The On-Demand Unicorns Have a Communication Problem

originally posted under the @Layer Medium account.

With startups like Uber and Airbnb boasting billion dollar-plus valuations as they hurtle towards an IPO, 2016 may well be remembered as the year of the on-demand unicorn. A successful debut on the NASDAQ will go a long way to proving the validity of on-demand systems as a business — capable, as promised, of disrupting multiple industries through a mix of logistics, contract workers, and smartphone apps.

But as Allison Rhodes Messner touched on in the Layer blog, there’s an underlying irony to this: Even as the Internet and smartphones transform how we interact with companies and each other, on-demand companies are still hobbled by decades-old communication platforms, requiring their users to awkwardly switch between cell phone telephony (developed in the 1970s), SMS texting (developed in the 1980s), and the Internet-powered messaging services integrated inside the apps themselves.

On-demand startups, in other words, are still being disrupted by legacy communication infrastructure. And in the next few years, as they strive to scale into full-fledged members of the broader economy, this is the piece they’ll need to get right. Here’s some of the problems they — and for that matter, most companies with consumer-facing apps — must deal with soon:

Trusted Communication as a UX Challenge

A core value proposition of on-demand services is their ability to connect individual users with individual providers. This makes trust a core component to their apps’ user experience: At every step of a transaction, both customer and contractor need UX cues to feel assured that they’re dealing with a reliable person backed by a reliable service. Trouble is, this trust gets severely shaken when a service request must abruptly jump outside the app to the phone itself.

Anyone who’s requested a pickup through an on-demand rideshare app understands this pain — the friendly and reassuring profile of your driver on the app is abruptly interrupted by a text message from an unknown sender, or even more jarring, a direct phone call from someone claiming to be your driver. (Or vice versa.)

Once the user is kicked out of the app, the chances of communication breakdown geometrically increase — especially since SMSes and voice calls leave an ambiguous audit trail, and the on-demand contractor must struggle to text or call their customer while traveling to the designated location (when they should be keeping their eyes on the road). And once communication leaves the app, on-demand companies have no insight into the content or quality of any subsequent conversation. Many or even most of the horror stories associated with on-demand services stem from this fraying of the UX trust fabric.

The Hidden Costs of SMS

Here’s a secret few people know about all those fabulous on-demand services on their smartphones: almost all of them still depend on basic, old school SMS messaging which are relatively unreliable. According to one study, individual SMS message receptions in the US fail between 21 to 57% of the time, depending on provider. (Reception rates are roughly as inconsistent through most of the developed world.)

Then there’s costs: For safety and self-interest purposes, on-demand companies must connect their customers and their gig contractors through a masked, proxy phone number. (After all, neither side wants to share their real phone number with random strangers, while the on-demand company doesn’t want the contractors in their system setting up side gigs with their users.) To do this, companies must pay to manage thousands of virtual phone numbers across the world, and for the inbound/outbound proxy messages they receive.

In the US alone, the cost of sending simple text SMS messages runs about a penny per message, and even more internationally. (Proxy phone numbers themselves cost as much as $1 per month each.) And user-to-contractor messages are just the start — typically, on-demand companies in the busiest cities will also blast out thousands of SMSes to tens of thousands of local contractors every day, just to alert them to available service requests. Do the math on millions of messages going back and forth to thousands of phone numbers every single day, and you can see how these costs can quickly pinch startups without unlimited funding to burn.

These are some of the core communication challenges that on-demand companies face as they prepare to evolve from being startups with relatively small user bases of tech-savvy early adopters, to full-fledged companies scalable to a true mass market. What they need now is a mass market solution.

At the Gates of Messenger’s Walled Garden

In recent months, Facebook has greatly shifted focus and resources from its original social network to its mobile Messenger app, and is busy rolling out enterprise-friendly services, such as customer communication bots, to make it even more appealing for business use. There’s a very good reason for this: Messaging and notifications are rapidly eating up the web experience, becoming the dominant way we interact with and consume Internet content and services.

Facebook is savvy to see this, and retrofit Messenger into a communication tool for enterprise. A key question in the coming years is whether enterprise will embrace Messenger — even if that means handing over their customer data and customized user experience to Facebook and its walled garden. (On this topic, social game developers may have some hard-earned wisdom to share.)

On-demand companies, which depend so much on trust, will probably be among the first to weigh the costs and benefits of selecting Messenger as their communication service, but the rest of the market will soon follow. Some will search for alternative platforms, or build their own solutions. One thing is certain: In an Internet redefined by messaging, be it person-to-person or company-to-person, the platform that can best design trust into its DNA will define the future of business online.

Before and After mockups

As an example of a before and after view of what’s possible with Layer, here’s one version for text, maps and even push-to-talk voice instead of hard to hear phone calls: