Making you move: a platform war in the making
The winner in the personal driver space will be the first company to achieve platform status.
Last Saturday, a car wearing a pink hat picked-up my wife and I at one in the morning to get us home. We were trying out Djump, a self-styled “social ridesharing” app. Its concept is similar to that of Lyft: a network of drivers who will move you around a city at will. Launch the app from your smartphone, request a driver, wait for them to pick you up and take you to your destination, pay from your phone: you’re done!
Sounds like a familiar company? Uber maybe? The big difference with Uber is that Djump drivers are no professionals: they’re simply individuals with an available seat, willing to spend their Friday evening roaming the city waiting for passengers. In theory, once enough drivers are available, Djump drivers would pick you up on their way back from work or to a party. Right now though, they’re a core team doing it all evening long.
I had tried out Uber for the firt time about a week prior. The difference between both services is stark: whereas our Uber driver arrived faster than expected in a BMW series 5, our Djump driver was 10 minutes late — and the car much less impressive. Of course, the price reflected this as well: our Djump ride was about half the cost of Uber, for a similar distance, at around the same time (late in the evening).
Uber and Djump are far from the only companies operating in this space. In France, companies such as leCab and chauffeur-privé are competing headfront with Uber in the personal town car driver space. In the UK, Addison Lee and Green Tomato Cars have been operating on this market for a while. Hailo is yet another fast-growing contender. One might also want to include long-distance ride-sharing services such as BlaBlaCar in this list.
From the outside, it feels like each of these companies sees itself as a vertical player. leCab is for high-end cars. Green tomato is for eco-friendly cars. Hailo is for actual cabs. Lyft is for ride-sharing. Uber has a bit more diversity, offering both town cars and a less expensive option through UberX. All these service are for intra-city transportation, while BlaBlaCar is for inter-city ride sharing. The segmentation between all these services is huge.
Yet looking at it from the other side of the mirror, the target market for each of these apps overlaps in many places. My choice of any given service at a particular time will be based on a combination of factors: if it’s late in the evening, I’m tired and a bit drunk, I might prioritize a costlier option that will get me home faster. Yet I’m the same guy who will be looking for a cab home next time I get to the train station back from a trip. The same guy who’ll try to find a cheap way to get to Lille from Paris over the week-end. The same guy who will go on a business trip in NYC and indulge myself with town car rides.
In all those cases, I’m trying to solve the same problem: getting back home. My priorities and criteria of choice might change from time to time, but my credit card number will not. If one application were to offer me a great variety of choices to get home, I’d use it all the time. It would offer me the convenience of not having to go through 3-4 apps to select the best available option.
In other words, one of these services needs to come out and become a full-on marketplace for transportation services.
Ben Thompson over at Stratechery had a number of great posts on the difference between horizontal and vertical businesses recently: ”The Dropbox Opportunity”, “Services, not devices” and “Understanding Google”. In those articles, he argues that the biggest mistake a company can make is go for a vertical strategy when it is naturally built to go after a horizontal strategy:
The surest route to befuddlement in the tech industry is comparing a vertical player, like Apple, with a horizontal one, like Google.
Vertical players typically monetize through hardware, only serve a subset of users, and any services they provide are exclusive to their devices. Horizontal players, on the other hand, monetize through subscriptions or ads, and seek to serve all users across all devices.
Let’s apply this analogy to the current crop of personal driver companies. Right now, almost all of them is focused on a specific segment of the market. Yet, as pointed out above, their target market overlaps broadly. In addition to this, one should keep in mind a very important fact: most of these companies are not operators. The drivers are not employees of the company, nor do the cars belong to them. Personal driver companies are intermediaries between passengers and drivers. In a way, they are already a marketplace — albeit a limited one.
We have seen this type of consolidation happen before in the internet space. Two well-known examples illustrate this.
The first one, and the most obvious, is Amazon. They started out as an online book retailer. Today, they sell pretty much everything, from automotive tools to gourmet food. The key to Amazon’s success was to recognize early that its strengths in online inventory, logistics and delivery could be applied to a wide variety of products.
In a similar fashion, AirBNB started out as a service to rent spare beds during events. Today, you can rent pretty much anything through the service, from a couch to a country. Again, the key to the success of the company was to recognize early that its core competency could be used to widen its target market.
As it turns out, the same is true for personal driver services. The infrastructure you need to connect people and drivers and get them to pay for rides is pretty much exactly the same whether you’re looking at cabs, town cars or ride sharers. Sure, there are regulatory and legal considerations to handle, but the basic service is exactly the same.
This is why it seems clear that this seemingly unending expansion of personal driver companies will have to stop at some point. The reason for this is simple: the first company that will stop thinking about itself as a service company, and look at its activity as a marketplace is likely to win the market.
What if from within the app, I was able to get access to all options at once? For the organization running the marketplace, it doesn’t really matter which option I choose as long as it can get its cut. From the perspective of the company providing the service, what matters is:
1/ Getting me a driver
2/ Letting me pay from the app
3/ Taking its cut of the transaction (usually around 20%)
The fact that I’m going home in a Benz or a Prius is irrelevant.
The big curse of marketplaces is the chicken and egg problem. To create a great marketplace, you need both buyers and sellers in the right proportions. Too many buyers and they’ll leave the marketplace frustrated, unable to get what they want. Too many sellers and those will leave in turn, unable to generate enough revenue to sustain their activity in the long run.
Uber was able to overcome this problem by identifying a market that was illiquid (black cars) making it liquid in one specific market (San Francisco). They started by making an existing market more fluid and went on from there, expanding to additional countries and cities. Sounds a lot like AirBNB’s expansion story, doesn’t it?
Another trend is intertwined with the rise of those services: the rise of what I will call the “prosumer seller”.
What’s interesting is that both Amazon and AirBNB (and other marketplaces such as eBay or Etsy) led to the rise of sellers who were not able to reach a market before, which I refered to as “prosumer sellers”. That is, actors that before the internet would not have considered becoming professional sellers, but were able to become so once the transaction and distribution costs went down sufficiently to sustain their businesses.
A similar example of this phenomenon is taking place in France in the long-distance ride-sharing space. Services such as BlaBlaCar let users book seats in rides from one city to another, usually at a much better rate than if they took the train or even an intercity bus from one destination to another. While the initial goal of the service was to let people who often took the same route get additional people on board, it quickly led to people who made it their business to run such routes. For instance, the Paris-Lille route in France is ran by semi-professional drivers who do it yearlong.
As AirBNB renters have found out, this leads to a number of regulatory and legal issues. However, the key to a successful marketplace is to ensure that supply and demand match each other. Prosumer sellers are a big part of what made it possible for new services to reach an audience and expand their activity. It seems logical that this trend will find an application in the personal driving space too. This would be the best way for a service to launch in a lot of cities at once, especially in places where black cars companies do not operate at the moment.
Let’s wrap things up. Here are the characteristics of the personal driver service that will own the future:
1/ Available on every platform, in every city of every country
2/ Offering every option, from the lower to the higher end
3/ For both short-distance and long-distance rides
4/ Through professional and “prosumer” drivers
May the personal driver platform race begin!