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.
9 thoughts on “Uber and Humans as a Service”
I think one of the themes I’m noticing about the (mobile) web in developing countries is that the lack of a mature incumbent service industry translates directly to new service businesses that would otherwise take a different mode in a developed country emerging as on demand by default. I’m not sure this directly translates to opportunities for Uber though, since Uber’s current service is modally locked to cars, and thus, for the most part, road infrastructure. In that sense, I would expect Uber to get a fair bit of competition from drones in developing markets, and maybe even developed markets. I suppose repurposing the software for different modes of transport is both possible and viable though.
From what I’ve read, Travis Kalanick has ambitions *way* beyond being a taxi service. That’s why Uber flaunts regulations – the goal is to capture markets before the competition can, get big, and then become a transportation company in the On Demand economy.
You might enjoy Gregor Macdonald on Uber as arbitraging a specific intersection of the energy and labor economies in the US. TerraJoule – Uber, and Oil – September 2014.pdf
I prefer to call it the “Downton Abbey Economy” where the haves get servants but without the need to provide room and board from the Victorian/Edwardian era version. The commoditization of the “servants” is relentless as the agencies like Uber lower rates to increase their total revenue at the expense of their individual staffs’ incomes. It is happening in most markets where the online intermediaries control access to service & payment. See how little authors are paid for their works in Spotify or most online publications these days. Users become lazier and society bifurcates further into “masters” and “servants”. The worst thing is, the previously valuable capabilities of drive and creativity are those being most actively commoditized as people are being paid below minimum wage for things others often can’t do let alone won’t.
Hooray for Uber moving into software platforms… but with their avowed wish to turn their current business model into driverless cars at the first opportunity, and consistently lowering drivers’ rates to effectively below minimum wage in many of their markets, I don’t think we should be applauding their current efforts too much.
Years ago, I too saw this bifurcation of society into two classes: the owners of capital, including human capital, who claim an outsized share of national income and thus do the heavy consuming, and the rest of society whose economic role is, more and more, to cater to the whims and needs of the mega-consuming class. Does this look like feudalism to you? Bingo. Hey, given the popularity of Game of Thrones, maybe that’s what people want. Maybe the “sharing economy” is the modern-day peasantry’s subsistence-level occupation.
As to Uber, it’s just a taxi service whose cost advantage comes from hiding from the safety inspector, the tax man, and the insurance underwriter. I suspect too that every day, Uber drivers are taking their vehicles’ depreciation, tying it with a nifty bow, and gifting it to Uber’s poor downtrodden investors and execs.
Nailed it. The water’s almost at the boil, but most are just doing backstroke. Croak.
China has a definite population/demand density advantage for the on demand servicers.
This approach places Uber’s drivers against Amazon’s drones and possibly a delivery service evolving out of Google’s driverless cars. If the drones work well, then they are likely more cost effective in any light weight situation. Google’s driverless cars could take on the heavier loads. I would guess that Uber’s technology could be used to order a delivery from Google.
It is interesting that so many things are coming down in price. In fact, the WSJ doesn’t see a change in that general trend for at least a decade. The irony is that the masses are becoming dependent on this because wealth formation for 80% of Americans is on hold with 85% of net worth being held by the top quintile.
It appears that a lot of this brave new world being embraced by Millennials is being forced upon them by necessity.
America needs a new deal. It needs to tax net worth. Many of our national institutions need major reform, even reinvention. We need infrastructure work, military reform, a radically improved justice system, single payer health care, and much better retirement support.
In your pig feed example, I’m not sure I’d want to take that Uber car after he delivers a couple of tons of pig slop.
But you could make the case that an Uber driver that also has a truck would be useful. I go to a store that doesn’t offer delivery, I buy something big, then I page an Uber Truck to get it home. All without having to pay $20 an hour for a Home Depot truck or $20 a day + 70 cents a mile for a U-Haul.