8 ms·

Why Many On-Demand Platforms Fail

69 points by endswapper 10y ago

dilemma 10y ago
Can possibly add that these platforms fail because they're designed to be unprofitable. Their competitive advantage is that they don't need to make a profit, being supporter by venture capital. When that dries up, few seem able to re-wire their business logic, and re-model their organization to fit. More than anything, what seems to be lacking is long-term vision for the platform as a business.
- vonklaus 10y ago
  I believe this is a symptom or result. I think founders underestimate the complexity of services or over estimate value. Finding a someone a place to stay in jakarta, indonesia is much different than a place to stay in Boston, London, ect. The person, service, lication and time are all variables. This is complex, hard and valuable. The same goes for uber/lyft. There is expediency and significant variables to account for as each pickup and drop off is dynamic so while it appears to be a commodity; it isnt. To your point, some ideas sound great and get funding but are not complex, urgent nor particularly valuable. On demand "lunch" competes with either direct ordering, a local option or brown bagging it. Eat 24 provides a directory & information search engine not physical delivery(in most cases). So while it seems like they violate what I said, they dont have huge infa costs. Other "similar" providers will go get you the food and deliver it. A user is not willing to pay a huge premium for that in most cases, and the volume must be significant amd clustered. Eat24 takes a small percentage for a software solution, the other type needs a large percentage for a phys solution. So they comvince vcs to back them until they get "big" which they wont and achieve economies of scale. However, they cant, because expenses scale pretty in line in those models
dnautics 10y ago
I wonder why a company like homejoy doesn't become a flat cost subscription platform where they offer scheduling, organizational, and billing tools for the particular on demand service.
- danieltillett 10y ago
  Because you can’t make any money this way. Any service where the costs are dominated by labor and the enforcements of labor regulations is weak (i.e house cleaning services) is doomed from the start. The only question is why the "smartest guys in the room” missed this with homejoy.
  - icebraining 10y ago
    What about The Maid International, Merry Maids and Molly Maid, all of which seems to have been operating for over 30 years?
    - danieltillett 10y ago
      This is a very good question. The answer is they are all franchises. This model works in this industry because they are a just a collection of small businesses with a common brand. The person cleaning your house is either the franchisee or working directly for the franchisee. Very different model to homejoy.
    - douche 10y ago
      From experience with some of these services, quality is wildly variable, and they cost two to three times more than more consistent local non franchise alternatives. As a consumer, they suck bogwater.
      - danieltillett 10y ago
        I don't have your personal experience with any of these services, but it does provide a good explanation why even the franchise model has not taken much of the market. It really is a business area where anything beyond individuals working for themselves struggles.
Animats 10y ago
The question is whether there are useful stops between Uber-like total control and a lead generation service. Servicemaster operates in that space. Some workers are employees and others are franchisees who may have employees of their own. That works, and Servicemaster, after 85 years of operation, has a market cap of $4.5 billion. Not a get-rich-quick scheme, but a success. HomeJoy tried to compete with them, not too successfully. Then there are the lead generation services. Plumbers have these; most of the ads in what's left of the Yellow Pages go to the same call center. They don't do much and they don't make much. Operating somewhere between those points seems to be difficult. It's not clear yet if Uber makes it; they're still losing money, and eventually, the investment money stops flowing in and they have to cut costs. (Look at Twitter. Growth is not enough.)
- danieltillett 10y ago
  The only way any of these business types work is via the greater fool approach. Uber is a great investment if you believe you can find a bigger fool to offload the company onto [1]. 1. I am talking about Uber's current business. If they can solve the automatous driving problem before they run out of cash (or fools) then they will be a good investment.
paulsutter 10y ago
On demand startups usually fail because customer acquisition cost is greater than lifetime value (CAC > LTV). Retention is the most common driver. Even good virality can't overcome bad retention. A rough advance estimate of retention is the "toothbrush test": do people use it as often as a toothbrush. Services used rarely are more likely to be forgotten by the next use. If they need to find you again on Google, your competitor can buy them with Adwords. I saw a startup once for a mobile app to arrange funeral services. I had to chuckle because that may be the lowest possible score on the toothbrush test.
- rtpg 10y ago
  There's also the more obvious thing that affects retention which is simply bad service. We've all had bad taxi rides but overall the variability in possible service quality for Uber is pretty low. But Homejoy died because so many people didn't like the quality of the service. I honestly question the premise that people want more on-demand services, given that the major companies that are succeeding in this space were already on-demand (hotels, taxis, food delivery). What market has shifted from not-on-demand to on-demand?
  - jacalata 10y ago
    Service levels are pretty closely tied to customer acquisition cost. It turns out that people just didn't want to pay the amount it costs to get a really good self-motivated cleaner with great people skills to turn up and do a great job on a completely unfamiliar house. So they got inexperienced cleaners who didn't do a great job, and didn't like it.
- davemel37 10y ago
  This is just another way of framing what the article states. Which is that retention will be low in home services because both the homeowner and the contractor prefer direct relationships over using a platform for future work. (i.e. any high trust offering is not a good fit for the current uber model due to low retention.)
- duncanawoods 10y ago
vonklaus 10y ago
I think this is done poorly and misses the biggest issues on demand startups face. The largest issue is failing to understand the difference between a commodity and a service, and how easy a substitute is to find. Others vs uber(and uber like companies) are different Uber solves an extremely hard problem that looks easy, it also has very few alternatives. The other services solve a problem that is less urgent, had many substitutes and is largely less valuable. Uber provides transportation when and where it is needed. If you simply need (using the most well known detivative business) to borrow a skill saw from your neighbor for a tool sharing site you have many options. This project may be planned in advance, you may be able to purchase a used tool, and you may be able to borrow kne free. The issue is how variable a service is. Uber can generate transportation for where and when you need it. However it may appear that the commodity is transportation, but that is the variable. Finding a user and providing them transportation from an unknown location, to an unknown location, immeadiately is hard. A ride from Logan Airport to south station is much different than a rake/hammer. Each ride has a large amount of logistical constraints. Out toolsharing example has to solve all the same problems except a tool is always the same tool. A ride is never the same ride. It makes it much less valuable, and much easier to compete as there are often many substitutes and less expediency. Therefore coverage & on demand has a sup/demand musmatch, is prohibitively expensive and can only take a very small slice if value.
- yetanotherme 10y ago
  A tool is almost never the same tool. There's huge variance.
programminggeek 10y ago
Most businesses that are one-off type businesses tend not to work well. Uber works well because you will use it often enough and is basically a similar model to other transportation services like Bus and Train transit. A lot of businesses require subscription or other predictable recurring revenue to truly work. Even golf courses, bowling alleys, heating and air repair companies, bug terminators, advertising, etc. tend to rely on recurring revenue as the major source of revenue. Even restaurants and bars rely on recurring revenue. You show me a restaurant or bar without regulars and I'll show you a restaurant or bar about to go out of business.
- dredmorbius 10y ago
  Catering, for restaurants, also. And Mother's Day. For many venues, events: golf and bowling tournaments. I don't think that works for pest control though....
somedudetbh 10y ago
This is a pretty naive look at how services in this space work from someone who wants to build one. Uber is fundamentally unlike all of these other "Uber for X" startups. First of all, @paulsutter made a great point: the CAC is > LTV. How many times in your life are you ever going to have to hire a...home decorator or something? A painter? The reason why Geico advertisements are on all media literally all the time (they have like five completely different mascot strategies!) is because you almost never make a choice about car insurance, and when you do, they need to be top-of-mind. This is the same problem that affects a huge swathe of terrible startup ideas, not just on-demand services: the whole category of travel management, niche social networks, event-oriented tools, and yes, most "Uber for X" products. It works for Geico because the LTV of a Geico customer is high enough, because Warren Buffet is an amazing capital allocator and amazing at identifying and retaining operational talent, so Geico runs at roughly break-even on the insurance product, but frees up a large chunk of float for BH to deploy and earn high returns. That business requires doing like 10,000 impossible things right and they do it. An app that lets you summon a guy who trims trees to your house the one time you realize you need a tree trimmed has none of these qualities. A lot of comments here are about how 'the jury is still out on Uber' because it loses money. But cabs don't lose money, collectively. Uber's aggressive money-weaponization growth strategy is certainly high-risk, but there have been tons of businesses that direct requests-for-transit-via-car to independent contractors and clip a fee: virtually every taxi dispatch company, say (contractor vs. employee depends heavily on the history and regulatory structure in a given market). The idea of having for-hire cars distributed through the city and used on an on-demand basis is also profitable for zillions of people. The idea of adding on an app that summons the cars more efficiently, handles payment, and clips a fee is not that hard to believe in. OP frames the issue about the lack of variance in quality of an uber ride vs...what? Hiring a plumber? Do any of us have the ability to identify a quality plumbing job vs. not quality? I mean, the toilet flushes now, or it doesn't. I think this is _close_ to the issue, but the issue is more about 'what adds value': being close to me right now, and able to get to me immediately, on a pre-determined price schedule trumps everything in ride-hailing most of the time (sometimes you want a limo, or something special, and maybe you won't use Uber. Maybe you want to hire a driver for a month while you are in India. You probably won't use Uber. Different parts of the value equation are changing value). Most of these on-demand apps operate in markets that don't have this quality. Other things are important. The post also goes into the 'Trust' question. This is a classic trap for technology entrepreneurs, right up there with 'building tools that makes it easier for non-technical people to build apps'. So many zillions of dollars and hours of smart-people-work have gone down the drain building web of trust, chain of trust, and other trust management products, and they basically don't work at all. What works is "Does this thing have a lot of five-out-of-five star ratings from real-seeming people compared to how many one-out-of-five-star ratings it has?" This is essentially 'word of mouth' online. The ratio of 5:1 star ratings over a threshold. This is basically how all real-world functional trust systems work: ebay, amazon, yelp, etc. Yes they have enormous problems. Yes they are really stupid. Yes they can be gamed. Yes it weights all sorts of idiots equally. But guess what? It works well enough for most people to make purchase decisions. Every fancy smart thing we've ever come up with that's more sophisticated than this is basically useless (e.g. the global tls cert web of trust, the various pkis, every product that builds a FOAF trust web underneath arbitrary objects). Afaik, on-demand 'uber for x' products work one of two ways, mainly: - as a marketplace, where they fail because of all the normal chicken/egg problems, but basically because the ltv of a customer is very low and the cac is very high (once you run out of VC cash to subsidize the service to extremely low prices.) - as an ONO service with employees, where the unit economics supposedly become good with crazy scale, but it's extremely difficult to get there again when you run out of subsidy cash . The classic example here is Kozmo. I'm sure Kozmo's model predicted that eventually, when a delivery person was delivering a candy bar to five people in the same building, the unit economics turn the corner, but it consumes insane volumes of cash to get there, if there's even a 'there' (I'm not aware of any company who has ever gotten to this point. It is possible that Postmates will be the first, if they survive). Postmates is an interesting play because unlike most of these on-demand services, there's at least a world in which like you could _imagine_ if there was a small but positive way to get the unit economics to work, the LTV outstrips CAC because people need to order food and stuff all the time. Many times a day possibly. Even if Postmates made a penny/order on each active user, you could have a very high order volume over a very long time that would eventually get over the CAC cost. BUT the idea of the unit economics getting there is...hard to see. I have a friend who orders coffee from postmates _every morning_ instead of making it or going out. He just has a postmate drive up the hill to his house from starbucks. Starbucks! It's not even like a fancy coffee place. It's interesting to think about a world in which that postmate is running like, a hundred starbucks orders on an optimized loop, and they're still able to charge $5 or whatever for the delivery. That starts to look _possible_ but insane. As it is, it's twenty minutes up the hill, twenty minutes down, never mind the starbucks time. The other world of on-demand stuff I think is interesting to think about is grocery delivery because I think grocery delivery is basically doing something different than what it thinks its doing: the on-demand delivery aspect of it is a vehicle for grocery price discrimination. It's an old joke that rich people don't know how much food costs: George Bush Senior at the checkout counter, Lucille Bluth saying, "it's one banana, michael, what could it cost? Ten dollars?" That 30 rock episode where Jack Donaghy says something about the "grocery concierge" telling you a sack of potatoes is four hundred dollars. But groceries remain an insanely low margin business. Grocery chains operate at around 2-3% margin. Independent grocery resellers in immigrant neighborhoods are even tighter. Costco's grocery business is run near break-even (they make money on the membership fees. This is also why, long run, Amazon's non-AWS business best comp is Costco.) I've shopped for groceries on amazon pantry. Sometimes I'll type something in like "soy sauce" or "rice". Is that a good price? I sometimes literally don't know if its 2x the normal price or .5x. There are things I know the price of well: avocados, milk, liquor, coffee. But there are tons of things I don't know, and i've been buying these staples for years! Grocery stores have very little power to raise prices, but if they could segment the market to provide a service like delivery to a price-insensitive consumer that allows them to charge 20-30% more for certain staples, the excess margin in the groceries completely dominates the cost of the delivery business. This is the Instacart strategy. It's very interesting. A lot of the unit economics problems of these businesses go away if you just...make things expensive. What if coffee was $30? Sure, postmates would work fine, if anyone would pay. But groceries have larger tickets where a 20-30% increase in price might not be objected to by wealthier price-insensitive consumers. Instacart basically is selling coffee for $30. I'm very curious to see if this works. I mean, it seems insane, but less insane than say HomeJoy, Rinse, Washio, Homee, Handy, the 'uber for kids', Lugg (this has gotta be the worst idea of the bunch), the one that parks your car, the one that washes your car, the one that fills your car up with gas, the (multiple!) ones for private jets, the massage one, etc.
davemel37 10y ago
I think a fundamental way to think about on demand is that the worker/service provider/driver is the real customer not the end user. So, if you are uber and the only trust factors are solved by technology (i.e. where the driver is and how soon theyll get to you) it can create a new class of workers. if you are in skilled home services, trust is built by the provider not the platform, so the only current value is lead generation for the worker...which doesnt require a platform. The argument of this post is that there is an opportunity in home services for a platform to really cater to the service providers in a way that they always want to transact on the platform and thay they can use to manage and grow their steady customers...with on demand being the leadgen side of the platform.
cheriot 10y ago
This matches part of the description of HomeJoy's failure[1]. Home service are relationship based so a middle man is only Uber-like for the first cleaning. After that the cut has to be smaller or the customer and pro will deal directly. Even that doesn't quite capture the additional complexity in matching pros with customers. The work is more qualitative and the pro needs jobs that are more similar in location, expectation and needed supplies. Homejoy was too much like uber to work. Yes, they ran out of cash because CAC > LTV, but that's a bit like saying an AIDs patient died of the flu. There's an underlying cause. [1] https://backchannel.com/why-homejoy-failed-bb0ab39d901a https://backchannel.com/why-homejoy-failed-bb0ab39d901a
javiercr 10y ago
I really liked the view of the article. However it's assuming one thing that's not true for every on-demand or p2p service marketplace: the service provider is a "pro". I'm co-founder of a p2p marketplace for dog sitters and dog owners and most of our sitters are not "pros" (as in people who do it just for money and full time). IMHO that's the basic difference between a truly sharing economy platform and just an "on-demand service". These two kind of companies tend to fall under the same umbrella, often because the ones that are just on-demand services use the "sharing economy" label to protect themselves against regulators.
jaypaulynice 10y ago
The on demand platforms fail because these startups can not predict demand like Uber can. Uber has public data like concerts, sport events, rush hour, nightlife which are all pre-planned. Uber can then direct its drivers where the demand is. On the other hand Uber for healthcare for example is impossible because you can't predict who will get sick when and where. It's impossible to know how many doctors you would need on a given day. So it's a lot of wasted money and doctor time.

69 points by endswapper 10y ago

Can possibly add that these platforms fail because they're designed to be unprofitable. Their competitive advantage is that they don't need to make a profit, being supporter by venture capital. When that dries up, few seem able to re-wire their business logic, and re-model their organization to fit. More than anything, what seems to be lacking is long-term vision for the platform as a business.

vonklaus 10y ago
I believe this is a symptom or result. I think founders underestimate the complexity of services or over estimate value. Finding a someone a place to stay in jakarta, indonesia is much different than a place to stay in Boston, London, ect. The person, service, lication and time are all variables. This is complex, hard and valuable. The same goes for uber/lyft. There is expediency and significant variables to account for as each pickup and drop off is dynamic so while it appears to be a commodity; it isnt. To your point, some ideas sound great and get funding but are not complex, urgent nor particularly valuable. On demand "lunch" competes with either direct ordering, a local option or brown bagging it. Eat 24 provides a directory & information search engine not physical delivery(in most cases). So while it seems like they violate what I said, they dont have huge infa costs. Other "similar" providers will go get you the food and deliver it. A user is not willing to pay a huge premium for that in most cases, and the volume must be significant amd clustered. Eat24 takes a small percentage for a software solution, the other type needs a large percentage for a phys solution. So they comvince vcs to back them until they get "big" which they wont and achieve economies of scale. However, they cant, because expenses scale pretty in line in those models

dnautics 10y ago

I wonder why a company like homejoy doesn't become a flat cost subscription platform where they offer scheduling, organizational, and billing tools for the particular on demand service.

danieltillett 10y ago
Because you can’t make any money this way. Any service where the costs are dominated by labor and the enforcements of labor regulations is weak (i.e house cleaning services) is doomed from the start. The only question is why the "smartest guys in the room” missed this with homejoy.
- icebraining 10y ago
  What about The Maid International, Merry Maids and Molly Maid, all of which seems to have been operating for over 30 years?
  - danieltillett 10y ago
    This is a very good question. The answer is they are all franchises. This model works in this industry because they are a just a collection of small businesses with a common brand. The person cleaning your house is either the franchisee or working directly for the franchisee. Very different model to homejoy.
  - douche 10y ago
    From experience with some of these services, quality is wildly variable, and they cost two to three times more than more consistent local non franchise alternatives. As a consumer, they suck bogwater.
    - danieltillett 10y ago
      I don't have your personal experience with any of these services, but it does provide a good explanation why even the franchise model has not taken much of the market. It really is a business area where anything beyond individuals working for themselves struggles.

Animats 10y ago

The question is whether there are useful stops between Uber-like total control and a lead generation service. Servicemaster operates in that space. Some workers are employees and others are franchisees who may have employees of their own. That works, and Servicemaster, after 85 years of operation, has a market cap of $4.5 billion. Not a get-rich-quick scheme, but a success. HomeJoy tried to compete with them, not too successfully. Then there are the lead generation services. Plumbers have these; most of the ads in what's left of the Yellow Pages go to the same call center. They don't do much and they don't make much. Operating somewhere between those points seems to be difficult. It's not clear yet if Uber makes it; they're still losing money, and eventually, the investment money stops flowing in and they have to cut costs. (Look at Twitter. Growth is not enough.)

danieltillett 10y ago
The only way any of these business types work is via the greater fool approach. Uber is a great investment if you believe you can find a bigger fool to offload the company onto [1]. 1. I am talking about Uber's current business. If they can solve the automatous driving problem before they run out of cash (or fools) then they will be a good investment.

paulsutter 10y ago

On demand startups usually fail because customer acquisition cost is greater than lifetime value (CAC > LTV). Retention is the most common driver. Even good virality can't overcome bad retention. A rough advance estimate of retention is the "toothbrush test": do people use it as often as a toothbrush. Services used rarely are more likely to be forgotten by the next use. If they need to find you again on Google, your competitor can buy them with Adwords. I saw a startup once for a mobile app to arrange funeral services. I had to chuckle because that may be the lowest possible score on the toothbrush test.

rtpg 10y ago
There's also the more obvious thing that affects retention which is simply bad service. We've all had bad taxi rides but overall the variability in possible service quality for Uber is pretty low. But Homejoy died because so many people didn't like the quality of the service. I honestly question the premise that people want more on-demand services, given that the major companies that are succeeding in this space were already on-demand (hotels, taxis, food delivery). What market has shifted from not-on-demand to on-demand?
- jacalata 10y ago
  Service levels are pretty closely tied to customer acquisition cost. It turns out that people just didn't want to pay the amount it costs to get a really good self-motivated cleaner with great people skills to turn up and do a great job on a completely unfamiliar house. So they got inexperienced cleaners who didn't do a great job, and didn't like it.
davemel37 10y ago
This is just another way of framing what the article states. Which is that retention will be low in home services because both the homeowner and the contractor prefer direct relationships over using a platform for future work. (i.e. any high trust offering is not a good fit for the current uber model due to low retention.)
duncanawoods 10y ago

vonklaus 10y ago

I think this is done poorly and misses the biggest issues on demand startups face. The largest issue is failing to understand the difference between a commodity and a service, and how easy a substitute is to find. Others vs uber(and uber like companies) are different Uber solves an extremely hard problem that looks easy, it also has very few alternatives. The other services solve a problem that is less urgent, had many substitutes and is largely less valuable. Uber provides transportation when and where it is needed. If you simply need (using the most well known detivative business) to borrow a skill saw from your neighbor for a tool sharing site you have many options. This project may be planned in advance, you may be able to purchase a used tool, and you may be able to borrow kne free. The issue is how variable a service is. Uber can generate transportation for where and when you need it. However it may appear that the commodity is transportation, but that is the variable. Finding a user and providing them transportation from an unknown location, to an unknown location, immeadiately is hard. A ride from Logan Airport to south station is much different than a rake/hammer. Each ride has a large amount of logistical constraints. Out toolsharing example has to solve all the same problems except a tool is always the same tool. A ride is never the same ride. It makes it much less valuable, and much easier to compete as there are often many substitutes and less expediency. Therefore coverage & on demand has a sup/demand musmatch, is prohibitively expensive and can only take a very small slice if value.

yetanotherme 10y ago
A tool is almost never the same tool. There's huge variance.

programminggeek 10y ago

Most businesses that are one-off type businesses tend not to work well. Uber works well because you will use it often enough and is basically a similar model to other transportation services like Bus and Train transit. A lot of businesses require subscription or other predictable recurring revenue to truly work. Even golf courses, bowling alleys, heating and air repair companies, bug terminators, advertising, etc. tend to rely on recurring revenue as the major source of revenue. Even restaurants and bars rely on recurring revenue. You show me a restaurant or bar without regulars and I'll show you a restaurant or bar about to go out of business.

dredmorbius 10y ago
Catering, for restaurants, also. And Mother's Day. For many venues, events: golf and bowling tournaments. I don't think that works for pest control though....

somedudetbh 10y ago

This is a pretty naive look at how services in this space work from someone who wants to build one. Uber is fundamentally unlike all of these other "Uber for X" startups. First of all, @paulsutter made a great point: the CAC is > LTV. How many times in your life are you ever going to have to hire a...home decorator or something? A painter? The reason why Geico advertisements are on all media literally all the time (they have like five completely different mascot strategies!) is because you almost never make a choice about car insurance, and when you do, they need to be top-of-mind. This is the same problem that affects a huge swathe of terrible startup ideas, not just on-demand services: the whole category of travel management, niche social networks, event-oriented tools, and yes, most "Uber for X" products. It works for Geico because the LTV of a Geico customer is high enough, because Warren Buffet is an amazing capital allocator and amazing at identifying and retaining operational talent, so Geico runs at roughly break-even on the insurance product, but frees up a large chunk of float for BH to deploy and earn high returns. That business requires doing like 10,000 impossible things right and they do it. An app that lets you summon a guy who trims trees to your house the one time you realize you need a tree trimmed has none of these qualities. A lot of comments here are about how 'the jury is still out on Uber' because it loses money. But cabs don't lose money, collectively. Uber's aggressive money-weaponization growth strategy is certainly high-risk, but there have been tons of businesses that direct requests-for-transit-via-car to independent contractors and clip a fee: virtually every taxi dispatch company, say (contractor vs. employee depends heavily on the history and regulatory structure in a given market). The idea of having for-hire cars distributed through the city and used on an on-demand basis is also profitable for zillions of people. The idea of adding on an app that summons the cars more efficiently, handles payment, and clips a fee is not that hard to believe in. OP frames the issue about the lack of variance in quality of an uber ride vs...what? Hiring a plumber? Do any of us have the ability to identify a quality plumbing job vs. not quality? I mean, the toilet flushes now, or it doesn't. I think this is _close_ to the issue, but the issue is more about 'what adds value': being close to me right now, and able to get to me immediately, on a pre-determined price schedule trumps everything in ride-hailing most of the time (sometimes you want a limo, or something special, and maybe you won't use Uber. Maybe you want to hire a driver for a month while you are in India. You probably won't use Uber. Different parts of the value equation are changing value). Most of these on-demand apps operate in markets that don't have this quality. Other things are important. The post also goes into the 'Trust' question. This is a classic trap for technology entrepreneurs, right up there with 'building tools that makes it easier for non-technical people to build apps'. So many zillions of dollars and hours of smart-people-work have gone down the drain building web of trust, chain of trust, and other trust management products, and they basically don't work at all. What works is "Does this thing have a lot of five-out-of-five star ratings from real-seeming people compared to how many one-out-of-five-star ratings it has?" This is essentially 'word of mouth' online. The ratio of 5:1 star ratings over a threshold. This is basically how all real-world functional trust systems work: ebay, amazon, yelp, etc. Yes they have enormous problems. Yes they are really stupid. Yes they can be gamed. Yes it weights all sorts of idiots equally. But guess what? It works well enough for most people to make purchase decisions. Every fancy smart thing we've ever come up with that's more sophisticated than this is basically useless (e.g. the global tls cert web of trust, the various pkis, every product that builds a FOAF trust web underneath arbitrary objects). Afaik, on-demand 'uber for x' products work one of two ways, mainly: - as a marketplace, where they fail because of all the normal chicken/egg problems, but basically because the ltv of a customer is very low and the cac is very high (once you run out of VC cash to subsidize the service to extremely low prices.) - as an ONO service with employees, where the unit economics supposedly become good with crazy scale, but it's extremely difficult to get there again when you run out of subsidy cash . The classic example here is Kozmo. I'm sure Kozmo's model predicted that eventually, when a delivery person was delivering a candy bar to five people in the same building, the unit economics turn the corner, but it consumes insane volumes of cash to get there, if there's even a 'there' (I'm not aware of any company who has ever gotten to this point. It is possible that Postmates will be the first, if they survive). Postmates is an interesting play because unlike most of these on-demand services, there's at least a world in which like you could _imagine_ if there was a small but positive way to get the unit economics to work, the LTV outstrips CAC because people need to order food and stuff all the time. Many times a day possibly. Even if Postmates made a penny/order on each active user, you could have a very high order volume over a very long time that would eventually get over the CAC cost. BUT the idea of the unit economics getting there is...hard to see. I have a friend who orders coffee from postmates _every morning_ instead of making it or going out. He just has a postmate drive up the hill to his house from starbucks. Starbucks! It's not even like a fancy coffee place. It's interesting to think about a world in which that postmate is running like, a hundred starbucks orders on an optimized loop, and they're still able to charge $5 or whatever for the delivery. That starts to look _possible_ but insane. As it is, it's twenty minutes up the hill, twenty minutes down, never mind the starbucks time. The other world of on-demand stuff I think is interesting to think about is grocery delivery because I think grocery delivery is basically doing something different than what it thinks its doing: the on-demand delivery aspect of it is a vehicle for grocery price discrimination. It's an old joke that rich people don't know how much food costs: George Bush Senior at the checkout counter, Lucille Bluth saying, "it's one banana, michael, what could it cost? Ten dollars?" That 30 rock episode where Jack Donaghy says something about the "grocery concierge" telling you a sack of potatoes is four hundred dollars. But groceries remain an insanely low margin business. Grocery chains operate at around 2-3% margin. Independent grocery resellers in immigrant neighborhoods are even tighter. Costco's grocery business is run near break-even (they make money on the membership fees. This is also why, long run, Amazon's non-AWS business best comp is Costco.) I've shopped for groceries on amazon pantry. Sometimes I'll type something in like "soy sauce" or "rice". Is that a good price? I sometimes literally don't know if its 2x the normal price or .5x. There are things I know the price of well: avocados, milk, liquor, coffee. But there are tons of things I don't know, and i've been buying these staples for years! Grocery stores have very little power to raise prices, but if they could segment the market to provide a service like delivery to a price-insensitive consumer that allows them to charge 20-30% more for certain staples, the excess margin in the groceries completely dominates the cost of the delivery business. This is the Instacart strategy. It's very interesting. A lot of the unit economics problems of these businesses go away if you just...make things expensive. What if coffee was $30? Sure, postmates would work fine, if anyone would pay. But groceries have larger tickets where a 20-30% increase in price might not be objected to by wealthier price-insensitive consumers. Instacart basically is selling coffee for $30. I'm very curious to see if this works. I mean, it seems insane, but less insane than say HomeJoy, Rinse, Washio, Homee, Handy, the 'uber for kids', Lugg (this has gotta be the worst idea of the bunch), the one that parks your car, the one that washes your car, the one that fills your car up with gas, the (multiple!) ones for private jets, the massage one, etc.

davemel37 10y ago

I think a fundamental way to think about on demand is that the worker/service provider/driver is the real customer not the end user. So, if you are uber and the only trust factors are solved by technology (i.e. where the driver is and how soon theyll get to you) it can create a new class of workers. if you are in skilled home services, trust is built by the provider not the platform, so the only current value is lead generation for the worker...which doesnt require a platform. The argument of this post is that there is an opportunity in home services for a platform to really cater to the service providers in a way that they always want to transact on the platform and thay they can use to manage and grow their steady customers...with on demand being the leadgen side of the platform.

cheriot 10y ago

This matches part of the description of HomeJoy's failure[1]. Home service are relationship based so a middle man is only Uber-like for the first cleaning. After that the cut has to be smaller or the customer and pro will deal directly. Even that doesn't quite capture the additional complexity in matching pros with customers. The work is more qualitative and the pro needs jobs that are more similar in location, expectation and needed supplies. Homejoy was too much like uber to work. Yes, they ran out of cash because CAC > LTV, but that's a bit like saying an AIDs patient died of the flu. There's an underlying cause. [1] https://backchannel.com/why-homejoy-failed-bb0ab39d901a https://backchannel.com/why-homejoy-failed-bb0ab39d901a

javiercr 10y ago

I really liked the view of the article. However it's assuming one thing that's not true for every on-demand or p2p service marketplace: the service provider is a "pro". I'm co-founder of a p2p marketplace for dog sitters and dog owners and most of our sitters are not "pros" (as in people who do it just for money and full time). IMHO that's the basic difference between a truly sharing economy platform and just an "on-demand service". These two kind of companies tend to fall under the same umbrella, often because the ones that are just on-demand services use the "sharing economy" label to protect themselves against regulators.

jaypaulynice 10y ago

The on demand platforms fail because these startups can not predict demand like Uber can. Uber has public data like concerts, sport events, rush hour, nightlife which are all pre-planned. Uber can then direct its drivers where the demand is. On the other hand Uber for healthcare for example is impossible because you can't predict who will get sick when and where. It's impossible to know how many doctors you would need on a given day. So it's a lot of wasted money and doctor time.