Direct Selling vs. The Gig Economy

Direct Selling vs. The Gig Economy

What used to be friendly territory is now a battleground.

The gig economy is no longer an outlier. According to a recent McKinsey Global report titled Independent Work: Choice, Necessity and the Gig Economy found that 162 million people in Europe and the United States—or 20 to 30 percent of the working-age population—engage in some form of independent work.

Working from home or a café, clocking regular hours or nights and weekends only, these workers have more control over their schedules and their earning potential. Herein lies the beauty of the gig economy: It can be whatever a person needs it to be.

For the direct selling industry, all of this sounds very familiar.

So, Who’s Winning?

While companies like Uber, Airbnb and TaskRabbit may have made the gig economy sexy, direct selling lays claim to being the first to plant the flag. Long before it was normal to rent out a spare bedroom to strangers, direct selling was the go-to opportunity to make additional income without the cubicle or office hours.

Even though direct selling was here first, it is the flashy new influx of companies within the gig economy that have offered increased credibility to direct selling. Freelancing and side hustles are now more attractive and accepted than ever, and customers have been conditioned to make purchases in nontraditional ways, like through their phone, on an app, or from a friend.

“It’s not a competition. But if it were, it seems the gig economy might be winning.”

All these positives have created a symbiotic relationship between the two, leading the direct selling industry to praise all that the gig economy represents. But are direct selling and the gig economy really the same? What if the two were treated as separate entities; which one would come out on top?

It’s not a competition. But if it were, it seems the gig economy might be winning.

Digging Into the Numbers

In 2015, direct sellers numbered 20.2 million and brought in over $36 billion in sales according to the Direct Selling Association. By 2017, that number had fallen to 18.6 million representatives and $35 billion in sales. In just two years, sellers and sales dropped nine percent. The gig economy, on the other hand, encompasses more than three times as many workers as direct selling, and Intuit, the owner of TurboTax, expects the number of gig workers to increase to 43 percent of the workforce by 2020.

Digging deeper, the numbers reveal that of that 18.6 million U.S. direct sellers, 4.1 million have been classified as either discount buyers or have no intention of selling the products to others. And nine million have gone inactive. When the DSA’s 2017 numbers were revealed at their Annual Meeting in June, the following observations were given regarding the drop-in people involved in the channel for two straight years:

  • Companies who have yet to restructure or segment their base of distributors from discount buyers to preferred customers.
  • It is a market correction after years of significant growth
  • Pressure from Amazon and gig economy opportunities

The first two may indeed be valid contributors to the decline, but it is our opinion the last one most likely is the culprit and will continue to be well into the foreseeable future. Our channel’s attention has been laser-focused on what to do with the 800-ton gorilla that is Amazon—and rightfully so—they will do more in revenue in 2018 than our entire channel will do globally.

But the stealth threat from gig economy opportunities has been slow in developing over the years, lurking in the shadows, and it’s time to shine the spotlight on the effect it’s having on the channel.

So Where are Direct Sellers Going?

It is not just important to understand what alternative incomes people are now pursuing, but it’s equally important to understand the people who are participating in them.

Gig Economy Participants

Of direct selling’s 18.6 million U.S. distributors, most were Caucasian millennial women. Major players in the gig economy, on the other hand, are predominantly male, like Uber, with female drivers only making up 18 percent of the company. However, that number was 14 percent in a 2015 survey.

As smaller, evolving businesses, like Etsy (where women rule the day with an 86 percent female labor force), continue to gain more attention and market share, the pressure is building for direct selling leaders. If any of the female-dominated companies gain a significant amount of momentum, the hurt direct selling is experiencing will only intensify.

The Female Factor

With digital platforms like Upwork making independent work easier than ever, the number of people who can operate as independent workers is growing. The same McKinsey study reported that 27 percent of the U.S. working population–68 million people—are engaged in the independent workforce. Over half of those independents, 51 percent, are women.

“In an industry where women make up 73.5 percent of its sales force, losing any more its female base to other gig opportunities will be a devastating blow.”

Don’t blame the shift on changing household roles or economic instability either; they’re showing up by choice. Of those workers, 72 percent chose the independent model to earn a primary or supplemental income, while only 14 percent did so out of financial necessity.

In an industry where women make up 73.5 percent of its sales force, losing any more its female base to other gig opportunities will be a devastating blow. Getting to the starting gate first doesn’t guarantee a win. With direct selling numbers dropping and gig economy numbers rising, it’s becoming difficult not to connect the dots. Is the gig economy pulling workers and profits away from direct selling? What will the future of direct selling look like if the trend continues? It’s a brewing storm no one within the industry is anxious to talk about publicly–yet.

The Conversation is Changing

Industry insiders are beginning to sound the alarm that direct selling must now find the ways it’s different or, more importantly, the ways it’s better.

Co-Founder of Strategic Choice Partners, a consulting firm specializing in the direct selling industry, Alan Luce recently wrote, “The growing competition to attract people back to direct selling and away from the opportunities of the gig economy presents the biggest challenge that our industry has faced in the last 40 years.”

As people migrate away from direct selling, there is a quiet groundswell among leaders to urgently differentiate and position direct selling as a separate, unique and more attractive opportunity than what the growing gig economy has to offer. What’s always worked for direct selling may not be enough anymore.

Direct selling has long been the opportunity that allows individuals to be a part of a community that offers support every step of the way, a flexible schedule, and no boss to report to at the end of the day. These perks have been the big draw for the direct selling industry for quite some time. And it’s worked.

Upping the Ante with Incentives & Benefits

But the gig economy has taken that sales pitch, made it its own, and added icing to the cake: no startup fees and leads that come to you in Uber and Lyft’s case. Behind closed doors, industry analysts have begun referring to these alternative income opportunities that do the heavy-lifting of providing customers for its workers to appear as menacing as Amazon’s free shipping has been to the channel.

The shift toward independent work is bringing more flexibility and income opportunities for sure, but there are still questions surrounding benefits, income security mechanisms, and other worker protections the mainstream wants answers to. And many Gig economy companies are already starting to address these.

On-demand food delivery service Caviar and online survey software provider SurveyMonkey have started offering its gig workers insurance benefits, but Uber recently announced in 2019 it will be taking its perks to a whole new level.

Much like customers love to unlock the Gold Level on their Starbucks app, Uber drivers can unlock status–gold, platinum and diamond–by driving frequently and providing great service. For drivers who meet these status requirements, Uber provides fuel and auto repair discounts and will cover the cost of tuition to Arizona State University’s online program–not just for drivers, but also tuition for their children, spouses and parents.

Other big-name brands like Walmart and Amazon have been footing the bill for a portion of the costs for its employees’ educations for a while. The difference? Uber drivers are not traditional employees. The commitment isn’t cemented after an application process and job interview or attached to assigned shift work; it happens through dedication and loyalty to the brand. For Uber drivers, this new program means all they need to do is show up–when they want to, of course–and perform well for the customers Uber provides. No lead generation, no backend invoicing, no team building. Just turn on your phone, show up for waiting customers, and be courteous. That’s it.

Gig Trends to Watch

Some companies are launching their own spin on the side hustle, like Vitalibis, a cannabis-based health and wellness company, and Teami Blends, a health and wellness loyalty company–trend makers in their own right–who recently launched companies with a twist on the traditional platform by combining e-commerce, social selling and affiliate marketing. For these companies, referrals, not recruits, are the goal.

“To thrive, our channel industry must apply its outside of the box creativity to popular gig economy trends as well. The conventional founding model has value, but tradition alone won’t save it from becoming obsolete.”

UK company Verve has positioned itself to become Gen Z’s preferred affiliate marketing company by capitalizing on the younger demographic’s love for entertainment and discounts. Partnering with reputable entertainment companies like Live Nation, MGM Resorts International, Marriott International and integrating directly with ticket providers like Ticketmaster and Eventbrite, the company allows its advocates to share buzz about events and then earn non-traditional rewards, like backstage passes or VIP treatment, when others buy tickets through their unique referral link.

Creating product trends is one of direct selling’s greatest skills (like bringing ingredients mainstream that were previously obscure to the western world, such as acai berries) but to thrive, our channel industry must apply its outside of the box creativity to popular gig economy trends as well. The conventional founding model has value, but tradition alone won’t save it from becoming obsolete.

Threat or Opportunity?

Direct selling has been the frontrunner when it comes to providing perks it gives its distributors when they meet certain qualifications, including car programs, complimentary exotic vacations and large residual bonus checks handed out on stage.

So it should be no surprise that the gig economy has taken a page from our playbook. But what the gig economy has proven—and what direct selling companies would be wise to heed—that it’s not just about a car bonus or even the potential to earn a sizable income that will compete for today’s worker. They want an opportunity that allows for a little extra income on demand, and the option to choose from several levels of income and effort, with minimal investment required. The influx of emotional capital that comes from working with a company that brings the customers to you (Uber & Lyft) can’t be ignored either.

How Will Our Channel Innovate & Lead?

And yet, what poses the greatest threat could also be direct selling’s greatest opportunity. Is it in the realm of possibility that we could take a page from the gig economy’s playbook and get leads from our customers, or make our customer and distributor sign up process easier and frictionless? Can we make onboarding our distributors so simple and seamless where all they have to do is turn on their phones to be told what to do next? And finally, are we going to focus on changing lives or do we pivot to changing their incomes first before changing their lives?

“Industry executives can either continue with head-in-the-sand thinking and pretend this trend won’t affect the future of direct selling, or they can take a step back and allow themselves to hear the alarm bells and make changes before it’s too late.”

Direct selling remains a leader, but it’s possible it is now leading from behind. Industry executives can either continue with head-in-the-sand thinking and pretend this trend won’t affect the future of direct selling, or they can take a step back and allow themselves to hear the alarm bells and make changes before it’s too late.

Generations of entrepreneurs have turned to direct selling to help improve their lives. Without some type of course correction, more people might leave the channel altogether, and it’s possible they’ll call Uber to get there.