Editor’s Take: The Perils of Uberization for the Local Economy

Seemingly not a day goes by that we don’t hear news about a company claiming to be the Uber of its particular niche. Two of the seven companies we highlighted in last week’s Raise Report (Urgent.ly and Thumbtack) fall into the burgeoning “on-demand” category. One (Thumbtack) now belongs to the increasingly less exclusive cadre of “unicorns.”

As with same-day delivery, the continuing emergence of the on-demand economy responds to competition in and for the last mile of commerce. As Michael Boland recently pointed out in Street Fight, the on-demand story is inherently local — it’s about getting the products and services you need exactly where you happen to be, when you want them.

The best on-demand platforms are effective at aggregating both demand and supply at the local level, giving both consumer and service provider speed, transparency, and, most importantly, lots of data (which forms the basis of an informed decision). But whereas on-demand represents a convenient rubric for speaking about a certain type of currently faddish platform, not every underlying service or product is the same. By extension, that means not everything Uber does applies outside of its particular niche.

In fact, some Uber-driven dynamics within the on-demand economy may ultimately benefit the platform aggregators to the detriment of local businesses if adopted on a wide scale. Surge pricing is a prime example.

Popularized by Uber for peak-hour service demand, surge pricing may soon spread to other verticals, starting with retail, Forbes reported this week. Don’t expect it to stop there. Disney is considering demand-based pricing to better control crowds at its theme parks. In New York City, where eating out is a competitive sport, OpenTable is experimenting with surge pricing for hard-to-get restaurant reservations.

It’s easy to see other on-demand platforms jumping on the bandwagon. Picture Thumbtack enabling surge pricing for HVAC contractors during summer months in hot climates, for example.

The thing is, most industries are not like transportation. Uber bills itself as “everyone’s private driver,” but those who use Uber don’t have just one private driver, they have many, in many different markets. Consumers like Uber (and others of its ilk) for its ubiquity, speed, and reliability. Less important is who the driver is, just as long as he or she arrives on time, gets riders where they want to go for the set price, and providers an experience consistent with what they’ve come to expect from the service.

Uber is part of the connected local economy in that it is literally about conquering the last mile. But it’s also a company with massive global scale and ambitions. Plus, it’s worth remembering that outside of transportation, consumers have different relationships with their merchants and service providers. They have loyalty to a particular restaurant or shop or plumber or handyman. That’s the lifeblood of the local economy, connected or otherwise. Disrupt that, and a key aspect of living in a local community begins to erode.

There’s no indication — yet — that surge pricing will be adopted everywhere. But it does seem inevitable that with all of the attention being paid to the on-demand economy, well-funded platforms with high valuations or those that are part of larger corporate entities, like OpenTable, will come under pressure from their financial backers or parent companies to find new and bigger revenue streams that go beyond aggregating supply and demand. Is what’s good for the goose also good for the gander? The answer is “sometimes,” although it’s highly dependent on the vertical. Transportation is not the same as home services or restaurants.

Expect the on-demand expansion to continue, until it doesn’t. Eventually, and that day is probably not long in the future, there will be the inevitable contraction, a point made by Urgent.ly co-founder and CEO in an interview with Street Fight. Part of the reason is that many on-demand platforms often succeed in providing the on-demand part, but fail to adequately understand the economics of the underlying service industry. By itself, on-demand isn’t a guarantee of long-term viability.

We’ve reached the point where implementing the technology is the (relatively) easy part. Grasping the dynamics on an industry made up of scores of individual service providers all working in local markets, each with their own complexities, and serving those markets in a respectfully disruptive way, continues to be more elusive.

Any company can be the Uber of something, but not every company can be Uber.

Noah Elkin is Street Fight’s managing editor.