Earlier this week, I drove down with my friend James to Monterrey for this year’s Alpha Summit, which is basically a long afternoon of big group discussions with super smart founders and investors around a range of topics, followed by dinner and a party. It’s great fun and Mike Jung and his co-conspirator Eric Chin have created the type of group I wish I could’ve — every event they put on is so well researched and planned. (Thanks Mike J.)
Lately, I’ve been asked to lead or moderate sessions at events on the topic of the on-demand economy. Before this week, I was frankly surprised so many people were continually interested in this theme. After this week, now, I realize it is a real thing and also fun because it conjures up good, spirited debate. I’ll try to briefly summarize what was debated in the group, and if you’re interested in this topic, make sure to read Liz Gannes‘ terrific Re/code series on this phenomenon and follow The On-Demand Economy on Twitter, which was co-created by Mike Jaconi of Button, who co-led the session with me:
It’s Uber and then a big drop-off to everyone other company: While nearly $5b has been pumped into on-demand services, the lions share of that has gone into one company, after which there is a big drop off. People wondered if there could be two horses in the transport space, and felt food was more about having choices so could support more players, but then fewer barriers to entry.
Catering to the wealthy or the masses? Good split in the crowd (so it seemed) as to whether this is just a Tier 1 “rich city” wave or whether it can spread to many cities (Uber aside). There were attendees who understand the space who do not live in the Bay Area, and there thinking was largely that the unit economics of these businesses wouldn’t work in less dense places.
Frequency of use: This is a critical topic for consumer transactional services like these. We didn’t talk about it too long, but my feeling is that the most-valued services tend to have very strong daily active use cases (oftentimes more than once a day), while some have strong weekly active use cases, and a whole bunch are ones you’d use once a month, maybe even at best.
Unit economics and margin compression: Speaking of unit economics, there was healthy discussion around how and where these companies make their money. Do they skim off the delivery or have a margin on the good they’re delivering? Do they own inventory or will they need to? If margins are good today, will they compress with scale as entrants consolidate or pivot? My own view here is that food and transport/logistics are both multi-trillion dollar markets in the U.S. alone, so it may be the winds of the market which drive scale and weather any compression.
From consumer concept to B2B business model: This is a topic I’m focusing on, the spread of consumer concepts like sharing economy, on-demand services, and personalized software into the mid-tier company and enterprise stage. We didn’t discuss this unfortunately, but I’ll plug again that if you are thinking about this area, please get in touch with me. (My email is on my “About” page.)
After the session, a bunch of people approached me saying they loved the discussion, though they didn’t participate. I haven’t gotten that feedback on this topic, so maybe it’s because the business and delivery model feels very current today, and the market sizes and early indicators don’t lie — though they do cloak some companies which are likely burning venture cash in order to try to find a market. My own belief is that (1) many services called on-demand are in fact scheduled; (2) the category has been overfunded for some questionable use cases, but the cost is so low compared to the potential outcome, it’s worth a try; and (3) that the winners will eventually expand from what they’re doing today in order to capture more share — and using on-demand techniques is the wedge that cuts into the edge.