The On-Demand Economy has captured a tremendous amount of consumer and media attention in the past few years. Uber has become a city regulator’s nightmare as well as a beloved national brand. The “Uberification” of the world is at play. New on-demand services are sprouting everywhere, earning sky-high valuations in a matter of months, and media outlets have written numerous pieces questioning “the excesses of our times,” “the class gap,” and “the lazy generation,” among others.
Something much bigger is at play here, and it will impact the whole economy from citizens, to consumers, from startups to the Fortune 100. First is a dramatic (and possibly structural) shift in the labor model, Then is the redesign of the fabric of local commerce. Because of the many questions and challenges that still exist in this space, I have asked Semil Shah (with myself, one of the most prolific investors in the on-demand space) and Tradecraft to help me organize the first conference around The On-Demand Economy:
On May 19th in San Francisco, we’ll be covering all things on-demand; from a fireside chat with Shervin Pishevar (an early investor in Uber, Postmates, Taskrabbit, Cherry, Shyp, etc.) to panels with the founders, operators, and investors from Lyft, Postmates, Sprig, DoorDash, Fitmob, Shyp, Homejoy, Munchery and many others. The panels will be moderated by journalists from Bloomberg, TechCrunch, re/code, Fortune, Matter, and CNBC.
I have seen the on-demand economy through many lenses, both as the co-founder of the now–defunct SixDoors and as an angel investor in numerous on demand marketplaces and infrastructure companies including Shyp, Sprig, Caviar, and Checkr, among others. If you are interested in the on-demand economy, this should be a fascinating event. I hope you can come, and I look forward to meeting you.
P.S. To give you a taste of the event, as I have talked with many founders and sifted through my own notes as a founder, here are some of the main unique challenges, questions, and opportunities I have seen:
Most on-demand services require paying for somebody’s time/work or for a “physical” product or service (food, parking spot, mail stamps). Thus business model decisions have a very strong impact on margins, demand, and customer experience. Companies can succeed with very different types of business models, whether they require bundling (ClassPass), unbundling (GotIt, Fountain), vertical integration (Sprig, BloomThat) or horizontal integration (Instacart, Luxe Valet), whether they rely on C2C (7CupsofTea) or use professionals (DrOnDemand). However, “physical constraints” mean that the demand frequency x net margin per transaction equation needs to be strong enough to cover customer acquisition costs. I learned that the hard way with SixDoors.
The tech industry has learned to perfect the user experience of web and mobile applications over the years, but with on-demand services, a new type of “real world” experience needs to be perfected and learned. From the Lyft moustache to Sprig’s food packaging, from Uber’s first limos to Shyp’s hyper-fast pick ups, it’s the customer experience that people remember and praise as much as the app’s user interface. The successful brands will be the flagship franchises of our generation.
Moving atoms confront startups with many archaic regulations that cannot be overlooked. From compliance in background screenings to professional kitchen safety or transportation regulations, entrepreneurs need to understand the relevant laws, how to sometimes play at their edges, and when not to.
Many on-demand services are local by nature, with a city-by-city roll-out model. But doing marketing in only cities means that many traditional growth channels don’t work as effectively as for consumer internet services. Until one has a nationwide footprint, SEO is not as useful, and it is nearly impossible if you have a mobile first strategy. SEM reach tends to be small. A national media is not as powerful and harder to get for a “local story.” Interestingly, new channels created by the previous wave of services (Facebook or Twitter app installs, Groupon or Gilt City) offer city-first targeting and can lead to positive ROIs provided that one’s business model allows for steep discounting or high CPI. This is when marketers are learning the old ropes of direct marketing with door hangers and street team marketing.
On-demand companies have resurrected a new role for a tech startup: operations. From city launchers to supply operations, each company develops their own playbook to launch, grow and manage a city. How to create your playbook, launch a city and determine the profile needed to launch and manage each city is today more art than science.
Managing Supply and the “API divide”
This is one of the most talked-about topics in the on-demand economy. Most of these services involve an on-demand workforce with a broad range of skills and qualifications. Managing this workforce, whose goals vary so greatly, is a challenge in its own right and some of the best companies in the market are also the best at managing this workforce and their expectations, especially when demand is still nascent. As APIs are replacing middle management (dispatchers, managers, etc…), as instant gratification enhance this feeling of being “served”, questions and tensions emerge. What is the career path for this new workforce? How do you keep them motivated, engaged, successful and thriving, as tweaking your business model has direct and immediate implications on their source of income? Can these jobs be “sustainable full time activities”, “in-between jobs” or a stable source of income while pursuing a more lucrative but cyclical activity (as a startup founder, ballet teacher, or med student)? What does the demand around these jobs reveal about the need for a main or supplemental income? What does this labor model reveal about new workers’ expectations — and what does it mean for the future employment models of Corporate America?
Startup people love building product, but compared to most traditional consumer startups, on-demand startups have so many more pieces to get done right. Knowing what to outsource and what to build in-house is critical in providing the faster better experience, and can allow on-demand startups to dedicate more resources on “harder things” like growth, operations, or crafting and refining the ideal customer experience.
The On-Demand Economy is here to stay — and has already started to permeate the corporate world (i.e. Amazon and Google launching home services marketplace, Starbucks partnering with Postmates, etc.) But these challenges, questions and opportunities remain and are similar to all players in this new ecosystem.