Could the next Uber be a platform cooperative?

Stephen
Server and code wrangler

One of the main discussions going on at the recent Open 2017: Platform Cooperatives conference was about how to go about setting up a platform coop.

On the first morning John Thackara talked about how he had just got back from India, where the Uber and Ola drivers in India are currently on strike in a dispute over poor pay, and described how a platform coop controlled by the drivers could provide a fairer alternative to the current options, which are seen as exploitative by many of the drivers.

To me, this comes down to a question about raising finance. Once you have an idea, it can be developed and trialed to a certain point at minimal expense, but to actually get a product or service out there and polished so that it is at least as usable and good looking as the alternatives takes a large amount of time and money. There were a number of different speakers at Open 2017 who had managed to get finance for their platform coops, but none of this was anywhere near the scale of what has been received by Uber or any of the other large platforms like Facebook, Twitter, and Airbnb.

Perhaps, taking Uber as an example is a little unfair; it raises the bar too high. Uber has received billions of dollars of investment, which is a massive amount of money for any business to receive. But if platform coops are to succeed then many ideas will need significant investment. The question could be reinterpreted as, is the platform coop model able to attract the necessary investment to grow a business from an idea?

What is a platform coop?

The term platform has come to describe an online community linked through a website or app. Social networking sites like Facebook and Twitter are platforms. So are sites that provide services that have helped enable the gig economy; Uber and Airbnb being two of the largest. The problem with many of the platforms servicing the gig economy is they are seen as exploitative. While the gig economy can provide flexibility to those selling their labour or renting their unused possessions, they are in a position to exploit their workers because the workers are often seen as self-employed - freeing the company from providing benefits that they would have to offer if the worker was employed directly - and wages are kept at the minimum they can get away with paying.

The platform coop idea is to apply cooperative principles to the platform model. The owners of the business are the members of the platform; be they founders, workers, consumers, users or investors. With member control, the business will work in the interests of everyone who has a stake in the business, not just a bunch of anonymous venture capitalists or shareholders.

Traditional multi-stakehoder coops allow worker, consumer and investor members, with voting rights divided in a way that prevent investors from taking too much control away from the workers and consumers, but allow investors to have some say in how the business is run. Using this model, It is possible to structure a platform coop in a way that allowed everyone to have a say in how the business is run, be they the business founders, investors, workers, consumers, users or something else. That said, there will be some tensions between the different classes of member and resolving these are likely to be some of the biggest problems a platform coop will face.

Problems with attracting investment

There are a number of steps in the development of any start up business that require investment; in terms of money and time. To start off the biggest investment is time; an idea needs to be developed into a testable business plan, a prototype is built and then tested with end-users to validate the idea. All this can be done by a few committed individuals with enough time. There will be a time when the product or service will need polishing and extra features added. At this point it is likely that some sort of financial investment is needed. In the startup model, this would be the time to look for angel investors, be they family and friends or an angel investor or fund. Once the idea has been rolled and and proven, the next step will be to scale the idea. This can cost a lot of money and is usually the time when venture capitalists step in to provide the necessary investment.

When angel investors or venture capitalist funds inject money into a business they will usually do so in return for a share of the business. They hope that the business will grow to a point where a competitor will buy it or it floats on a stock exchange, in either case this allows the original investors to sell their stake, hopefully at a profit of multiple times their original investment. As many business ideas don't get this far the original investors will invest in many startups hoping to back the next Facebook or Twitter.

This is where the cooperative model runs into problems when trying to enter the startup space. A coop is owned by its members, while this may include share holders, they are unlikely to have a majority stake. Selling such a business is going to be very hard and it won't be possible to float it on a stock market. This means there's no easy 'out' for early investors. Any investors in a coop are going to have to be very patient and invest for the long term, as the returns are going to be slow and not the spectacular ones many angel and venture capital investors are looking for. If they do choose to invest, any funds are going to be tied up for a long time, so this cash is not available to invest in other businesses. Given the slow returns and long term lockup of funds any investors in a platform coop are going to be looking for lower risk ideas, but in reality it means that the vast funds venture capitalists are able to invest are likely to be unavailable to platform coop startups.

A local, decentralised and open-sourced model

Given all this, it is unlikely a platform coop will be able to replicate Uber's funding model. With most venture capital unavailable to coops a different model is needed. Given that Uber is very combative in the areas in which it operates, it is undesirable to emulate their business practises either.

A better model would be to give the tools to allow drivers in a particular city or area (for example) to group together and run an Uber like platform, but using a cooperative model. This would allow 1000s of cooperative Uber replacements to exist.  If the tools for setting up such an operation could be developed and open-sourced they would be available for anyone to use, allowing anyone to setup a ride booking platform. The initial software will need to be developed. This could be by a small group of funded developers who build the platform software as an open-source project or it could be done by a larger group of people in their free time.

ShareTribe is one such example of open-source platform software that allows anyone to setup an online marketplace for small businesses.

Funding models for platform coops

Ultimately, if the local cooperative drivers are to compete against the likes of Uber then they will need to have tools that work as well as their competitors. If it's awkward to hire a driver then users won't use their app or website. Uber can employ great developers to produce their platform. For platform coops to compete they are going also need great developers and this might mean paying them for their efforts. How and where can this funding come from?

Funds pooled from other coops

One method for raising capital is from a pooled investment from other coops. The Phone Coop pays the same amount into a development fund that it uses to invest in other coops as it pays in dividends to its member shareholders. As of 31th August 2015 it had contributed over £360,000 into the fund. The Solid Fund, a worker coop solidarity fund, receives £1 per member per week into a fund that can be used to help worker coops and the establishment of new coops. This currently has 515 members with a balance of £44,630. While these are worthy ventures (Agile Collective members all contribute to the Solid Fund), they are not capable of funding anything close the requirements needed to scale a platform coop.

Funds from government

The UK government has not been a big funder of cooperatives. John MacDonald (the Labour shadow chancellor) would like to help double the UK cooperative economy, but this would still be a rather miserablly small figure. In reality, no government is going to spend the money needed to fund a large platform coop, unless it's in something like health or social care where the government would be a purchaser of services.

Crowdfunding

The story of cycle.land is an interesting one. This is a platform coop that allows people with a spare bike to rent them out to other people. It started in Oxford with help from the University of Oxford Startup Incubator, but needed investment to scale beyond the limited trial. It turned to Seedrs where it raised £400,000. This has allowed it to role out its service across Oxford and target other cities in the UK.

Conclusion

It should be possible for any coop (including platform coops) to get investment to get started and grow, but some of the funding methods are incompatible with the coop model. Internet startups are able to attract venture capital with the possibility of a reasonably quick profit, which is not on offer with a coop. The funds available preclude a platform coop ever growing to the size of Uber. A much more desirable model would be a local and decentralised network of platform coops using and developing open-source software to power their platform.