Remove Complexity, Lower Costs
Ever since Uber deconstructed and rebuilt the taxi industry, the entrepreneurs of the world saw a new template for disruptive technology. Everyone wanted a low-cost solution that could add efficiency to under-utilized human resources around the globe, all enabled by the smart devices found currently on 70% of Americans, as well as a majority of people in developed countries. Thanks to this new Access Economy, where goods and services are readily available at your fingertips, entrepreneurs and investors sought to apply the template to every industry imaginable by building their own highly accessible software platforms atop a selected industry or service. We see it in transportation with Lyft and Uber, hospitality with Airbnb, project funding with Kickstarter and Indiegogo, valet services with Luxe, delivery services with Postmates and Seamless, and there are more popping up constantly.
A Flaw in the Access Economy
Despite the successes, the Uber blueprint has clearly not been perfected. For example, the low margins on food delivery apps has lead to the demise of numerous promising startups, including Maple, “a startup that dreamed of delivering a better office lunch”, and Sprig, a gourmet delivery service that had previously raised $60 million. Even Uber itself has to look into the future to see the profits beyond the enormous losses. According to Business Insider “Uber lost close to $1 billion in the first half of 2015, up from $671.4 million the year before..., (but) even with increasing losses, its (net) revenue was on pace to triple to more than $1.5 billion.”
Uber has been able to comp its losses through sheer volume and market dominance, but smaller businesses have had to rely on lowering prices to undercut competition. These small startups will use investor funding to stay afloat, then slowly increase prices once established. New York Times writer, Farhad Manjoo, uses Postmates as an example: “(A premium service fee) has kept the the company’s unit economics in the black. Postmates does not lose money on the bulk of its orders. But high prices have left the company vulnerable to lower priced competitors.” Manjoo cites the cheaper alternative, DoorDash, which received $127 million in funding, as the reason for Postmates new, cheaper pricing options, and believes this kind of rampant funding and undercutting is a fatal flaw in the entirety of the Access Economy model.
The Uber template is clearly unfinished and unrefined, so for Part 2 of “Uberization and the Access Economy”, we will take a closer look at the basic outline for succeeding in an uber-ized world.