Pando

The only Uber of anything is Uber

By Sarah Lacy , written on July 28, 2015

From The Sharing Economy Desk

We are at that point in the “on demand economy” cycle.

The very few breakouts-- Airbnb, Lyft and Uber are pretty much it, and Uber dominates the field in users, valuation, and funding-- can raise billions each and are being encouraged to grow as fast as possible. An entire mushy middle are getting big-- but not too big-- valuations and decent chunks of cash, but the jury is still (very far) out on what they’ll become. A few are in the $1 billion valuation camp, but not in terms of cash raised.

Then there are the ones where the economics are just not working. They are overdue to raise more. So far that cash hasn’t come in. And pretty soon they’ll consolidate or die.

The first high profile death was HomeJoy.

Many journalists-- including Forbes’ Ellen Huet -- have written the story of what went wrong at HomeJoy, fingering bad underlying economics that discounted to get customers in the door and didn’t get enough repeat business to ever make up for the haircut. But that alone isn’t the issue. Uber and Lyft discount overwhelmingly to grab market share too.

The problem is the entire “Uber of X” construct has failed because startup after startup thought the magic of Uber’s business model was an iPhone app that brought you something.

In reality, two things make it so lucrative. The first is the ability to deliver something with far more convenience than you can get it otherwise -- by a wide margin. So much so that customers can’t imagine going back. Even when the company exhibits atrocious behavior. The second is that customers don’t just need to be repeat users-- they need to be repeat purchasers. The problem a company claims needs solving has to be just as hard every time.

For instance, you don’t order one Uber and solve your transportation problems on autopilot. The unique pain of finding a cab, tracking when it arrives, and having a cashless transaction are all the same exact problem each and every time you use Uber. And that pain point can occur multiple times per day. That pain point is worse when there are fewer cars on the road, which is why Uber can get away with surge pricing. It’s not only solving the same underlying problem each time-- it’s charging more when the problem is bigger.

Airbnb isn’t quite as good from a business model perspective. You won’t stay in multiple Airbnbs per day, and many happy customers may not even use Airbnb more than once per year. Further, if you travel to one place regularly and you find an Airbnb you like, you’ll probably just start booking it independently.

But Airbnb at least has a higher transaction rate and -- again-- unless you are going to the same city, the pain point is the same every time you transact.

That just isn’t the case when it comes to booking a regular cleaning service. If you move to a new city, or finally find yourself with enough disposable income to hire a cleaner for the first time, finding someone can certainly be a pain. In the past, you’d have to ask who your friends use, how much they charge, are they any good, etc. Going to a glitzy site is certainly preferable. But that’s pretty much where any substantial improvement of life in a Handy/HomeJoy world end.

For most people, once they have a regular cleaner, that person continues to show up week after week without any confusion or booking or hassle. I’ve used the same cleaning service since I bought my house in 2008. A few of the cleaners have retired, moved, or handed over their business in that time. But the new people have been just as good and just as reliable and charged the same rate. It’s possibly the most seamless transaction in my day-to-day life. And it was only a pain point precisely once: When I first booked them some seven years ago.

In fact, talking to friends who use Handy or previously used HomeJoy, my experience is better. One friend says his Handy cleaner destroyed the finish on his Victorian floors, and the company only offered to cover a few thousand dollars of the damage. Never again, he vowed. Another uses Handy regularly -- but because you never know who you are getting, the service is hit and miss. Some cleaners do a great job, others seem to do little more than walk in the room and look around. My cleaner is consistent and charges roughly the same amount as these services.

Unless you are at that new-home inflection point, I’m hard-pressed to think why you’d need these services. There’s just no upside to switching. And when you start whittling away the addressable market to cut out people who use a cleaning service already or just can’t afford one…. well, it’s easy to see why even two better-managed companies in this sector weren’t going to become behemoths. I’m not surprised HomeJoy’s CEO felt she had to start making desperate moves to show growth to keep her “UBER OF CLEANERS!” investors happy.

Already the better-funded Handy has been expanding into areas like home furniture delivery and assembly, as they clearly try to find more pain points to solve.

I’ve expressed similar concerns about the various “Uber for driving kids” companies-- although as a mom who would never put my kids in an Uber, I desperately want to be wrong. Unlike the on demand cleaning services, this at least solves a problem each and every time and one that parents will pay a premium to solve. But there are even bigger concerns over the consistency of who shows up to do the job.

If I found a great cleaner on Handy, I’d just hire them directly rather than gamble on getting another one. And likewise, if I found a great caregiver to take my kids to all their various activities via Shuddle or HopSkipDrive, I’d just hire them directly rather than gamble on getting another one. An army of interchangeable contractors isn’t always the solution to life’s problems.

In some ways, this post is a reversal on something I wrote in 2013. I argued back then that the sharing -- or on demand economy-- was one of the first instances I’d seen as a tech reporter where verticals (Airbnb, Uber) strangely worked better than horizontals (Zaarly, TaskRabbit, Exec). But as we get closer to separating the hype from the businesses, it seems that was too simplistic. Too niche may be just as bad as too broad.

If Handy can expand beyond just cleaning, without going quite as broad as TaskRabbit, will that be the magic zone for a scalable company? Would a HopSkipDrive simply work better as a division of Care.com?

Home cleaning isn’t the only sharing economy sub-sector that’s stuttering. We haven’t heard much more from various on demand blowout and manicure services that used to fill my inbox a few years ago either. There may be a special occasion where you need a stylist to come to your home, but it’s just not a common enough problem for a repeat on demand user. And unlike the experience with taxis vs. Ubers, many women enjoy the experience and escape of going to a salon. No one relishes the experience of climbing in back of a stinky cab and getting yelled at for using a credit card.

Furthermore, the kinds of women who can afford a grooming staff to come to them probably already have regular makeup artists and stylists they trust, and wouldn’t want to gamble on an ever-changing crew of contractors. We’ve used similar services for PandoMonthly events in other cities and the results were inconsistent enough, we settled on regular stylists who cost the same amount and were just as easy to book. That market-- and opportunity to solve a genuinely hard problem-- is even smaller.

StyleBee was one that I remember us writing about in January of 2014. According to CrunchBase, it’s raised just $1 million from one investor and one of the founders appears to have left. Glamsquad has done better, raising $9 million over two rounds, the last in October of last year. But it’s still early days, and I’m dubious this is really a recurring, widely-felt need.

There’s similarly general disappointment with the second-hand clothing mobile app space. It’s not so much “on demand” unless you absolutely need clutter to turn into cash immediately.

Still, it shared a lot of the attributes with some of these companies:

  • There was a universal problem: Everyone I know has way too much shit and would love to get rid of it easily and get some cash.
  • Specifically every woman I know has things in her closet she no longer wears. Many with price tags still on them.
  • There aren’t great existing easy solutions. eBay is a pain to use, Buffalo Exchanges are limited by city, and it’s embarrassing to take in a load of clothes only for a buyer to derisively tell you the best she can do is $30 in store credit.
  • Currently, there aren’t great online alternatives for buying hand picked, gorgeously photographed second hand goods.
  • The iPhone has a camera in it, one-click purchase, and a gorgeous full color display streamlining and simplifying the entire process of listing and buying items.

And yet, results have been somewhat meh. Early on, Pando test drove several of these services with several second-hand goods and found that, really, Craigslist still worked the best. But in fairness, many of those services were just getting started. More recently, in July, CB Insights published a study entitled “Vintage bloodbath” that called the space ripe for consolidation, with some 11 startups having raised nearly $300 million, at least three of which were said to be shopping themselves as of the date of the report.

Twice has since been acquired by eBay for an undisclosed sum, after going some 20 months without new funding. Vinted hasn’t raised money since January 2014, Bib + Tuck, ShopHers and Vaunte haven’t raised cash since 2013. It’s been a year for both ThreadUp and Threadflip.

There’s nary a unicorn-- at least by reported valuations-- in this space, but the survivors seem to be TheRealReal, Poshmark, and Tradesy who have each raised at least $40 million in the last six months. Not a totally dead market. But not a runaway market either. And definitely not a problem we needed 11 companies to solve.

And then we get to food delivery, which is even more crowded and varied and mostly underwhelming. Yes, we all eat three times a day. And there are many meals where eating is a hassle-- although most people also get a lot of joy and social interaction out of meals. And-- like hailing a cab-- solving the problem of what to eat one day doesn’t solve the problem of what to eat next week. And like Uber, the presence of an iPhone, makes this solvable in a way it wasn’t before via tracking, one-click payment etc.

But there’s exactly one unicorn amid some twenty five companies-- and this in an age of runaway unicorns. I’m hard pressed to think of a category that’s been this overfunded by major VCs with no clear big winner.

There are a few different variations on the theme. Some deliver restaurant meals, some deliver their own prepared meals, some deliver boxes of pre-measured ingredients to cook.

The only one I use regularly is Postmates. It started out as a general delivery services that lasered in on restaurants because it was still an unsolved problem, even after Grubhub’s success and IPO. Postmates will deliver from any restaurant (or Walgreens or anywhere else) while Grubhub can only deliver from restaurants in its network (And has a horrific UI.)

The lone unicorn in the space is Blue Apron, which is worth some $2 billion and raised a whopper of a $135 million series D this summer. Something there seems to be going right that the rest of the category has mostly missed, despite the fact that even in early-adopter San Francisco I never hear of anyone I know using it regularly. Meanwhile DoorDash is worth $600 million, Postmates is worth $400 million, and Munchery is worth $300 million. Plated has raised another $35 million, HelloFresh has raised another $126 million and Munchery has raised another $85 million this year. In all, one-third of the companies in this space have raised funding in the last year.

It’d be premature to call this space “a bloodbath.” But it doesn’t yet seem to be a category that’s justified this many investments in this many companies, and I have questions about how mainstream it can reasonably get. (Despite BlueApron’s 3am basic cable ads– ironically I first saw them while writing this post.)

I love to cook but am pressed for time between having two small kids and a company. So I’ve always loved the whole pre-measured ingredients in a box concept of larger players like BlueApron and Plated. But I have to confess, a year after I first thought they were a cool concept I’d totally use… I haven’t yet. When I’m at the point where I really need a solution to this problem, I’m already tired, I haven’t planned ahead, and I don’t want to navigate a new service, and GrubHub, Eat24, and Postmates make take out an easy enough solution to the same core problem.

Being “the Uber” of something doesn’t just mean you are doing one thing instantly in a single purpose app-- it means you are meaningfully solving a pain point for a large number of people that doesn’t go away and needs to be solved again and again and again.  

And so far, there just aren’t many that do. The only “Uber” of anything is ridesharing.