Recent discussions centered on “Uber on X” companies whether they justified their ultra high valuations, their asset light business model and their survival rate if and when the “bubble” will burst. Through discussions with investors and industry players, I have evolved my understanding. In this short article, I compile my thoughts on how one should look at “Uber on X” companies, and how a vertical such as logistics company perceived such companies and why some of these ‘Uber for X’ companies cannot disrupt logistics as they hoped to.
1. The way to think of Uber for X startups is to think of a service that is on-demand. If the service to the customer is a need and have many recurring transactions, then an on-demand service that brings the online or mobile to offline will works. So, the first thing is to establish whether you are truly a Uber for X is to fulfil this condition. For example, food delivery make senses because all of us need to eat, and hence at certain parts of the day, the on-demand service becomes essential. If you try to do the same for laundry services, it only serves a very small population and it’s likely that the recurrence is very small, given that how many of us have to send our suits for dry cleaning.
Most people conflate the consumer to consumer market with the business to business market and none of the Uber for X companies including Uber have provided the solution to scale to the enterprise market. The reason is that the business model for enterprise level required service levels that are close to these companies owning their own supply, which totally decimate their asset light advantage against the traditional X companies.
2. It’s a naive way to think of Uber for X startups just as a mobile or an online booking tool. It is more than that. Other than an online booking tool, it also solves three other problems which a lot of tech pundits and clueless investors are either totally unaware of: (a) discovery of the service provider, (b) curating the service provider thru ratings (and you do know that if your rating is < 4 in Uber, you can’t be a driver there) and (c) incentivising the service providers to stay on the network, i.e. provide additional perks for the service providers to stay on the platform instead of the service provider directly bypassing the platform to work with the client. For example, most taxi apps provide additional perks to the cab drivers from petrol subsidies and discounts to ensure that they would not go direct to the customer. That locked-in network effect is why on-demand taxi mobile apps are working and not the rest. Unless, the Uber for X can successfully solve all three with one online booking platform with an integrated offline high recurring service, investing in these companies do not make sense.
3. A lot of people are beating the drumroll on how Uber for X can kill Fedex, UPS and DHL in logistics. First of all, the logistics companies have bundled their services in different segments: same day delivery, next day delivery and optimised delivery via cross border or within the city. Uber and all its clones are essentially on demand logistics companies that are focused on same day deliveries. Even with their efficiencies, a consumer to consumer market is nowhere of the size of what logistics companies are doing with deliveries from fulfilment centres to the consumers with an optimised fleet.
All logistics companies, big or small, have a business model that is asymmetrically and diametrically opposed to Uber. Uber and its clones are essentially asset light and relied on demand and supply matching. They are market efficient but not cost optimised. In traditional logistics companies, the main reason why they have optimised fleets is that they have accumulated data about demand and supply and leveraged on major contracts to keep their costs low. Ecommerce has driven this demand even higher and hence the advantage of having optimised fleets and not depending on supply and demand models makes sense.
For Uber to reach the scale of UPS or Fedex, they have to end up building up their own fleets. The only situation that I can ever see Uber doing this is to have a fleet of self-driving cars and that’s when they can compete in the space of traditional logistics companies. So, why are UPS, Fedex and DHL not investing in Uber clones? After all, to make the assumption that the executives who work on these companies do not understand disruption are simply silly. The reason is because they can convert their same day delivery services to Uber like services as of when they want to do it. It may be slower, because of technical debt, but they can decouple easily to do that. The only saving grace to why there is value to Uber and its clones is that they are solving the real problem of same day deliveries which is not a solved problem with traditional companies. Let me help everyone by stating the business problem: Are you able deliver the goods from point A to B with the lowest cost and on demand as of when the customer want it?
Understanding these three core points will provide a checklist on how to evaluate the Uber for X companies.
Interesting references which is worth reading: