The “On Demand Economy” is a developing trend with no shortage of opinions, pro and con. There are many ways we can look at the opportunities but I think a more fundamental framework is important. While this post will focus on Uber, I’ll also highlight some of the ways I’m thinking about this space as well.
For Uber, there is a developed market story and an emerging market story. In both cases, the question for Uber is how big is their potential user base? The bull or bear case must be developed with this in mind. Many investors I’ve spoken to about Uber, including many who have invested in the company, look more at their TAM in terms of dollars — which is plausible. But, to get a % of dollars, Uber needs to address a customer base of sufficient size. By just trying to be a taxi service, Uber will likely not fulfill expectations. If all Uber wants to be is a cab company then I’m not terribly optimistic. They have a decent business but their potential goes well beyond driving humans from point A to point B. Fred Wilson, an investor at AVC, wrote a great piece capturing the big picture thinking in this piece called What Can it Be Worth? The salient point is to look at Uber at what it can be worth and how many people it can serve in the future. This is where I believe the long view of Uber requires understanding them as a logistics software company, not a taxi company.
I’ve been doing some research for a number of Silicon Valley VCs of the On Demand economy. This is a fascinating global trend that, in many ways, is more advanced outside of the US than inside. China is a great example where, in many densely populated cities like Beijing, you can have almost anything delivered to your front door within an hour. There are unique circumstances that have allowed China to beat the US to this punch, including a few that may never exist at mass in this country, a point relevant to any full On Demand economy analysis. But, like Uber, there are services that exist in China to let you track your package in real time, via a car or bike courier, letting you see exactly how long until your noodle soup or fresh groceries arrive at your house.
I believe Uber’s real upside in software is to provide this turnkey logistics platform to others who can use it in the On Demand economy. For example, UPS or FedEx could license this from Uber so I get a message the second the delivery truck is on the way to my house with my package, allowing me to keep track of the truck so I will know exactly when it arrives. There are many current applications for this but perhaps another big upside is how Uber can take advantage of their growing driver work force. I’ll use my small rural town’s single Uber driver as an example.
As of a few months ago, my small rural area, well outside of Silicon Valley, had no Uber driver. Every now and then, I’d check Uber to see if an Uber driver showed up in my area. Sure enough, last month I spotted one. As I stalked this Uber driver through the app, I noticed he mostly just drives around town all day. I’m honestly not sure how he stays busy, given how small my town is, but he gets up to South San Jose at times to pick up business. While I personally have no need for an Uber driver to get me from point A to point B, I could easily utilize this service for On Demand economy stuff. Say I need feed for my hogs. I can use the Uber app to find a willing driver who will make a run to get me food for my farm animals. Or I need groceries or a burrito or anything — there are no real On Demand services in my area because we are small and spread out. The current On Demand economy services are focused in areas like San Francisco or New York. I can’t use the benefits of On Demand services because they aren’t any in my area and likely will not be any time soon. Yet, I’m willing to bet there are a fair number of people in my region who are willing to be drivers for the On Demand economy.
This line of thinking makes the idea of job creation, via willing delivery agents in nearly every city, interesting. Think about this as the new pizza delivery job. Many of my friends’ first job in high school was delivering pizza. Perhaps the modern age equivalent is to drive for Uber and deliver whatever the customer needs, not just pizza.
We can argue our grocery chains, delivery services, pet food chains, etc., should all, or could all, just develop their own logistics software. That may very well be true. However, time to market is essential and, in many other emerging markets, licensing may be easier than developing their own infrastructure. But ultimately, if Uber can screen and qualify willing and able drivers for the On Demand economy, then that is where their real assets lie. It is the ultimate hardware and software as a service, only in this case, it is humans as a service. This is desperately needed if the On Demand economy is going to go mainstream.