Independent work: choice, necessity, and the gig economy

3. HOW INDEPENDENT WORK MAY 
EVOLVE IN THE FUTURE

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McKinsey Global Institute
3. How independent work may evolve in the future
specialized functions could one day give way to leaner core organizations that rely on a 
loose network of external providers for many activities. Furthermore, in this era with high 
smartphone and Internet penetration, digital technologies are uniquely poised to have 
transformational impact at large, and potentially global, scale.
Decades ago, economist Ronald Coase stepped back and asked a fundamental question 
about why firms exist. The answer was that it is cheaper to perform many functions within 
a company rather than going to the market every time something needs to be done. 
Companies want to avoid finding an outside provider for every function then processing a 
multitude of contracts and transactions—all processes that were difficult in Coase’s age 
of limited and slow communication. Keeping functions in-house avoided what he termed 
“transaction costs.”
51
 
But the Internet is bringing those costs down dramatically. Search algorithms make it 
possible for companies to find the talent or service they need instantly, while technology 
enables seamless payment and coordination of the details of each transaction. Digital 
technologies challenge traditional business models by considerably reducing costs 
associated with search, coordination, and monitoring. Search algorithms make it possible 
for companies to find the talent or service they need instantly, reducing search costs, while 
automated systems enable seamless payment and coordination of the details of each 
transaction. Rating systems and user reviews send rich information signals to establish trust 
between unknown parties.
52
 
As digital platforms evolve, these benefits are amplified by several factors (Exhibit 21):
 
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Larger scale.
 Digital platforms expand the pools of possible matches of earners and 
customers and expand the range of tasks that are possible. Platforms leverage the scale 
of the Internet, reaching a much larger market size than most traditional businesses. 
Some 60 to 70 percent of traditional New York hotel rooms are in Midtown Manhattan. 
In contrast, 83 percent of Airbnb rentals are outside Midtown, opening up new areas of 
the city to visitors by increasing access in previously underserved areas.
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 For activities 
that do not require in-person services (such as selling online goods), the potential scale 
and reach is truly global. Assignments posted on Amazon’s Mechanical Turk, such as 
cleaning databases or transcribing text, can be done by workers anywhere in the world. 
The products that individual sellers list on Etsy or eBay can be seen by a huge global 
audience of potential customers.
 
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Faster and more accurate matches from real-time information.
 Digital platforms 
accelerate searches by using algorithms that can match to the specifics of the 
task, good, or asset being offered or sought. They may be combined with real-time 
information that allows for more seamless and efficient coordination between the two 
transacting parties, even down to time and location. Most on-demand digital businesses 
will complete a transaction instantaneously, executing both search and payment for 
services in just a few clicks. 
 
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Lower entry costs.
 The cost of adding more participants is negligible for the platforms 
themselves, and the barriers to entry for new workers to join can be similarly low. Anyone 
can create a profile and start looking for assignments on a platform such as Freelancer.
com. Individual artisans can set up shop for free on Etsy and post listings for 20 cents 
each, making it easy for them to start selling. Similarly, listing a room, apartment, or 
51
  Ronald Coase, “The nature of the firm,” 
Economica
, volume 4, number 16, November 1937.
52
 
A labor market that works: Connecting talent with opportunity in the digital age
, McKinsey Global Institute, 
June 2015.
53
  “Airbnb community tops $1.15 billion in economic activity in New York City,” Airbnb press release, May 
12, 2015.

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McKinsey Global Institute
Independent work: Choice, necessity, and the gig economy
home on Airbnb, VRBO, HomeAway, or a similar rental site is also a much faster process 
than opening a licensed B&B, even in locations where hosts are required to register 
with city authorities. Digital platforms are able to reduce these costs by building on 
familiar technologies (such as smartphones and the Internet), and they often cut out 
additional middlemen.
 
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Richer information signals and ancillary services.
 Digital platforms provide a 
measure of credibility that reassures both independent workers and their customers 
both pre- and post-transaction. They remove much of the risk of non-payment by 
creating a payment infrastructure and a protocol that has to be followed as a condition 
of participation on the platform. Buyers and sellers build trust immediately because of 
reputation engines that aggregate ratings and reviews from past interactions. They also 
collect information for a faster resolution to disputes. These are critical foundations for 
building larger markets for in-person services, since both customers and workers want 
assurances of personal safety. These systems also give individuals greater ability and 
confidence to conduct transactions with customers or clients across borders.