Surviving the on-demand economy
There is a fresh debate that is starting on the feasibility of on-demand economy. The biggest issue that is being highlighted are the employment practices that are followed by some of these companies.
These companies try to get normal people like you and me to share some resource we have while dangling the carrot of a secondary income. However such models are too easy to replicate most of the time and with increasing competition these companies are forced to offer smaller and even smaller incentives to people sharing the resources. Some companies even get away with it.
That however is just one side of the issue they are facing. The business model and practices leave much to be desired. So how do you as an on-demand company survive in this industry?
Platform > Service
This might sound pretty obvious but only a handful of on-demand service companies are making this shift or even thinking on those lines. Salesforce did it with the force.com platform and now Uber is doing some interesting things. Here in India you have Gaana opening up its APIs so that other apps can be built on it. That said, I don’t see much push for it or anyone actually building anything using them.
What about the other companies? Do you just want to be the company that picks up our dirty laundry, or just deliver groceries or food? Where is the platform thinking? If you cannot build a platform you should at least look at bulding a full-stack offering like BookMyShow or RedBus. If you’re not doing these things the competition, backed by VC funding, can easily hunt you down.
Speaking of which, just don’t do what Facebook or Twitter did. They successfully alienated developers that built applications on top of their services.
Regulatory black hole
Regulations are an interesting thing. We tend to look at them from an entrepreneurs view point and demand fewer regulations. However, think about it from the shoes of a regular Indian for a second. How is surge pricing legal when it is illegal for auto drivers to charge one-and-a-half or double the fare on peak hours? How is it okay to pay people lower than the market rate by purely pointing to demand-supply elasticity?
Regulations exist to ensure that there are standards. Minimum guarantees. Benchmarks to stop exploitation. A lot of the on-demand economics runs in the face of such thinking and believes it exists in a complete free-market economy. However such a thing does not exist.
Shift in priorities
This brings me to the famous
“pick any two” concept. The reason we start using some of these services is because they are fast and cheap. The challenge for companies is to get people to continue using their service even as they shift priorities to being fast and good.
Look at Flipkart for example. I see people complaining all the time about it not being able to match the prices of Amazon. That’s okay as far as I’m concerned, but they haven’t been able to make the service so good to shut these people up either. That’s an issue.
The cab companies right now are trying to be fast and cheap, but it is the quality of service that keeps coming back to hurt them. The on-demand companies are doing a very poor job of setting expectations and that is going to be their undoing unless they do something about it very soon. They need to communicate better on why I should use their service. The Now part is the focal point, but what is the secondary focus? Will they try to be the cheapest or the best in terms of quality?
On-demand companies need to rethink the metrics that matter to them as a business. What are they looking from customers? Lasting relationships that will earn them smaller amounts over time or just more users who will easily ditch them for their competitor purely based on pricing?
In many ways, the current set of on-demand companies take online business practices and apply it to the real world. However, these businesses need to keep in mind the real world laws and expectations, without which it becomes just another company that gets business via an app. This makes them generic. Why would VCs invest in generic companies? Bubble?
It would also be interesting to see how the changes forced on these on-demand companies by real-world regulations and expectations would impact the online SAAS / PAAS business models.
