weeks of sick pay. Also emerging are new models for portable benefits that offer some of the advantages of employment while retaining flexibility, and a growing set of startups offering HR-like services to gig workers such as health insurance and retirement plans.
  • The stakes here are high for all the gig-economy businesses. The outcome in California will be the canary in the coalmine for the shifting regulatory landscape in other states – many of which have versions of the ABC test in place and are considering more stringent rules.
Related Briefs:
  • May 15 2020 (3 Shifts): Uber strengthens its grip on the mobility ecosystem
  • Jan 10 2020: Uber & the gig economy are facing headwinds
2. Facebook brings payments and financial services under a new Facebook Financial umbrella
  • Facebook earlier this week revealed it was formalizing a new group called Facebook Financial (F2) to house all of its payment and financial services efforts under one umbrella. The group will be headed by David Marcus, whose prior roles included being president of PayPal, VP/head of Facebook Messenger, and more recently, co-creator of Libra (Facebook’s controversial cryptocurrency project for global payments), and head of its associated digital wallet Novi (formerly Calibra).
  • In addition to the cryptocurrency initiatives Libra and Novi, other initiatives under the Facebook Financial umbrella include Facebook Pay and WhatsApp Pay. Facebook Pay is the service launched in Nov 2019 to facilitate payments to individuals and businesses across Facebook’s ecosystem of apps, currently available on the Facebook app globally and also on Messenger and Instagram in the US. WhatsApp Pay is a coming messaging-based payments service that rides on Facebook Pay’s infrastructure and has lately been stalled by regulatory hurdles in India and Brazil (WhatsApp’s top two markets with 400M+ users and 120M+ users, respectively).
  • The emphasis on payments is part of the broader push by Facebook for greater interoperability across its portfolio of apps (including Facebook, Messenger, Instagram, WhatsApp). Over the past year, Facebook has brought all its apps under one “branded house” and embarked on plans to integrate the backends of its messaging services to be interoperable.
  • The Facebook Financial reorg comes soon after the launch of the Facebook Shops storefront for small businesses, and announcement of WhatsApp Business’ growth and 50M+ merchant users. Shops and WhatsApp Business help Facebook benefit from data, advertising spend and merchant fees on one side of the marketplace. Payments services such as Facebook Pay, WhatsApp Pay and Libra/Novi will make it easier for users to spend money on the other side. Collectively, the offerings will help nurture a lower-friction experience designed to keep Facebook’s 3B+ users within its app ecosystem and fortify its advertising walled garden.
  • Payments are foundational to tech ambitions and most versions of the “super app” strategy. Certainly, Facebook seems to believe that payments combined with interoperability will advance its strategic flywheel. Facebook, however, faces headwinds in consumer trust and regulatory scrutiny (as seen in the continued delays with WhatsApp Pay). Given the regulatory complexity associated with launching financial services globally and Facebook’s payments ambitions, it makes sense that Facebook is unifying efforts under experienced executive David Marcus. Facebook Financial effectively formalizes the company’s recognition of the sheer scale of the challenge.
Related Briefs:
  • May 22 2020 (3 Shifts): Facebook pushes into social commerce with the Shops storefront
  • Dec 13 2019: Tech players expand their ecosystems through payments & financial services
3. All roads lead to ecommerce as retailers invest in fulfillment and online assortment
  • As survival as a retailer becomes increasingly reliant on ecommerce, large players are ramping up investments in delivery, fulfillment and online product assortment. Just in the past week, major retailers such as Walmart, Lowes, Amazon and Kroger have revealed significant plans for new ecommerce initiatives and fulfillment expansions – signaling a lasting transition to an ecommerce-led new normal.
  • Walmart, which has been investing heavily in its ecommerce business, announced a new partnership with Instacart for same-day delivery from Walmart stores to Instacart customers, starting in 4 US cities in California and Oklahoma. According to Instacart, the new partnership will expand its assortment with “thousands of items — from groceries, alcohol and pantry staples to home decor and improvement, personal care, electronics and more,” which will be delivered to customers’ doors in as little as an hour. Walmart, in turn, gets to leverage Instacart’s rapidly growing shopper network (which may be as large as 750K+ shoppers) in its quest for lower-cost same-day delivery.
  • Lowes revealed this week that it would add “dozens of distribution and shipment-handling sites” as part of the 5-year $1.7B plan announced in 2018 to overhaul its supply chain. The expansion will include 4 new ecommerce fulfillment centers over the next 18 months, 7 bulk distribution sites for large-sized items, and 50 cross-dock terminals where larger items can be sent directly to customers. Lowes’ goal is two-day delivery for “nearly 100% of its customers and improving the out-of-stock issues that have slowed its growth.
  • Amazon is in talks with the largest mall owner in the US, Simon Property Group, to turn spaces formerly occupied by anchor-tenant department stores into fulfillment centers. The deal would focus on the large retail spaces – typically 100K+ square feet per store – formerly occupied by J.C. Penney (63 locations) and Sears (11 locations), both of which have filed for bankruptcy. Simon could rent the spaces to Amazon for as little as $4 up to $19 per square foot (compared to WSJ’s estimate of less than $10 per square foot for warehouses). For Amazon, the mall spaces are attractive for fulfillment because of their proximity to residential suburbs, enabling faster last-mile delivery. This isn’t the first time Amazon has shown interest in mall space – it opened several large distribution centers in Ohio on former mall sites in 2019.
  • Kroger (the largest pure-play grocery chain in the US) also announced this week its plans to launch a 3rd-party ecommerce marketplace in late 2020, in partnership with ecommerce platform developer Mirakl. The platform, which builds upon its Kroger Ship service launched in Aug 2018, will offer an initial product assortment of 50K+ SKUs, including household items and toys. Similar to Amazon and Walmart’s marketplace, Kroger can benefit from product sales, merchant fees, expanded assortment, access to consumer data, and advertising revenue. (Kroger launched a self-service advertising platform in 2017 and has ambitions to provide better attribution for advertisers.) Kroger’s announcement takes place as Amazon is on the defense for its practices associated with its 3rd-party marketplace.
Related Briefs:
  • Jun 19 2020 (3 Shifts): Walmart will integrate with Shopify, adding 1,200 Shopify merchants to its 3rd-party marketplace
  • Mar 26 2020: Grocery delivery, ecommerce & the renewal of Walmart
Disclosure: Amazon is a vendor of 6Pages.
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