Labor Issues Aren’t the Only Hazard in Uber’s Business Model
Uber founders Travis Kalanick and Garrett Camp built a business around a single service. With no other verticals to juggle and few competitors to contend with, they were able to make Uber synonymous with one product: ride-sharing. In doing so, they charted a new course for the local search space with Uber’s infectious brand power influencing business plans and pitches — sparking a boom of Uber-like innovation and investment. The problem is: Uber-for-X isn’t for everything, because neither its single-service model nor its brand-building potential are easily transferable.
Uber-for-X innovators and investors be warned: several elements of Uber’s market inoculated it against three hazards associated with the single service model: Trigger Infrequency, Customer Loyalty, and Market Density.
The Trigger Infrequency Hazard: The routine nature of Uber’s chosen vertical “X” allowed the service to thrive.
The single-service business model thrives in verticals that trigger frequent demand for repeat business. Without frequent repeat business, apps are unjustifiable, brands are forgettable, and revenue is unsustainable. Luckily for Uber, transportation for some is about as routine a purchase as milk and bread.
Without the routine nature of its vertical, Uber might have fallen victim to a hazard common to many single-service startups: the trigger infrequency hazard. TakeLessons, for example, spent six years building its brand before partnering with the powerfully branded multi-vertical site Amazon Home Services. Shopping for teachers and lessons isn’t something individuals do frequently, so the brand built around the activity was slow to gain traction and scale.
Of course, transport isn’t the only frequently triggered demand verticals ripe for the taking. Instacart — the Uber-for-grocery-shoppers app, launched in 2012 — sees demand triggered literally whenever a busy person runs out of milk and bread.
The Customer Loyalty Hazard: The presumption of interchangeability of pros in Uber’s vertical X allowed it to consolidate brand loyalty.
In some industries, routine transactions become the basis of offline professional relationships that also threaten consumer and contractor retention. Delightful full-service experiences and consumer protections can help preserve brand loyalty, but such incentives are no match for the establishment of personal-trust-based interactions that lead to off-platform business dealings. The risk of this increases in startups that deal in highly personal and specialized contractor-customer experiences.
TakeLessons, along with the Uber-for-sitters app UrbanSitter certainly qualify here. And, while both smartly monetize ongoing relationships through tech-based efficiencies that keep many doing business on platform, those amenities mostly drain the bottom line. After all, as any restaurateur will tell you, a new empty belly at the table is worth more than the customer sticking around for dessert.
Here, too, Uber has an advantage. Not only does Uber enjoy a steady flow of new and repeat business (no upselling required), their brand loyalty is not really vulnerable to consumers taking consumer-contractor relationships off-platform. The interchangeability of individual transport service professionals is a well-established norm. So customer service excellence is more likely to bolster the brand with new full-priced business opportunities.
The Market Density Hazard: Uber’s vertical had an uncanny compatibility with the dense markets every startup needs, which accelerated its growth.
Growing an on-demand service into a national (or multinational) brand is like running a grassroots presidential campaign. Innovators have to spend a lot of time marketing at a community level: building a consumer base as well as a network of local pros. And, just like with the Electoral College, winning the high population areas is the most efficient way to win.
But why is it that in the time it took for even multi-vertical service pros to saturate a couple dozen major cities, Uber has already established fiefdoms across the globe. Again, the credit goes in part to the nature of Uber’s niche. In addition to targeting dense local markets as most local search startups do, Uber answers a demand that’s especially common in such urban populations. By providing a solution to a problem endemic to city life, the Uber brand was able to further exploit population density to create widespread user adoption.
As the local on-demand economy and the Uber-for-X experiments take shape, many verticals will prove ill-suited for the single-service trend. The associated startups will struggle to compete against multi-vertical brands that use their wide range of services to increase trigger frequency, protect against challenges to brand loyalty, and increase user adoption even in sparsely populated markets.
Yet, the successful among these Uber-for-X misfits will still win big with partnerships and buyouts to join the multi-vertical brands better suited to their industries. And in that way, Uber-for-X innovators of every stripe are doing a great service to the local tech space by bringing promising verticals into the on-demand space and the digital era.
Manpreet Singh is Founder and President of TalkLocal, a local startup with apps on iPhone and Android which help consumers find and speak to high-quality local professionals in minutes. Follow him @MSinghCFA.