Why there won’t be an Uber in every vertical

By boris, May 04, 2015

The success of Uber has inspired hundreds of startups to call themselves the “Uber of X, Y, or Z.” There are now apps to order groceries, have you car washed, get legal counsel, and much more. Uber is part of a broad category of on-demand mobile services. Thanks to smartphones and cloud computing, it’s easier than ever to connect people who need a job done with people looking to take on some extra work and monetize their spare time.

This new marketplace model is responsible for shaking up numerous industries. Uber and Lyft drivers are disrupting the taxi industry. Homejoy and Handy traditional cleaning companies. Entrepreneurs and investors are excited by the massive opportunity potential, while others worry that the Uberification of our economy will turn every good full-time job into a flex-time gig. However, amidst all the fear and exuberance, it’s important to realize that the on-demand service model that has lifted Uber to its $40B valuation won’t work for every industry.

Several underlying factors made the taxi industry ripe for disruption by on-demand marketplaces. While these ingredients certainly aren’t unique to hiring a ride, they do not cut across all industries and verticals. Consequently, finding an untapped market and saying you’re going to build the “Uber for X” is hardly a surefire route to success.

So what are the underlying drivers that enabled Uber to thrive in the car service industry? There are three key elements: it’s a commoditized service with a high purchase frequency that is truly time-sensitive.

Underlying Commoditized Services

When it comes to hiring a ride, most of us are happy as long as a driver brings us from Point A to Point B in a clean car without getting lost. This makes us pretty flexible in terms of who delivers the service. Yet the more complex the service, the harder it becomes for consumers to accept the idea that somebody at random will show up each time. We develop preferences for who cuts our hair, babysits our children, performs home repair, and gives out legal/medical advice.

To overcome the trust-barrier, marketplaces can leverage user reviews and Facebook profiles. For example, through Facebook Connect, Airbnb has managed to make people feel safe and secure when opening up their home or staying in a stranger’s place. Other strategies are to certify the service provider pool, tie into existing review sites/peer testimonials, and offer money-back guarantees.

Sites do exist for non-commoditized services today. But they operate more like a lead generation engine than an actual marketplace capable of facilitating the entire transaction with the couple-of-taps simplicity of Uber.

Marketplaces for complex transactions will need to productize their services, with boxed offerings that pre-define the scope, pricing, duration, and deliverables of a service. By removing choice and customization from the process, it’s more realistic for customers to arrange a complex service on a mobile app.

High purchase frequency

The best marketplaces have high purchase frequency and regular usage. For city dwellers and frequent travelers, taxis are used on a daily, or at least weekly, basis. Few other services have such a high purchase frequency. On top of this, Uber also enjoys significant spill-over effects as travelers move from one location to another.

With high frequency use cases, customers fall into the habit of using the same service as long as they’re satisfied. It’s easy then for a startup to become the “home screen app” for that particular use case. By contrast, it is much harder to retain customer mindshare with lower purchase frequencies. For example, if customers need a yard cleanup a few times a year, they’re more likely to begin the research process over again each time.

True on-demand use case

Many of the services that fall into the on-demand mobile services category aren’t actually “on-demand.” In most cases you don’t need a cleaning service or house painter to show up within minutes, or even the same day. But, taxis are a different story.

A true on-demand marketplace requires sufficient liquidity on the supply side. Without enough available drivers in a car service marketplace, customers will be left waiting on the curb. This creates a large barrier to enter the market, since a new competitor needs to launch with hundreds of providers, not just a handful.

By contrast when services can be delivered with more flexible timing, it’s easier for competitors to enter a vertical or new location and there’s less of a “winner takes all” dynamic. As such, we can expect just one or two major players for a true on-demand service, while less time-sensitive markets will be crowded with smaller companies.

Final thoughts

This is not to say that Uber will be the last multi-billion dollar Unicorn in the marketplace space. I have no doubt that some savvy companies will figure out how to move more complex transactions online, shaking up more industries in the process. However, entrepreneurs and investors need to be thoughtful when evaluating the underlying factors of a marketplace and vertical, as the “Uber of X” won’t necessarily work as well as the original.

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  • Take a look at the true face of Uber on the Drivers’ Forum http://UberPeople.net You’ll be taken aback!

  • Jeremy Anderson

    You also have to think about over saturation within the micro-market of the app. It’s in the best interest of the company to add on more individuals to make a better customer service. However, if you have to many people working at one time, the earnings potential of the worker begins to decay. This forces each worker to compete against each other for work and have to hold out until others decide to drop out. But then company just adds more and the cycle just continues.

  • Good post, but I think it’s missing the. biggest reason Uber is successful: severe artificial scarcity. There simply weren’t enough cabs in SF, NYC and elsewhere because the government is actively and corruptly limiting supply via medallions. Doubtless medallions were created for the right reason– to guarantee quality and safety of service. But now, it makes service lousy for customers through scarcity, condemns cab drivers to indentured servitude to medallion owners. And because government eventually has to be responsive to the public, they can’t now afford to stop uber and lyft because it would be too unpopular– so medallion owners are most screwed of all.

    But I’m not sure how this transfers to other “uber of X” services without pre-existing cartels…

  • Well one of the reasons that this would not happen is that unlike a car ride, many of the tasks don’t last for jut 20 minutes.
    Imagine a small building construction, which would last for 3 months. The engineer responsible has to be the SAME PERSON throughout because he has to constantly take new input and think about whether it would help the building or not.
    Similar is the case of software projects, where new engineers are SLOWER as compared to the old ones. Whenever the existing knowledge is needed, the employees are just not replaceable and hence the UBER model would not work.

  • bwertz

    Great point – the weak (existing) competition from the taxi industry definitely plays a big role!

  • bwertz

    That was my point that the underlying service needs to be commoditized

  • Yes, I was adding to the point the some of the services don’t gain financially from making the employees as replaceable units. These services would not be commoditized unless something drastically changes.

    But as is such, many services are prone to be commoditized! What do you think would happen with the workers in such industries?

  • bwertz

    Here is a good post on challenges of “below the API” jobs: http://rein.pk/replacing-middle-management-with-apis/

  • patricknew

    There are several things that make Uber what it is…
    -a software platform that connects supply and demand
    one that allows consumers to use a variety of standard devices to communicate a demand-event for a specific kind of commodity service
    -ongoing access to a payment mechanism through an app on the mobile device
    this allows payment for the transaction without further user interaction
    -a flexible supply of generally-skilled service delivery resources
    this is a labor pool who need nothing more than an app on a mobile device to complete their side of the transaction, and require no special skill or license (other than the ability to drive and a valid driver’s license).

    If the nature of the demand, supply/demand balance, generic nature of the supplied skill, or willingness of the consumer to have a running “tab” aren’t all present, it won’t have the same characteristics that make Uber Uber.

  • Daniel Eberhard

    Great article Boris. It might be semantics but I’m not sure I agree with the premise. If people are referring to the size & scale of Uber, then yes – these factors allowed Uber to achieve the scale they have. However, what I think people are referring to is their role within the market.

    The factors you correctly identified contributed to the massive growth of Uber, but I would argue the premise remains true regardless. Uber is basically a facilitation and efficiency play – an evolution of the marketplace model which has surfaced in the last few years. In almost all cases, these models are more efficient than the status-quo. Granted, complexity doesn’t lend itself to ‘uberfication’, but the nature of complex transactions often means inefficient, expensive, billable hours. Those that can get over the complexity hurdle using these types of models will find less frequent transactions but more room in the margins.

    My 2c.

  • bwertz

    I think I was referring to the underlying on demand model.

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  • Chee-Hyung Yoon

    Great article. I agree with the characteristics that make Uber really uniquely successful in the marketplace model.

    Along your final thoughts, however, we do believe there are going to be more and more professional services bought and sold online through marketplaces. Amazon sold books online first because they’re one of the most commoditized and not so on-demand per se. Then electronics, clothing, and we even buy groceries online now.

    Sure the more commoditized services like transportation and lodging will move faster but be it cleaning, legal, creative, or even babysitting, software is sure to take over to facilitate these transactions soon. Are they going to be as big as Uber? Probably not but there certainly will be a dozen or so centaurs.

  • bwertz

    Uber is a tough benchmark for any company!

  • Chee-Hyung Yoon

    Yeah just took two rides today already. 🙂

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