Uber has been a revolutionary concept in many ways, literally defining what on demand business models are. The larger than life goal of providing a reliable and efficient alternative transportation system in every place in the world has impacted many lives. The impact of the model has led to disruptive ripple effects with new platforms emerging to streamline value chains across industry verticals. These platforms that position themselves as “Uber for X” have been constantly in news for the last few years viz. a viz. bullishness shown by investors, asset light growth focussed on better utilization of existing assets and apprehensions viewing the entire thing as a bubble.
Let’s dig deeper. Semil Shah defines On Demand Mobile Services (ODMS) as “apps which aggregate consumer demand on mobile devices, but fulfill that demand through offline services.” Often this ODMS definition has been generalized and characterized as “Uber for X”. While this does give some insights into on demand business models but there are many key variables that might be different when compared to Uber.
The point that I want to bring forth through the analysis is that ODMS as a business model bridging offline and online is a super set that finds application across business verticals. There are some key variables that are different depending on the vertical and geography. Based on those variables an AirBnB for Y or Postmates for Z, etc. characterization might be more applicable than Uber for X.
Important Variables for On Demand Business Models
- Degree of Commoditization
Number of variables associated with a service or a product in question that consumers care about. Lesser the variables more commoditized a product/service. For instance Uber as an ODMS platform is highly commoditized with consumers only deciding the type of car while for AirBnB the user cares about the date of booking, number of days, location of the listing, facilities available, rent, etc.
- Relationship of the supply side with the platform
A business model might involve aggregating existing small businesses or freelancers or contracting the supply. Former is easier to scale while in the latter’s case the platform is responsible for training and fixing the rules.
- Price Control
Singular pricing structure defined for the whole platform based on some variables or the one that changes with the choice of the service provider is a core consideration that goes on to define a business model. Generally the choice depends on the level of commoditization as discussed earlier. More the difference in quality of service/product based on the choice of the service provider, more difficult it becomes to impose a pricing control on the platform.
- Instant vs Scheduled
One of the driving trends making the value proposition for On Demand platforms is clearly the convenience they bring to the end consumers. But a common misconception goes on to equate this convenience with instant provision of goods/services. Depending on the nature of the product/service scheduled can be an equally convenient and viable option.
Most On Demand platforms have to deal with 2 stakeholders at the minimum. The involvement of more number of stakeholders outside the roles performed by the platform also goes on to impact the business model. For instance Uber and AirBnB deal with 2 key stakeholders while Postmates, Instacart, etc. which don’t own the infrastructure for goods to be delivered have a 3rd key stakeholder who provides the groceries or prepared meals.
Based on the variation possible on account of the above variables, let’s try to create more granular parallels for the broader On Demand landscape.
Uber for X
The term was the finalist in this year’s Forbes Jargon Madness competition [http://www.forbes.com/sites/briansolomon/2015/04/06/jargon-madness-final-four-will-uber-for-x-win-it-all/] This goes on to show how popular and unavoidable the term has become in the startup circles.
Circling back to our previous discussion, while it is clearly a subset of broader On Demand platforms attempting offline-online integration by closing the DISCOVERY – BOOK – TRANSACT – PAY – REVIEW loops involved in customer -supplier value chains, it is also characterized by –
- highly commoditized nature of the transaction involved
- direct involvement of end service providers (taxi drivers)
- airtight price control due to low variation in the quality of service from one driver to the other
- instantaneous nature of the service to the point that optimizing the ETA is one of the most important consideration involved in the mind of the end consumer.
- two stakeholders
The above characteristics make Uber for X based platforms a “Supplier Pick” model whereby the customer requests a service (not a service provider) and the service provider accepts the request.
Related Reading for ‘Uber for X’ on demand business models – 7 factors that will make your Uber for X startup a success
AirBnB for Y
An equally popular jargon that is associated with unbundling of CraigsList into individual vertically aligned marketplaces. While the offline -online and closed loop characterizations apply, the platforms are distinctly different from Uber for X counterparts in that, they are based on a “Buyer Pick” model.
Related Reading – Airbnb business model – How Airbnb Works | Insights into Business & Revenue Model
- lot of variables that differentiate one service provider from another
- Most listings on Airbnb are now aggregated.
- Price varies
- Instant or scheduled, both are viable models
- Two stakeholders
- each service provider has its own individual existence.
While Uber for X and Airbnb for Y find a lot of applicability, number of stakeholders involved as discussed above lead to further variations. Here are some examples –
On Demand food requires 3 major steps to close the loop –
COOK – ORDER – DELIVER
Stakeholders being restaurants or kitchens; end customers and delivery people. While some platforms take care of both the 2nd and 3rd step by owning the virtual centralized kitchens – read Munchery, SpoonRocket (true Uber for Food Delivery) some others like Postmates, DoorDash, BiteSquad just take care of the delivery aspect relying on aggregating existing restaurants to cook the food. Instacart does something similar by relying on existing supermarkets to provide the grocery while they do the delivery bit.
Related Reading – Food On Demand : Business Models of Meal Delivery Startups
Flywheel for Z
Flywheel is an On Demand app for taxi companies. It helps taxi companies provide an Uber like experience by providing an On Demand interface.
Why this warrants a separate characterization is because these platforms directly aggregate the existing businesses instead of freelance service providers. Many such platforms aggregating cleaning companies, plumbing companies, car wash, salons, etc. are taking roots.
- Commoditization of the service
- Businesses are aggregated and contracted, and they have their own service providers
- Prices can be variable for each business or fixed by the platform
- Instantaneous nature of service
- Three stakeholders
While the model can be supplier pick or buyer pick based on the vertical, the above distinction is enough to visualize this as a distinct business model, making it one of the unique on demand business models.
Postmates for W
“Postmates is an On Demand Delivery platform that delivers virtually anything – food, groceries, office supplies, etc.”
- Very low commoditization as each business has a different offering
- Businesses and Service providers are either aggregated or contracted.
- Variable price, set by each business
- Instantaneous nature of service
- Three Stakeholder
Munchery for V
A recent and successful addition to on demand business models is the Munchery business model. “Munchery Chefs make delicious meals that they then deliver directly to customers from their kitchens in San Francisco, New York, Los Angeles and Seattle.”
- Highly commoditized nature of transaction involved.
- Direct involvement of service providers
- Fixed prices due to highly commoditized nature of service
- Instantaneous nature of service
- Two stakeholders.
Related Reading – Munchery Business Model – How Munchery Works: Comprehensive Business and Revenue Model
We recently launched an On Demand Phlebotomists platforms, Iggbo. Iggbo is a 4 sided marketplace that involves doctors (prescribing the tests), end customers searching for the laboratories to do the tests, phlebotomists responsible for getting the customer’s blood drawn and laboratories doing the test. Again, while Iggbo’s categorization as Uber for Phlebotomists won’t be too far fetched but I have created a different category nevertheless to bring home the importance of the stakeholders in impacting the various decisions that go on to define the business model.
This analysis is not intended to promote the use of Postmates for Z or Flywheel for W parallels. It was intended to have a deeper look at the variables involved in deciding the contours of On Demand business models. I believe whether it is an existing business looking to leverage the On Demand trends or a completely new platform trying to provide a full cycle treatment to the existing value chains, On Demand is the future. The only thing that is left to be decided are the various winners in different verticals and geographies trying to attempt the various on demand business models.
If you are interested in knowing how to build the next big thing in the on demand economy, get in touch with us today!