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Tuesday, July 28, 2015

The War on the Gig Economy Has Begun: Homejoy Is the First Casualty

Regulators and litigators have ruined a great startup

As of July 31, Homejoy is gone. The “Uber-for-home-cleaning” is closing its virtual doors after three years of service, millions of VC dollars, and the endorsement of all kinds of Silicon Valley darlings.

Why close down? Surely people love having their homes cleaned. And of course, people love buying products and services from the comfort of their own computer or phone without all the silly nonsense involved with actually speaking to another human being. What went wrong?

There are two competing explanations, but I don’t think they are mutually exclusive.

First, analysts are claiming that Homejoy provided huge introductory discounts via social media, but then tons of people bailed on the service once the enticements ended. In other words, their price structure was wrong and they couldn’t keep customers, a must for the service industry.

Fair enough. But it can’t be a failure of the service model itself, because all kinds of companies continue to jump into this space, including Google.

Second, Homejoy was being hit with the same employee/contractor lawsuits that Uber and Lyft are currently fighting in California. In a moment of clarity, the Homejoy CEO blamed their shutdown on these lawsuits.

This is a dangerous moment for the so-called “gig economy” and clearly the Homejoy owners and investors thought it wasn’t worth the fight. Better to cash out now and fight/create another day.

But if too many entrepreneurs decide the writing on the wall is really scary and really expensive, then our freedom to work in the places we want, the way we want, and at the times we want, as contractors, goes away. Uber and Lyft are fighting this because they have the cash and because, I presume, they have the big picture vision to know this fight is important.

I am reminded of Charles Murray’s plan to create a fund to fight excessive regulation. Murray writes:

I propose two frameworks for implementing this strategy. The first would be a legal foundation functioning much as the Legal Services Corporation does for the poor, except that its money will come from private donors, not the government. It would be an altruistic endeavor, operating exclusively on behalf of the homeowner or small business being harassed by the regulators. The foundation would pick up all the legal costs of the defense and pay the fines when possible.

The other framework would be occupational defense funds. Let’s take advantage of professional expertise and pride of vocation to drive standards of best practice. For example, the American Dental Association could form Dental Shield, with dentists across America paying a small annual fee. The bargain: Dentists whose practices meet the ADA’s professional standards will be defended when accused of violating a regulation that the ADA has deemed to be pointless, stupid or tyrannical.

The same kind of defense fund could be started by truckers, crafts unions, accountants, physicians, farmers or almost any other occupation.

Interestingly, Google has a de facto legal defense fund. And they just hired Homejoy’s tech team.

Meanwhile, though, I am struggling to find the nice lady who cleaned my house. I never got her phone number or email because I thought I could always contact her through Homejoy. Now the site’s functionality is gone, and I’m left with nothing. I found her on social media, but she hasn’t answered yet. Let’s hope she writes soon; the dust bunnies will be back, and in greater numbers.

  • Carl Oberg was the Director of Finance for the Foundation for Economic Education.