Thoughts about on-demand services: calling yourself the Uber of X doesn’t make you Uber

A few days ago, Sarah Tavel wrote a great Medium post titled “Taking the Wrong Lessons from Uber.” With the proliferation of the “Uber for X” startup genre, often with more than one app/startup fighting over similar space, I thought her post was extremely timely. Here’s the quote that really struck a chord with me: “The magic of Uber is that it used mobile to create a 10x better product than the incumbent (taxis), and did so at a lower price. The “and” is everything.”

A taxi on the streets of Berlin

A taxi on the streets of Berlin

Remember, in the days before Uber, there were two ways to get a cab. The first: stand at the curb, wait for an available cab to drive by (as indicated by its roof light, not by actual passengers inside) and flail your arms with the hope that the driver will see you and cross lanes of traffic to pick you up. Option number two was to call a taxi service and be told that a cab will be there in five minutes, only to be still waiting after half an hour. Both ways were highly inefficient both for passengers who spend time waiting, and drivers, who would drive aimlessly with the hope of spotting that flailing hand. Uber solved the inherent inefficiency of the industry and, as Ms Tavel emphasizes so well: it did so at a lower cost than taxis. The inefficiencies of the industry were so costly that Uber was able to deliver a better service at a lower price and still be profitable.

Which brings Ms Tavel to the other players in the Uber of X space. Here she has less praise: “…most often, 1) they are new costs, and 2) they don’t fundamentally recast cost structures like Uber did — instead, many of them are an arbitrage on the cost of wealthy people’s time vs the less wealthy.” It is the latter point that is intriguing: of these new services, how many of them are scalable to areas that are less urban and less wealthy. Says Ms Tavel: “The very wealthy might pay $20 for a surge delivery fee, but there aren’t a lot of those people. And how do unit economics shake out when you need to pay delivery people enough money to attract them, but not too much that only the top 1% can afford the service?” And therein lies the catch: these new services are not taking an existing, inefficient infrastructure that people already used, but are trying to invent a new space, one whose economies don’t make sense.

So, what’s a new startup to do? Ms Tavel answered that: fundamentally change the cost structures. In fact, most of the on-demand services are focused on some sort of delivery. Picking up groceries from a local store doesn’t change the cost structure, it adds a surcharge. Amazon might be in the position to change the grocery service, but the existing inefficiencies aren’t as great as taxis. Remember, Webvan tried this. Likewise, flower delivery service BloomThat found out that even when building a business like a tech company, the inherent cost structure is pretty much the same.

Where I think services have a chance are those where the connection between provider and consumer have been filled with middlemen, whether because of liability issues or because providers aren’t interested in being more efficient. Healthcare in the US is such an example where inefficiencies are rampant but change unlikely: the entrenched parties are not interested in earning less and having patients know more about their cost structure and developing a new network of healthcare professionals is prohibitively expensive. On the other hand, payments, where mobile phones replace the entrenched credit card system (now made hugely annoying with the new EMV chips) are a great opportunity: faster, smoother, less fraudulent payments make life easier for users and merchants alike. 

Why did I write this post, seeing as I’m not creating a new service? Because I’m a bit disillusioned from the abundance of new services claiming to be the Uber of X and ending up being a delivery system with an app that are so alike, they might all be displaced by Amazon really soon. I’m not always a fan of Uber’s practices and granted, there is a huge problem with relying on a temporary, on-demand workforce, but they did something quite revolutionary. I want to see more of that: use the advantages of mobile to really revolutionize a space, not just add delivery.

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