Why “Uber for X” companies are struggling even as Uber thrives(vox.com)
vox.com
Why “Uber for X” companies are struggling even as Uber thrives
http://www.vox.com/2016/4/19/11439558/uber-model-regulatory-arbitrage
76 comments
It's ironic that you'd pick Airbnb, since there is a very straightforward argument that the same effect is in play there - Airbnb is successful because of regulatory arbitrage.
It's not like "booking places to sleep in foreign countries" was waiting for a new technological innovation; rather, the existing regulatory frameworks in play placed a cost floor and a high barrier to entry for competitors.
Much the same way that a municipality artificially constrains the amount of cabs on the road, a municipality artificially constrains hotels by zoning specific parts of town for hospitality use. Most cities won't let you open up a bed and breakfast in any given residential neighbourhood.
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In this view, as articulated by TFA, both Uber and Airbnb owe their success to a) being cheaper and b) having greater supply, both artifacts of their ability to _skirt existing regulation_ their competitors can't avoid.
Can you think of a different successful 'Uber for X'?
It's not like "booking places to sleep in foreign countries" was waiting for a new technological innovation; rather, the existing regulatory frameworks in play placed a cost floor and a high barrier to entry for competitors.
Much the same way that a municipality artificially constrains the amount of cabs on the road, a municipality artificially constrains hotels by zoning specific parts of town for hospitality use. Most cities won't let you open up a bed and breakfast in any given residential neighbourhood.
--
In this view, as articulated by TFA, both Uber and Airbnb owe their success to a) being cheaper and b) having greater supply, both artifacts of their ability to _skirt existing regulation_ their competitors can't avoid.
Can you think of a different successful 'Uber for X'?
Great points.
Also important to note, that Uber does a few things exceptionally well that most other "Uber for X" companies fail with at least one or more:
1) Dramatically increase convenience / quality of service
2) Lower or comparable costs to alternative (esp UberX vs Taxi and vs your own car)
3) Have a demo-able product. Viral word of mouth is so simple when you can literally take your friend for a ride.
Most other on-demand services fail at one of these. Spoon rocket in your example, first started as a more expensive convenience play, then as they tried to scale up, lowered quality (violating #1) in order to compete on price (#2). This is why I stopped using them and also why I don't use their competitors like Sprig and Munchery, just too expensive for what it is.
Also important to note, that Uber does a few things exceptionally well that most other "Uber for X" companies fail with at least one or more:
1) Dramatically increase convenience / quality of service
2) Lower or comparable costs to alternative (esp UberX vs Taxi and vs your own car)
3) Have a demo-able product. Viral word of mouth is so simple when you can literally take your friend for a ride.
Most other on-demand services fail at one of these. Spoon rocket in your example, first started as a more expensive convenience play, then as they tried to scale up, lowered quality (violating #1) in order to compete on price (#2). This is why I stopped using them and also why I don't use their competitors like Sprig and Munchery, just too expensive for what it is.
I'd add 4) Flagrantly violate existing regulation.
Uber/AirBnB just straight up ignored laws regulating their industry. They bet that regulators wouldn't crack down too hard and they were right. But not every industry is regulated like taxis/hotels. Imagine a food startup that violates health and cleanliness regulations, or a finance startup that ignores the SEC.
Uber/AirBnB just straight up ignored laws regulating their industry. They bet that regulators wouldn't crack down too hard and they were right. But not every industry is regulated like taxis/hotels. Imagine a food startup that violates health and cleanliness regulations, or a finance startup that ignores the SEC.
I think the food startup equivalent to Uber would be people preparing meals in private homes/kitchens: There's certainly regulation around commercial kitchens, but it's not obviously bad if a home kitchen is used to prepare a meal: I do that all the time for my friends. But there's a lot of things that can go wrong in a home kitchen too as they don't have a lot of the normal commercial food storage stuff like a blast chiller, so I think that type of startup would definitely invigorate the same kind of regulation fight Uber did.
I was thinking about this recently. A friend of mine started selling cupcakes and made a website to do it. I don't really know what it takes for Little Debbie to get a new product approved but I would assume some regulatory body has to be appeased before they start selling. I can't imagine my friend went through any of that. If anyone knows about the regulations in this area, I'd love to hear. I'll dig around and report back if I find anything of note.
This basically addresses it http://www.moneysideoflife.com/cottage-food-law
Looks like in 2012 Georgia was "pending." I'm in Atlanta, so there were no regulations in place when my friend started.
Looks like in 2012 Georgia was "pending." I'm in Atlanta, so there were no regulations in place when my friend started.
like this? https://josephine.com/meals
I feel inspired to use this line of reasoning to discover what to work on next.
Not disagreeing with you, but to expand on your point: the type of regulation that Uber is ignoring is easier to ignore because it doesn't impact the customer. If you ignore the health regulations at your diner, you're sure as shit going to alienate a good portion of your potential customers because in addition to being illegal, an unclean restaurant isn't desirable.
But what Uber did was notice that due to regulation, the taxi drivers were receiving wage X, while there existed a lot of people that would be more than happy to do the same job for less than X. Find some loophole in the legislated price floor that allows you to employ that section of the supply curve and you've got a big profit opportunity. You can't cut corners in an existing, fairly efficient market, and call it the same thing.
But what Uber did was notice that due to regulation, the taxi drivers were receiving wage X, while there existed a lot of people that would be more than happy to do the same job for less than X. Find some loophole in the legislated price floor that allows you to employ that section of the supply curve and you've got a big profit opportunity. You can't cut corners in an existing, fairly efficient market, and call it the same thing.
A tax prep startup that ignored IRS regulations. :) I'm just thinking of other examples that make me laugh.
I don’t think we need to overanalyse Uber and why it worked. It basically is a highly successful raid on the owners of taxi medallions. In the markets where Uber is doing well the medallion owners cartel allowed their share of the taxi revenue get too high. This resulted in the price of medallions reaching astronomical prices - for example NYC medallions reaching over a million dollars [1]. Since Uber and Lyft entered the picture the price of these has fallen to $400,000 [2]. Most (all) other "Uber for X” businesses don’t have such an asset to raid.
1. http://www.nytimes.com/2014/11/28/upshot/under-pressure-from...
2. http://nycitycab.com/business/taximedallionlist.aspx
1. http://www.nytimes.com/2014/11/28/upshot/under-pressure-from...
2. http://nycitycab.com/business/taximedallionlist.aspx
>"Uber for X" does not mean "on-demand for X"
Agree. "Uber for X" should really mean "Supply and Demand clearing house/exchange for x".
Uber: the x is personal transportation. Demand = people that need to be transported, Supply = people that have room to transport people. Uber provides a technology based solution - a clearinghouse that pairs the demand to the supply for a fee.
AirBnB: the x is short to mid term rooming/housing. Demand = people that need housing, Supply = people that have extra rooms / houses. AirBnB provides a technology based solution - a clearinghouse that pairs the demand to the supply for a fee.
If you find a market that has excess supply and excess demand, but no modern software / technology based clearinghouse that VC hasn't tried, you should go for it - chances are you'll be able to corner the market and become very successful. (Just how much will depend on the size of the market...)
Agree. "Uber for X" should really mean "Supply and Demand clearing house/exchange for x".
Uber: the x is personal transportation. Demand = people that need to be transported, Supply = people that have room to transport people. Uber provides a technology based solution - a clearinghouse that pairs the demand to the supply for a fee.
AirBnB: the x is short to mid term rooming/housing. Demand = people that need housing, Supply = people that have extra rooms / houses. AirBnB provides a technology based solution - a clearinghouse that pairs the demand to the supply for a fee.
If you find a market that has excess supply and excess demand, but no modern software / technology based clearinghouse that VC hasn't tried, you should go for it - chances are you'll be able to corner the market and become very successful. (Just how much will depend on the size of the market...)
I'd imagine a proper "Uber for food" company would instead offer a service where people who maybe like to cook, offer to deliver sell some of their home-cooked meals.
Sort of like a restaurant.
PS. If anyone makes this a business, please just credit me for the idea :)
PS. If anyone makes this a business, please just credit me for the idea :)
Apparently a lot of delivery restaurants in NYC on Grubhub etc. are actually run out of people's kitchens under fake names. Can't be the safest thing.
It's interesting, however, that Uber is now in fact doing "Uber for food"/"food on demand" with https://ubereats.com.
they just announced closing of UberEats in NYC.
Actually, it's just UberEats "Instant" and not the whole service.
http://www.upi.com/Business_News/2016/04/19/UberEats-to-end-...
http://www.upi.com/Business_News/2016/04/19/UberEats-to-end-...
Also people are willing to pay more to have themselves delivered than to have their stuff delivered.
food services is one of the most hard to start up anyway, right after biomedics and hardware, no wonder they are having a bad time, especially if instead of breaking new ground they brand themselves as Uber for x
I don't think the article fully articulates many people's visceral hatred for medallion cabs. Everyone I know who used to take cabs regularly has a horror story. It was an industry begging and pleading for someone to disrupt them. Most people don't feel the same way about restaurants and grocery stores.
I agree - I actively like my local grocery and wine shop. I actively dislike, and feel very little sympathy for, cabs. Especially cabs outside of New York City, cabbies in Upstate New York are the fucking worst.
Sort of. I think Blue Apron has done decently well competing against the grocery / restaurant vertical.
The article addresses this by remembering the reader that the taxi industry is a cartel controlled by the government. All horror stories and other bad things are implied.
If that was the author's intention, I don't think it was very effective. The fire department is controlled by the government. Does that imply horror stories and other bad things?
Yes, of course. Don't you see buildings in flames and people dying everywhere? You just don't have anything to compare. The fire department is just there and it is the nature of things.
Since I'm not a fire specialist, let's look at the police department: you will agree with me that the police is corrupt and incapable of arresting anyone, they're just a bunch of lazy guys!
Hear this podcast: http://tomwoods.com/podcast/ep-597-can-the-private-sector-pr...
Since I'm not a fire specialist, let's look at the police department: you will agree with me that the police is corrupt and incapable of arresting anyone, they're just a bunch of lazy guys!
Hear this podcast: http://tomwoods.com/podcast/ep-597-can-the-private-sector-pr...
I think this article is missing a big part of Uber's success. Uber has three main factors going for it.
1. The preexisting regulatory capture that is mentioned in the article.
2. The service they provide is commoditized making customer to employee relationships irrelevant.
3. They connect people who are looking for a service with unskilled contractors who can provide that service.
Ideas like Uber for food or Uber for housecleaning don't work because they fail all three of those conditions. Companies that meet multiple conditions tend to be more successful. Postmates for example meets 2 and 3. Airbnb meets all three of the conditions (depending on user preferences) which is why it is the most successful Uber for X (or is Uber the Airbnb for X).
1. The preexisting regulatory capture that is mentioned in the article.
2. The service they provide is commoditized making customer to employee relationships irrelevant.
3. They connect people who are looking for a service with unskilled contractors who can provide that service.
Ideas like Uber for food or Uber for housecleaning don't work because they fail all three of those conditions. Companies that meet multiple conditions tend to be more successful. Postmates for example meets 2 and 3. Airbnb meets all three of the conditions (depending on user preferences) which is why it is the most successful Uber for X (or is Uber the Airbnb for X).
This will be off topic, but I'd like to hear others' thoughts on the issue.
I really really dislike, the taxi industry. I have ridden a cab at 2am, and paid 4x what I regularly do, in cash, because 'the machine is broken'. I hate running after them. Finding cabs after hours is _hell_.
But I find Uber super-duper scummy. It's just the general...everything about it. That when you need it the most, it jacks up its prices, breaks laws like it's no one's business, and then spends SHIT TONS of money in lobbying to change them. Etcetera. But I do like the much improved transportation system it's led to. It's like day and night.
So... why doesn't anyone (or even a regulatory agency!!!) create an open marketplace for transportation services, where riders and drivers can bid, and all the 'services' are just middlemen between the marketplace and individual agents? Sort of like... email, but for Uber?
I really really dislike, the taxi industry. I have ridden a cab at 2am, and paid 4x what I regularly do, in cash, because 'the machine is broken'. I hate running after them. Finding cabs after hours is _hell_.
But I find Uber super-duper scummy. It's just the general...everything about it. That when you need it the most, it jacks up its prices, breaks laws like it's no one's business, and then spends SHIT TONS of money in lobbying to change them. Etcetera. But I do like the much improved transportation system it's led to. It's like day and night.
So... why doesn't anyone (or even a regulatory agency!!!) create an open marketplace for transportation services, where riders and drivers can bid, and all the 'services' are just middlemen between the marketplace and individual agents? Sort of like... email, but for Uber?
The few times I've been asked for cash because the credit card machine is 'broken', I've offered (a) they can use the swipe machine and run the card later, or (b) they'll need to come back when it's fixed and I'll gladly pay them at that time.
They aren't always happy about it, but somehow they typically fix their machine. Within seconds.
They aren't always happy about it, but somehow they typically fix their machine. Within seconds.
You can't get mad about Uber's surges, it's fundamental to how their system works.
Uber provides a better service at a lower price than it's alternative(taxi).
Most Uber for X companies are just providing a delivery service at a higher price.
>Most Uber for X companies are just providing a delivery service at a higher price.
They're providing a delivery service for which they have to charge a non-trivial amount. The problem is that the mainstream population is mostly not willing to pay for what delivery costs. As an add-on to some restaurant businesses, it seems to work but that's the main exception.
They're providing a delivery service for which they have to charge a non-trivial amount. The problem is that the mainstream population is mostly not willing to pay for what delivery costs. As an add-on to some restaurant businesses, it seems to work but that's the main exception.
Lyft just sent me a push notification telling me that rides will be half-off this week. Thanks for subsidizing my lifestyle, venture capitalists!
It is not about regulated vs. unregulated industries: it is about centralized vs. decentralized regulations.
The main reason - I can't remember the source where I read it, somebody please share it if you know it - is that Uber exploited the decentralized regulation of taxi companies.
Other companies - like Theranos, regardless of their actual efficacy in what they do - had to fight against centralized, national regulations in their specific industries and regulated statewide, therefore making them effortless against the entire country as opposed to Uber, fighting against local municipalities.
edit: typos
The main reason - I can't remember the source where I read it, somebody please share it if you know it - is that Uber exploited the decentralized regulation of taxi companies.
Other companies - like Theranos, regardless of their actual efficacy in what they do - had to fight against centralized, national regulations in their specific industries and regulated statewide, therefore making them effortless against the entire country as opposed to Uber, fighting against local municipalities.
edit: typos
Even if agree with you, centralized vs. decentralized makes a lot of difference, this is not the main point of the article. Centralized vs. decentralized influence your go-to-market strategy and probably your probability to succeed, but not directly your business model.
The point made in the article is that the biz model of the "Uber for X" businesses is not very strong unless X is a heavily regulated market and you are able to skip part of the regulatory burden to provide a far better service.
What's missing in the article, is the effect on the market size. Uber and Lyft changed the market size. I've taken probably a cab five times in my life before Uber existed, probably I'll use Uber five times before this week ends. And the same goes for many people. What about SpoonRocket, for example? Well, I ordered food delivery before it existed. Probably having an app and many more restaurants to order from increased my consumption of food delivery service, but just a 10 - 15% more. Not enough to sustain new players and make enough people switch fast enough to build a sustainable barrier to entry.
Not sure I'm clear: Uber provided a service so much better that increased greatly increased the market size and captured a lot of new users (and old users were fast to switch). Other services failed to increase the market size and didn't provide existing users enough benefit to switching, so no barrier to entry for competitors, a lot of competition, a lot of startups that fails.
I have a doubt, though. We are seeing a lot of Uber for X failing, but that's because a lot of them were competing for the same (in the US car-hailing market there was just Uber, Lyft, and Sidecar). That doesn't mean that one or two company will survive in the end.
The point made in the article is that the biz model of the "Uber for X" businesses is not very strong unless X is a heavily regulated market and you are able to skip part of the regulatory burden to provide a far better service.
What's missing in the article, is the effect on the market size. Uber and Lyft changed the market size. I've taken probably a cab five times in my life before Uber existed, probably I'll use Uber five times before this week ends. And the same goes for many people. What about SpoonRocket, for example? Well, I ordered food delivery before it existed. Probably having an app and many more restaurants to order from increased my consumption of food delivery service, but just a 10 - 15% more. Not enough to sustain new players and make enough people switch fast enough to build a sustainable barrier to entry.
Not sure I'm clear: Uber provided a service so much better that increased greatly increased the market size and captured a lot of new users (and old users were fast to switch). Other services failed to increase the market size and didn't provide existing users enough benefit to switching, so no barrier to entry for competitors, a lot of competition, a lot of startups that fails.
I have a doubt, though. We are seeing a lot of Uber for X failing, but that's because a lot of them were competing for the same (in the US car-hailing market there was just Uber, Lyft, and Sidecar). That doesn't mean that one or two company will survive in the end.
I definitely agree with you, but I didn't feel the point of the article is entirely on point, because of a very simple reason.
You ordered food before Spoonrocket while Uber greatly improved an industry ripe for disruption: isn't that the point of startups anyway? While you are completely right, your point is not about "Uber for X" startups not working out, but ALL startups that are somewhat missing the right place in their markets...isn't it?
You ordered food before Spoonrocket while Uber greatly improved an industry ripe for disruption: isn't that the point of startups anyway? While you are completely right, your point is not about "Uber for X" startups not working out, but ALL startups that are somewhat missing the right place in their markets...isn't it?
A little bit more complex, I guess I wasn't clear enough. But I agree with you.
"Uber for cleaning service" had/has the chance to expand the market, yet those companies seem to be having some trouble. That suggests the regulation aspect is somewhat of a factor.
This is a very interesting and convincing theory. The same could be said for AirBnB.
So the question is, what other locally-regulated industries are ripe for disruption?
So the question is, what other locally-regulated industries are ripe for disruption?
Real estate sales
I've discussed that very thing on HN before. Someone replied with "it's very hard to disrupt something that people don't do often".
I think there's a lot of truth in this. Real estate sales seems to be pointlessly inefficient and overpriced, but it's something that people do a handful of times in their entire life, and they're willing to pay to have their hand held.
I think there's a lot of truth in this. Real estate sales seems to be pointlessly inefficient and overpriced, but it's something that people do a handful of times in their entire life, and they're willing to pay to have their hand held.
In fact, many people should pay more than they do -- get better lawyers, more thorough inspections, better negotiators, etc.
Uber may still have to deal with the IRS extracting taxes and penalties for worker misclassification.
Sure, but it's not a barrier for growth like what other "Uber for X" companies had to face...the moment that may come about dealing with the IRS Uber might be equipped more than enough to deal with it without too much problems...
Beating decentralized regulations seems harder. You have to wage the same war in lots of places. Although local regs could be easier to crack. Also if the service is good, it'll get a first opportunity somewhere
I'm calling it now...we are going to see a rise in the "uber for chat bot servicing" =)
And there goes my secret Y Combinator Winter 2016 idea.
I wonder if Uber will ever offer a programmatic courier service. It seems like the "Uber for X" companies will struggle to make money if they have to maintain their own delivery fleet, and tapping into a large pool of Uber drivers could allow smaller companies to auto-scale their business just like with cloud compute.
Though they just cut out the food delivery focused version of that http://ny.eater.com/2016/4/19/11457620/ubereats-instant-deli...
Wouldn't Amazon's same day delivery "fleet" be better suited for something like that?
Uber is a many points to many points system..... Amazon's same day fleet is a one point to many points system, so they have different capabilities.
uber's fleet should transport people. their food services are pretty awful as they try to get their drivers to actually deliver items. it's best that they stick to what they are good at.
Uber: a clever hack. That people loved. Using new tech.
Airbnb: a clever hack. That people loved. Using new tech.
Sprig, munchery, doordash, postmates, spoonrocket etc don't feel like a clever hack. Just a business.
Both hacks were tricks to get around regulation put in place long ago to protect various financial interests. Once the people have spoken about what they love, it all topples down.
What other regulation / situation seems "dumb" at the moment (but is being held in place by $/power protecting it) ?
Data download limits, speeds, etc, i.e. consumer fixed and mobile internet seems like a big one.
The other huge one is the SF housing supply market. Heavily restricted because of various interests protecting value. Once a group figures a clever hack around not being able to supply more units of housing, and people LOVE it, and tech scales it, it all topples down.
Airbnb: a clever hack. That people loved. Using new tech.
Sprig, munchery, doordash, postmates, spoonrocket etc don't feel like a clever hack. Just a business.
Both hacks were tricks to get around regulation put in place long ago to protect various financial interests. Once the people have spoken about what they love, it all topples down.
What other regulation / situation seems "dumb" at the moment (but is being held in place by $/power protecting it) ?
Data download limits, speeds, etc, i.e. consumer fixed and mobile internet seems like a big one.
The other huge one is the SF housing supply market. Heavily restricted because of various interests protecting value. Once a group figures a clever hack around not being able to supply more units of housing, and people LOVE it, and tech scales it, it all topples down.
It's about time somebody wrote an "Uber for X" generator.
http://tiffzhang.com/startup/ is almost what you are looking for. interesting part is some are actually believable and also saw a couple good ideas in there
Despite all the negativity around food delivery startups - I see them getting funded almost every week. Europe, North America, Asia, South America, all over the world.
If people still think over regulation isn't a problem in this country... or that the answer is just more of "the right kind" of regulation... I just... idk...
I understand you. People are stupid. They want laws. I don't understand people.
Today in Belo Horizonte a bill is being voted forbidding markets and grocery stores from opening on sundays.
Today in Belo Horizonte a bill is being voted forbidding markets and grocery stores from opening on sundays.
Uber thrives?
All snark aside, isn't Uber the highest-valued startup in the world? Sure, that's thriving.
Startup valuations are mostly a stab in the dark by whoever invested last multiplied by the terms set out by all the people who invested before. There is nothing concrete about Uber's valuation. They're doing some amazing business and building a valuable company, but how valuable exactly is dictated by an exit, not a funding round.
Sure, the valuation isn't concrete. It's also in a different league from the other startups in the article which are shutting down.
I think the person I originally replied to was trying to make an ironic point but to me it fell really flat.
I think the person I originally replied to was trying to make an ironic point but to me it fell really flat.
post-money valuations usually overestimate the 'true' value of a company because the investors have liquidation prefs (this dilutes value for further rounds)
With a $470 millions operating loss:
http://www.bloomberg.com/news/articles/2015-06-30/uber-bonds...
http://www.bloomberg.com/news/articles/2015-06-30/uber-bonds...
They also have users, a brand, and revenue. They're probably spending all that money on marketing. I'm not going to pretend to be an expert but that's part of building a company. Gotta spend money to make money.
There is no way in hell that loss is going to turn into profit this millenium. Unicorn valuation is basically a very expensive game of hot potato.
They are profitable in the U.S. They are unprofitable world wide because China and India are newer markets and Uber requires scale to turn profit. As they continue to gain market share and overall ridership/driver-ship, they will become closer and closer to world wide profitably.
Why does Uber require scale to return profit?
Because Uber is a multi-billion dollar behemoth that can bend the will of industries through sheer force, and your mac book pro sitting in a coffee shop can't do that no matter what the genius said.
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What are the essential differences? Uber delivers a simple product, a car ride, that even a minimally skilled contractor can complete. SpoonRocket delivers pre-made meals. Complication is added in having to design, cook, and package pre-made meals.
For SpoonRocket, overhead costs exist in the forms of delivery fees: for Uber, no such fees exist. The delivery itself is the product. For SpoonRocket, the real product is the (instant) meal, not the delivery. SpoonRocket had so many costs that in order to turn a profit, they ended up trying to save on meal quality -- and in turn promptly lost their userbase.
SpoonRocket cannot meaningfully differentiate itself from its competitors: who really wants to try another service for delivery meals when you could just order GrubHub or Seamless? The folks at SpoonRocket were effectively trying to start a restaurant, which is a hard business with tons of near-equivalent competition. On the other hand, Uber clearly and meaningfully beats taxis, both in terms of price and experience.
We know that on-demand businesses are hard. We know that food businesses are hard. Combining them, guess what? Not easy.
Let's talk about an actual "Uber for X" companies that is doing well: take Airbnb. Airbnb allows you to take your existing property (spare room, couch, whatever) and with extremely little effort begin renting out access to that property, but only when you want. This is similar to Uber, which allows you to take your existing property (car) and make some extra money by driving every now and again.
The conclusion here is that Uber is an on-demand service from the customer side only. From the service-providing side, Uber is among the very first of its kind (you can tell that from the fact that Uber has completely subverted the employee/contractor distinction -- there's extremely little legal precedent for a business like Uber).
Thus, it is a severe mistake to look at other businesses that provide on-demand services from the customer side, and to conclude that such a business is "Uber for X". It's only "Uber for X" if it's similar from the service-providing side, which very few businesses are.