The economics, structure, and behavior of platform ecosystems and organizations

In Instacart Hounds Workers to Take Jobs That Aren’t Worth It, Josh Eidelson looks deeply into what seem to be coercive practices at Instacart, intended to make workers take on low-paying grocery deliveries, since workers are generally not offered a way to decline deliveries. What happens is that workers simply ignore the delivery opportunity, which leads to a four minute barrage of pings. This is a specific instance of missing the middle ground in optimizing the marketplace dynamics, keeping prices low for customers while treating the workers badly: a broken flywheel.

How much Instacart controls its shoppers isn’t just a matter of morale or public relations — it’s an existential question. Like Uber, Instacart’s classification of workers as contractors means they don’t enjoy the protections and benefits employees get. The company’s business model centers on keeping costs low enough to satisfy investors and keeping deliveries swift and reliable enough to win over customers, without exerting the kind of clear management authority that might lead a court to rule that the app’s shoppers are employees and therefore covered by laws like minimum wage.
An Instacart spokesperson, who declined to be quoted directly, says the four-minute wait ensures workers have time to make a decision about whether to accept the task, using the info Instacart provides on the number of items, retailer, distance, and estimated earnings involved. The company wants to provide workers the best experience it can, she says, and they can mute the sound by muting their phones.

This is at the least highly annoying and at worst coercive. May workers say they will often take low-paying gigs just to avoid the headaches, and also the possibility of being considered off duty, and therefore not getting better-paying deliveries.

“Instacart seems to demand that workers behave like employees, but they have none of the benefits of employment,” says Kathleen Ann Griesbach, a research fellow at Columbia’s Interdisciplinary Center for Innovative Theory and Empirics and author of a forthcoming study of app-based food delivery work. According to the study, which received funding from the United Food & Commercial Workers union, Instacart workers reported working about 32 hours a week and earning an average of $13.09 an hour after expenses, $9.50 of it from Instacart and the rest from tips. (The federal minimum wage is $7.25 an hour, or $2.13 for tipped workers.) Instacart says its data show that three-quarters of the more than 100,000 workers on its app work less than 10 hours a week.

Looks like Instacart is stuck with a broken flywheel. In principle, a two-sided marketplace based on buyers, deliverers, and Instacart in the middle where Instacart has an incentive, on one side, to keep buyers happy with low costs and reliable deliveries, while, on the other side, keeping workers happy with consistent well-paid gigs.

They seem to have missed the optimization middle ground, and instead they have opted to skew the flywheel. They have the option of making deliveries that are currently low-paying better paid. For example, they could institute an auction approach, where available workers could bid on the unattractive jobs, or Instacart could offer secondary benefits for taking bad jobs, such as first chance for later more highly-paid jobs.

Instacart may be in a difficult pinch, because investors exert a great deal of pressure on the company (Instacart raised $271 million in November on a $7.8 billion valuation, and $600 million in October), and there are strong competitive pressures with Shipt and AmazonFresh.

While the company recently reversed course on designating tips as part of the base pay for jobs, Instacart is clearly not organized around retaining its workers. In an increasingly tight job market, is this sustainable?

The biggest wrench in the works is the role of some major grocery chains are playing, effectively turning the seemingly two-sided marketplace into a multi-sided one. As Brittain Ladd recently stated,

Instacart is a low-cost option for retailers and I believe Sam’s Club and Costco view Instacart as nothing more than a low-cost solution for a painful problem, picking and delivering groceries and other products in bulk to customers.
Because Instacart loves being able to put out press releases touting the brands its partnered with, Instacart has intentionally reduced the cost of its services to the point where the company barely breaks even and in most cases, loses money on every delivery. Why? To make it easy to sign up new customers.
Instacart has stated multiple times that it has several revenue streams hence the reason it is willing to take a loss on order fulfillment and delivery. Instacart understands that it is to their benefit to fulfill groceries at a price point cheaper than grocery retailers and competitors can.
The fact that Sam’s Club (and Costco) believe utilizing Instacart to fulfill bulk orders for businesses and individual customers makes sense is embarrassing. They use Instacart for two reasons: Instacart is cheap and neither company has come up with a better plan.

So, in the final analysis, these warehouse grocers are knowingly allowing Instacart to underpay its workers for bulk fulfillment, rather than instituting a more rational (and expensive) solution involving Sam’s Club (Costco) employees driving cargo vans.

Meanwhile, Instagram is racing toward an IPO, but at some point the music will stop and someone — or many — may find themselves without a seat to sit in.