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Online Marketplaces and the Future of the 1099 Economy

A few weekends ago I was visiting my old college stomping grounds and was pleasantly surprised to see UberX available to shuttle my group of friends around town.

Over the course of our stay, we received rides from a cast of characters spanning everyone from students and locals to retirees who were all happy to give us a lift to the next watering hole. This was a far different experience from when I was an undergrad and the only options available to get anywhere were either the bus or your own two feet.

Growth of the Freelance Workforce

The growth of marketplaces like Uber (yes, I consider Uber to be a transportation marketplace) has made it easier than ever to earn a living in non-traditional, independent contractor-based models, spawning the idea that we’re headed towards a “1099 Economy”.

In fact, Freelancers Union recently reported that nearly 54 million Americans (34% of all workers) now make at least a portion of their living doing freelance work which, for example, can enable a stay-at-home mom to sell her hand-crocheted scarves on Etsy while the kids are off at school, pick up a fare or two via Uber while running errands, and find tutoring gigs on Varsity Tutors a few nights per week.

The Getting Paid Issue

But, one of the main issues that many freelancers talk about, surprisingly, is actually getting paid for their services. While the Ubers, Etsys, and Varsity Tutors of the world all enable electronic payments, there are a whole host of marketplaces that do not, forcing the freelancer to collect invoices on their own, if at all.

Marketplaces who collect payments on behalf of their contractors/sellers have a unique opportunity to help eliminate this headache, especially if they enable escrow as the preferred means of payment, therein ensuring that they buyer is good for the services they’re signing up to receive.

A global phenomenon and excellent example would be UpWork, which used to be oDesk before it was bought out by Elance, another online freelance marketplace.

And, while needing to be careful about crossing the chasm from having a stable of loyal contractors to actually having full-fledged employees (a.k.a. the issue Uber is currently dealing with), marketplaces who collect payment could also go one step further and offer interesting perks like auto-filing contributions to income taxes or parsing-out deposits to health insurance programs. Easy things to do if you are already in the business of collecting payment for services rendered.

It’s no secret that platform-based businesses like online marketplaces can only be successful if both buyers and sellers find value in the service. For sellers, having a secure and guaranteed method for getting paid seems like it should be priority #1 when considering options for setting up shop.

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