Taking back control
How B2C service providers are using SaaS to fight back against aggregators
Since SaaStock17, I’ve noticed a growing wave of SaaS products aimed at helping B2C businesses to take back control from aggregators. In this article I review what is driving that trend, and what the success factors will be for SaaS companies.
B2C Aggregators: love-hate relationship
Over the last decade, most fragmented consumer service industries have become slaves to aggregation platforms. Last year, hotels gave away over $20bn in profit to Expedia and PriceLine. Open-Table made $226m from 31k restaurants in 2014. Take away outlets pay JustEat 14% of every order. With gyms it’s ClassPass, salons – TreatWell, taxis – Uber, and flights – SkyScanner. The list goes on.
These aggregators have been fantastic for consumers, driving down prices and providing transparency and consolidation in otherwise fragmented and opaque markets. The aggregators (in general) also improved the buying experience by building smooth online purchase journeys on behalf of service providers (often bundled in for ‘free’ as a supply-side hook into the marketplace).
Initially, aggregators were great for businesses too. Allowing typically small, resource constrained service providers to benefit from the power of the internet by reaching a global audience of potential customers and offering them a high quality digital purchase experience.
However, as aggregators have gained power, service providers have begun to realise that handing over margin and the consumer relationship to aggregators, may not make as much sense now as it used to.
In sectors with low fidelity customers (i.e. where the service is commoditised, and there is almost no scope for a direct customer relationship), then aggregation is fine, particularly if the aggregator is the most efficient route to market. This is true of taxis and flights which is why we aren’t really seeing cab firms of airlines trying to dis-aggregate Uber or Skyscanner. This is particularly true when the tech platform is adding value beyond just pure aggregation. For example, Uber’s logistics platform which matches drivers to hailers creates a lot of value for customers by reducing waiting times, and for drivers by improving utilisation. It would be tough for a small cab company to build this technology so it makes sense to concede the fee and the customer relationship to Uber.
Conversely, where customer fidelity is high, and customers tend to repeat purchase, service providers are beginning to realise that owning the customer relationship is important. Hotels and restaurants have quite high fidelity, with the customer caring greatly about the experience and likely repeat buying (although not at high frequency). Takeaways are higher fidelity again as they tend to see more repeat, hyper local purchase behaviour. Gyms and salons are examples of very high customer fidelity where the customer can become loyal to the provider and will likely be a regular purchaser (often at high frequency).
In these high-fidelity examples, why would a service provider be willing to give away a large chunk (25% in some cases) of their revenue to aggregators when they have high volumes of repeat custom, whilst also being forced to discount to stay competitive? Why not save that budget and use it to directly promote to loyal customers, building direct brand affinity?
Service providers with high fidelity customers are also realising the power of data to help them convert from first trial to loyal customer and to drive up-sell to, and retention of, those loyal customers. So again, why share that valuable data with (or even hand it over to) an aggregator?
In the past, service providers didn’t have the digital capability to build high quality online experiences and so part of the attraction of aggregators was quick and easy digitalisation. However, the advent of SaaS is changing this.
SaaS to the rescue
With simple, relatively cheap SaaS tools, it is now far easier for businesses to offer a seamless digital experience direct to their customers. These SaaS tools also have easy-to-use analytics modules which leverage the providers’ customer data to help non-technical managers with digital marketing to drive retention and up-sell. This means that providers no longer need aggregators for their digital capabilities. Aggregators may still be a valuable customer acquisition channel, but the service providers now have the tools to manage and retain customers (once acquired) without needing to go back to the aggregator every time.
This is creating a wave of exciting opportunities for vertical specific SaaS and the businesses they serve. For example, Triptease helps hotels to keep customers on their site and power efficient online booking. For takeaways, Flipdish and Order YoYo are trying to help restaurants provide their own takeaway experience, cutting out JustEat. Phorest have done a great job of empowering salons to offer online booking, CRM, and digital retention marketing rather than relying on Treatwell. GloFox and MindBody are doing a similar thing for gym studios, taking on ClassPass.
The underlying technology is often not that complex; winning is all about tailoring the application to provide a whole product built around the specific workflows of that vertical use case and its resource constrained business managers. Some of the key success factors that will determine which SaaS products win in these markets will be:
- Specific Workflow: The product must solve the managers’ most pressing problems and fit in with the way they work and think.
- Whole Product: It must be a ‘whole product’, such that managers can run their entire business from a single interface.
- Frictionless: It must be quick and easy to set-up and use without complex training.
- Customer Service: Customer service teams will be essential to remove friction where hand holding is needed.
Simple steps like having common industry terminology and product types pre-loaded can make a huge difference to the user. A good example of this is gyms with studios, where the matrix of membership options, pay-as-you-go packages, trainer skills and studio facilities, means that tailored booking and pricing tools can be hugely valuable to managers.
SaaS sales teams will need to be scrappy to gain the limited attention and budget of the buyer (usually the business owner) and customer service requirements will be high. But once these businesses are using a SaaS product to operate, they become very sticky, and if a product becomes recognised as ‘the solution’ for that vertical, word can spread fast.
Let battle commence
Whilst in theory SaaS is better for businesses, the challenge is whether service providers can transfer the benefit of dis-inter-mediation to their customers through more personalised experiences that reward loyalty, whilst maintaining approximate price parity with aggregators. In some verticals, aggregators will hold onto power because of the consumer simplicity of having all the supply in one place, in others a new winner might emerge.
The need for SaaS tools is more obvious in some sectors than others, but some things to think about when considering how the battle of aggregators vs SaaS will play out are:
- Better Consumer Experience: Does the SaaS product allow the service provider to offer a better experience to the end customer than they would otherwise receive through an aggregator? e.g. better service powered by customer insight, or tailored promotions and up-sell to delight customers.
- Consumer Price Parity: Are the cost savings (back office efficiency improvements and saved referral commission) sufficient to offer price parity with aggregators for the end consumer?
- Customer Fidelity: Is there sufficient customer fidelity to overcome the network / scale benefits of aggregators? e.g. all the supply in one place, or inter-provider logistics.
- Vertical Specialism: Is there sufficient opportunity for vertical specialism, and do the players in the market capitalise on that opportunity by offering a whole product tailored to the use case?
There are certainly going to be some winners and losers, but in lots of markets there is all to play for. Aggregators must be getting nervous.