Prior to the rise of the Internet, people found things through advertising, or referrals from trusted individuals. The more important the thing, the more likely someone was to seek a trusted referral. A prospective homebuyer might follow advice from a friend or acquaintance who recently bought a home. That might lead to the selection of a realtor, who in turn would suggest a home inspector. When they identified needed work, contractors recommended by the realtor or inspector would perform it.
Recommendations for a dentist, a restaurant, or a car mechanic all came through similar channels. In most instances, no compensation was offered or expected for the referral. People felt comfortable following the advice of others they’d come to trust.
During the 20th century the rise of cities and increased mobility led to a breakdown of personal connections. Someone in a small town might know people to advise them on most anything they could want or need in town. The same person, transplanted to Manhattan or Chicago, would not have such a network. Where would they turn?
The Internet evolved to provide an answer. Today, anything we want is offered online. But how do you know who to trust? The internet has existed long enough to replace “community trust” with “good online reviews” for a whole generation. That shift has created great opportunity for a small group of web-based entrepreneurs and their private equity backers, at the expense of much of the general population.
The replacement of trusted personal recommendations with online reviews has led to the proliferation of junk at every level of commerce. Cars are a good example. In any community, sellers exist to provide cars at all levels. New car dealers provide the best cars to affluent people, and they also sell used cars to slightly less affluent folks. Other used car dealers provided progressively more worn cars, at progressively lower prices, to less prosperous people with lower expectations.
While the customers of a Cadillac dealership and a discount car lot might be totally different, both dealers were aware of their place in a community, on whose goodwill their livelihood depended. Today, most car dealers offer their cars online and a significant number of sales are made to people out of their local areas. Dealers don’t feel as accountable to distant online buyers, many of whom they never meet. Warranty laws make buyers responsible for returning a defective car to the dealer for repair, and when the dealer is far away, that may be impractical so in effect cars are sold without as is, and with no ties to the community.
Knowing this, dealers are able to sell cars they would not have been comfortable selling to a local customer, and the overall quality of goods they sell is diminished by the internet. In person car buyers always ran the engines and looked at flaws. Online buyers participate in a fantasy market where every car is nearly perfect on the website, no matter how it might appear in real life.
The same is true for a million other products – it is impossible to tell the gems from the junk online and many items are less than what people hope for. This problem extends to the purchasing of services which are a growth area for internet marketers.
When home inspectors depended on the goodwill of realtors to refer clients to them, they tended to be responsive to the folks who sent them work. They had to do a good job, in order to keep getting referrals. In a small community, the feedback loop between the home buyer, the realtor, and the inspector was a tight one, and it fostered a strong level of trust. It also created a trustworthy world for many people. A homebuyer coming into the market could have a reasonable assurance that a realtor they engaged would look out for them, and give them good recommendations, because they lived in the community they served, and bad news can travel fast.
By that means, in the pre-Internet world, a person who was new to an area could still seek and find good referrals for things they needed to establish a good life. Today, that model has largely been supplanted by a faceless Internet. One overlooked result of that change is the effect on the upward mobility of aspirant small business people who provide the services.
In the community based model, business was driven by referrals, and the referrers and referrers were part of a mutually supportive network. Each member needs the others, and while there is some competition, there is also a recognition that their success is mutual. In the local model, an individual home inspector or handyman works hard, does a good job, and gets more and more referrals. At some point they respond by hiring an assistant, then another. At that point they have made the move from individual tradesperson to contractors.
Some of those new contractors may keep their same positions in the network, or they may seek larger jobs that require more resources, which they now control. The larger jobs tend to have fewer competitors and higher profits, which facilitates their scaling up even farther. Contractors can move from successful to wealthy.
That model still exists in many places in America, but it is facing competition from Internet-based alternatives who are increasingly the choice of young adults who grew up in an online world, with little to no reliance on trusted local connections.
Some internet service providers are also local. Community businesses market themselves online, often with website as simple as “lawn care in Anytown, USA.” Those people don’t always see the Internet as competition. But in today’s “pay to play” internet, well capitalized online competitors are at the top of search rankings, skimming the cream of all manner of local service opportunities.
The best known online service model is typified by companies like Uber, from whom contract workers receives a stream of jobs from the website, encouraged by promises of “more work, more pay.” But there is no upward mobility; the jobs are dead ends and the majority of the profit in the transactions goes to Uber’s managers and financiers.
There is no place for a local delivery service when Door Dash comes to town. The well-capitalized online firm lures drivers from the local service with the promise of better pay, and when the local service disappears, they charge the local businesses higher and higher delivery rates while cutting back on what they give their drivers. The result is a transfer of wealth at every level. Local delivery businesses fail. The drivers are paid the same or less. The restaurants and others whose goods are delivered are squeezed more, and the public bears the burden.
In trades like home inspection or plumbing, national operators evolved, many operating through local franchisees. In that model, the national company has the scale to manage an effective online presence, making them formidable competitors, especially for an individual aspiring to enter the trade. While a franchisee may do well under this system, there is little opportunity for the workers to become owners. In a traditional workplace, most workers have a expectation of higher wages with seniority, but that does not apply in most online models, where the value of a work assignment is fixed by the website, and everyone doing the job is paid the same.
In a traditional trade business the higher paid workers are put on more challenging jobs. With the Internet model, where there is no local evaluation and pricing, all the jobs are equal. Control is shifted to the machine, along with most profits of the endeavor.
The people who establish these online ventures call themselves disruptors and allege they are providing better service at lower prices. While few would disagree with their disruptive nature, their low price promise seems to dissipate, and few if any of the workers in these enterprises makes a substantial living.
The big winners are the creators of the online businesses and the private equity that finances them. The losers are the workers, who are pushed into more marginal situations with virtually no upward mobility.
Aspiring tradespeople can still participate in local referral networks, whatever line of work the choose. But most of those networks are seeing competition from online businesses that have no connection to the area, or a tenuous connection through a franchisee. The result is diminished opportunity for people who see the trades as a path to security and prosperity, and creation of vast wealth for the small number of people who create online replacements for local trade networks.
While the idea of “tech billionaires” is a well-worn trope, the idea that they are created at the expense of working people in the trades is relatively unrecognized. Local business has been the source of most wealth creation in America, and that system is now threatened by highly capitalized internet-based startups in the same way that Walmart and other big-box retailers decimated America’s town storefronts.
Every year, millions of people come of age, aspiring to success and security, with skills positioning them for work in trades or services. What should they do? That is the subject of my next essay.
(C) 2023 John Elder Robison
(c) 2007-2011 John Elder Robison
