Cheap and Awesome: Information Symmetry and the On-Demand Everything
Information Symmetry
Uber is the juggernaut of the on-demand economy and harbinger of many things, but the biggest disruption it has caused is a shift in power from companies to consumers, which has implications for the entire economy. That shift is a result of increasing information symmetry in marketplaces. On-demand marketplaces provide consumers with a lot of information — ratings, product/service availability, etc.) — which better equips consumers to compare products/services and discriminate between choices. This information symmetry between buyers and sellers puts pressure to prices and quality of service, which forces incumbents to up their game. As long as artificial intelligence doesn’t outsmart the users (by reading their emotions, for example), information may become increasingly symmetrical.
Price and Quality
Think about it this way: in the pre-uber days, when it was pouring rain in New York City and you needed a ride, you had to stand on a corner and hope that you could hail a cab — any cab or livery car, at basically any price — because you didn’t know when the next cab might be available. Now, consumers can scan the real-time dynamics of the market for a ride in Uber, Lyft, etc. to find the lowest pricing (based on surges) and know exactly when the car will arrive — all while staying warm and dry in the comfort of a building until the car arrives. And because Uber and Lyft actively measure the quality of both providers and consumers, all actors in the marketplace are encouraged to be on their best behavior. The result is an efficient market in which the best-behaved consumers get a car first, and consumers are reasonably assured of a reliable ride at the lowest possible price.
Brands and Loyalty
In addition to pressure on price and quality, these kinds of marketplaces tend to dampen the value of brands. In marketplaces with perfect (or at least very good) information about providers, the value of a brand is marginal. (Most consumers would not pay more for a brand if they knew with certainty that the generic product is identical.) So in a world where on-demand services give ample data to inform the quality/price relationship, brands must do something exceptional in order to stand out — and brand marketing doesn’t do the trick. Early-stage startups may indeed be tempted to spend on brand marketing to “get the word out,” but nothing beats investment on a good product and product marketing that touts why your product is better. This is especially true in a world of marketplaces.
If brands mean less, then loyalty to brands suffers, too. With Uber, any consumer loyalty is directed toward Uber (the marketplace), not specific drivers (the actual providers). And even Uber has to fight for loyalty on both sides of the marketplace, with frequent product innovation, integrations, partnerships and special offerings — like financing for drivers and the Starwood partnership for consumers. In the past, marketplaces survived without much work; consider the long, successful run of Sabre in the travel industry. Now, marketplaces must balance constant product innovation with aggressive attempts to drive loyalty. That’s beneficial for customers and reinforces the new balance of power.
