Steve Case Says Uber, Lyft Effect on Economy Show Work 'Innovation'The AOL cofounder explains what's coming in the third wave of the internet.

If you've ever requested an Uber or rented a room on Airbnb, then you are among the millions of Americans participating in the "gig" economy.

These digital marketplaces provide customers with convenience and workers with the freedom to create their own schedule. Yet that freedom comes at a cost. Many of these jobs don't offer benefits such as sick leave or reimbursements, allowing companies to save on employee expenses.

"We've seen this for more than a decade in sort of the white collar jobs. People who are teachers might tutor, [and] lawyers who become moms maybe can do legal work on the side," AOL co-founder Steve Case toldCNBC's "On the Money." "We're just now seeing that broaden and giving that same opportunity to people in other fields."

More people are entering the gig economy workforce,more than 50 million in 2015, an increase of 700,000 from 2014, according to figures from the Freelancer's Union, calling into question how the new economy should be regulated. While the vast majority of workers in this economy have other sources of income, about15 million Americanssay working these gigs makes up more than 40 percent of their pay.

Uber, Lyft and grocery delivery app Instacart are just some of the "on-demand" companies facing lawsuits from workers. These dissidents are calling for the companies to reclassify their status from independent contractor to employee, the better for them to partake of benefits offered to full-time workers.

Case helped make the internet a part of our everyday lives, and is now the founder of venture capital firm Revolution. His investments in the gig economy include Zipcar and OrderUp, which the firm has since exited, as well as Handy. He also sits on the National Advisory Council on Innovation & Entrepreneurship.

The businessman defended the on-demand business model, tellingCNBCthat both workers and policymakers must adapt to the new reality.

"We need to recognize that the nature of work itself has changed," says Case. "I think that will accelerate in the third wave and that will put more pressure on policymakers to keep up with the innovations."

That "third wave," which is also the name of his new book, references what he's calling the next era of the internet. Case explains the first wave was the foundation.

Companies like AOL built a platform that allowed people to get access to the web, while the second wave consisted of companies building on top of the internet and helping people search, shop and connect online. It's where the world saw the rise of Google, Amazon and Facebook.

In the third wave, which we are entering now, Case argues the internet will become as ubiquitous as electricity -- meaning it will not be the internet of things, but the internet of everything.

"The third wave is really integrating the internet in seamless and pervasive ways throughout our lives, and I think it's going to change the nature of work," he said. "It's also going to change how our kids learn in classes, how we stay healthy, how doctors and hospitals work, energy, transportation, even the food sector."

Case believes it will require a different mindset and a different playbook for businesses and citizens.

"My guess is what will happen there will be some benefits that are more portable and more modularized than those that are offered," he said. "Maybe when you take an Uber car you pay a slight additional fee that goes into a bucket that provides some of these benefits like workers' comp and other kinds of benefits."

While Case believes it will be harder to start a business today than it was in the second wave, he advises entrepreneurs to keep a few things in mind.

"The big opportunities to improve people's lives will require a different mindset, more perseverance, more partnerships, and more engagement on policy."