Instacart Adds Retail, Couponing, and Voice Services

Instacart is dramatically expanding the services it can offer retailer customers with its $65 million acquisition of Unata, a Toronto-based developer of retail software. Bloomberg and TechCrunch cover the details of the deal. Why does it matter?

On-demand companies traditionally focus on the last-mile, putting people to work delivering and providing services to the home. However, Instacart is acknowledging with this acquisition that it needs a larger role in retail. Unata will provide Instacart with retail storefront software that, we expect, will eventually be integrated with Instacart human services. 

Instacart is hedging its bet by deepening its retail services offerings. Integration with logistical and messaging tools, such as voice, can be tied into consumer solutions expressed as a “skill.” Voice combined with couponing capabilities would allow a product request made to a smart speaker to take a grocery order and offer better pricing or coupons when alternative options are available, then organize delivery in the background. Instacart a separate upsell to retailers, another stream of revenue in the face of competition in on-demand. 

Amazon’s looming retail presence should not be a short-term concern for Instacart, as the Seattle retail giant has not (yet) mastered on-demand services. Instacart could change its revenue mix, moving to emphasize retail services with on-demand humans subsidized by software in order to win market share. 

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Marketplace Fees Under Pressure: Uber Settles With Drivers, Again

Uber headed off a class action lawsuit by 2,000 New York-area drivers this week, with a promise to pay $3 million to end a dispute over the fees it imposes on those drivers. It is evidence that marketplaces will see more pressure to lower fees in order to retain workers. 

The ridesharing company has settled many similar suits and appears headed for many more settlements. We think the underlying signals point to a decline in the advantage marketplaces had over workers which allowed fees of up to 30 percent to be deducted from fares.

On-demand companies should be prepared to thrive on margins similar to retailers, such as Amazon and WalMart. Where a 25 percent or greater fee is deducted from a driver’s or a housekeeper’s earnings today, the on-demand market his headed for a sub-10 percent fee structure over the next decade.

Two factors will accelerate this trend:

1.) As purpose-specific marketplaces mature, such as ridesharing,  workers will diversify their listings, making themselves available on many systems. This is true of Uber and Lyft drivers, who typically use both apps simultaneously to get work. This means workers will be arbitraging work opportunities across many marketplaces. Purpose-specific markets will respond by consolidating related markets, which presents significant brand challenges. “Uber” has become a verb denoting ridesharing, but not housecleaning; It would have a very difficult time extending its brand into home-services. Price is the manageable factor in consolidating markets.

2.) Information efficiency favors the consumer, not the marketplace. As more data is applied to the problem of anticipating demand, consumers and workers alike will move to low-cost marketplaces in pursuit of better prices and pay rates. These twin demands put the marketplace in a lurch. In order to lower consumer costs while retaining an attractive workforce, the marketplace must lower its fees charged to those workers. 

As workers diversify, marketplace providers will compete for labor supply, lowering their fees charged to workers who focus on their service categories. Likewise, consumers will embrace marketplace brands that solve many in-home and on-demand needs,  leading to greater optimization within those marketplaces and lower fees charged to workers.

 

Tax Bill Lowers Taxes For On-Demand Workers, If They Incorporate

Several articles (New York Times, Bloomberg, and Lexology) in recent days have examined the potential for gig workers to cut their taxable income by 20 percent. There is, however, a trade-off. Workers must incorporate to gain the tax cut.

Incorporating voids the argument that giggers are employees. Corporations are not employees; they operate based on mutually agreed upon contracts with another company. On-demand companies fighting regulatory scrutiny around the world are eager to resolve the question of employment status as they grow. Their future margins depend on controlling costs.

The U.S. approach, to dangle a 20 percent tax break, is attractive to on-demand companies, but will it be enough for an Uber driver or TaskRabbit tasker, among many examples, to forego the employment relationship?

A quick back of the napkin calculation suggests that a typical Uber driver, who earns $2,126 a month (Glassdoor reported average), or $25,512 a year, would retain as much as $5,102.40 a year. That is $425.20 more in earnings per month. It sounds pretty good. 

Employment has other advantages, though, that offset tax savings. Losing employer health care subsidies, for instance, can increase raise the cost of health insurance by 20 percent or much more for an individual, even an incorporated individual. A contractor who paid $1,200 for health insurance for a family of four could pay $700 more monthly.

The tax break is not a guarantee of better pay for contractors who operate as an LLC or other “pass-through” entities. It makes contracting more attractive but is no silver bullet.

There’s more action afoot on this front. The Department of Labor announced last week that it is considering rules to allow individuals and small business join associations to get lower insurance prices. The catch here is that the participants must be incorporated. This is a path to lowering insurance prices, not a panacea.

Chris Opfer and Ben Penn of Bloomberg’s Labor and Employment Blog report that on-demand worker groups are skeptical of the Labor rulemaking:

“We believe it can be a good solution for our 75,000 drivers, but it’s unclear how these plans will be regulated and whether such plans could be distributed in a way that would allow members to qualify for credits under Obamacare,” [Independent Drivers Guild founder James] Conigliaro said. “An association plan couldn’t compete with a highly subsidized plan. On the other hand, drivers have special needs, and an association plan could be tailored to meet those needs and be very powerful. Either way, we’re considering a range of options.”

Giggers have many decisions about their business structure ahead.

 

Didi diversifies with Bluegogo

Here’s the problem with building a purpose-specific marketplace, such as a consumer mobility platform like Uber, Lyft, or Didi Chuxing: Once the platform is saturated, it’s necessary to diversify. In the case of China’s Didi Chuxing, the ridesharing company is adding management of a bike-sharing service, moving into an adjacent, though painful, market with its platform.

Didi customers will get access to Bluegogo bikes in Chinese markets. Didi is taking a chance with Bluegogo since the company has already failed. In fact, all Didi is doing is acquiring Bluegogo’s abandoned bike inventory, hoping to earn back the cost by increasing revenues from existing customers.

As on-demand evolves, the apparently explicit delineation (rides on demand versus, for example, housecleaning) between one consumer market and another will become a barrier to expansion. Markets are more efficient when they include many products and services than in any dedicated marketplace. Early leaders in transportation may find that adding any non-mobility service proves difficult.

Didi customers may consider taking a bike instead of a ride. But not all those customers will be interested in bike options, so expansion into bike-sharing could produce little incremental additional spending by Didi customers.

Google Assistant announces new hardware partners

In-home on-demand services will turn on voice, phone, smart TV, and PC interfaces. As reported yesterday, Google trails Amazon and Apple in installed branded hardware base. Today, Google announced new hardware partners in automotive, home appliances, cameras, and other industries. JBL, Lenovo, Sony, LG, Altec Lansing, iHome, and others joined the ranks of Google Assistant-compatible devices.

Google claims Assistant is now available on 400 million devices. Availability is different, of course, than actual usage.

 

Ford & Postmates tackle local business services

Ford today announced a partnership with Postmates to expand on-demand services for small business at CES. Postmates reports that SMBs joining its network see “4X revenue growth” and claims it has the most extensive on-demand delivery fleet in the U.S. A variety of companies will enter this space in 2018, among them HERE Technologies which announced a competing service that aggregates on-demand mobility options yesterday.

“Expanding access to smaller, local merchants is at the core of our business,” Vivek Patel, Postmate’s vice president of Business Operations, said. “We view self-driving vehicles as another potential tool that can level the playing field for these businesses, and ensure that geography alone does not equal destiny.” 

We applaud the focus on small business. It is where the on-demand economy can take root and develop opportunities in every community.

Delivery without people remains problematic, as it is the last few yards or flights of stairs that presents the most significant barrier to automated deliveries. Sure, a car can get to the curb in front of an address, but how to get the package inside with the appropriate brand experience, requires a human. Postmates will likely utilize Ford autonomous vehicles to streamline its workers’ travel. The companies are working together on how to support the last-yard fulfillment, as well as improve consumer discovery of, and purchases, through automated deliveries.

HERE Introduces Open Mobility Marketplace

HERE Technologies today launched its Open Mobility Marketplace service at CES in Las Vegas. This announcement is significant for the on-demand market because the Open Mobility Marketplace allows transportation services providers — from driving and delivery to organizing regular commuter bus rides — to list and compete through a searchable API, from a site, in an app, or through backend integration.  ZDNet has a short summary, and HERE’s press release is here (pun acknowledged).

Utilizing demand analysis and fleet optimization algorithms, as well as asset tracking capabilities, the HERE Open Mobility Marketplace promises to surface the best price and most flexible source of mobility services for a business. For example, a retailer could search for one on-demand delivery driver or an entire fleet of drivers registered with the HERE service.

The current mobility companies, including Uber, Lyft, GrubHub, and automakers exploring on-demand cars, should take notice. Aggregating demand at a higher level of abstraction allows HERE to connect users to more options than the branded transportation providers across a broader range of use cases than Uber or Lyft, which focus primarily on the consumer. HERE could break the duopoly in local car services while delivering more flexibility for business considering using on-demand resources.

The Cryptocoin Boom Could Choke Off On-Demand Services

Jon Evans at TechCrunch raises a troubling issue with cryptocurrencies: They are so popular that the underlying blockchain technology has failed to deliver low-cost transactions at scale.  The coins that have generated vast fortunes, such as the $59 billion in wealth Ripple XRP co-founder Chris Larsen realized on the rapid run-up of the currency he created, are swamping the blockchain infrastructure. Evans writes:

As a result, entire categories of cryptocurrency experimentation and innovation are on hold until the bubble bursts, or until / unless Ethereum finds a way to scale such that transaction fees plummet. Oh, people can still write and deploy code. But nobody will use it. Curious would-be users will be repelled by the nontrivial expense of mere experimentation, never mind ongoing usage.

The problem is not the coins, but the demands on the blockchain that supports BitCoin, Ripple, Ethereum and other currencies. A distributed ledger, blockchain allows the public recording of transactions. The promise of blockchain and cryptocurrencies was low- or no-cost transaction fees. Evans notes that the average fee for an Ethereum transaction is now $2.50. Every transaction, whether it is worth $0.01 or $1 million. Great news for cryptocurrency traders, perhaps, but bad news for developers.

At $2.50 per transaction, Ethereum is priced too high to support micro-transactions and less cost-effective than a credit card for values of less than $85. On-demand transactions, such as paying $5 for a meal delivery or $20 for an hour of a homecleaner’s work, are not feasible at $2.50 per.

Blockchain’s primary value proposition, after its anonymity, is low-cost recordkeeping and transaction processing. The cryptocurrency bubble is a disaster for platform marketplaces and developers of distributed logistics and transaction systems. High costs in blockchain cut off a promising direction for developers and business architects for the foreseeable future.

The article is worth a read, especially if you are bullish on blockchain as a platform for software development.

In-Home Smart Speakers: A War of the Big Three

Smart speakers represent a new interface in the customer relationship. Holiday shopping in 2017 established clear battle lines in the home AI market. Amazon, with its Alexa service, Google Home speakers, and Apple’s Siri-enabled services and delayed HomePod speaker are way out in front of the rest of the pack in terms of installed base. Indeed, one columnist says this year’s Consumer Electronics Show is the Microsoft Cortana assistant’s funeral.

Analyst firm Canalys projects 42.8 million or more smart speakers will be sold in 2018 in the U.S. and China.

Voice UX is usually portrayed as a silver bullet for customer engagement, and it may become so over time. For now, however, accuracy and contextual understanding of speakers’ words is lacking. Fixed command phrases that must be memorized and delivered in specific sequences are problematic for people.

Bots, being the shiniest of the new tech playthings, get plenty of praise, but the expectations for voice interaction are over-hyped right now. Until speech interaction approaches human conversational speed and efficiency, which requires more semantic understanding than bots currently provide, intimacy will be hard to achieve.  Voice UX may be good for instigating repeat orders, e.g., “Alexa, order another box of Tide,” are practical, but complex selling will have to wait for further evolution. It is likely that AI bots will support human connections, bringing humans onto a call with a user when the bot’s responses are insufficiently engaging, for many years to come.

Humans, we believe, are essential to trust relationships. Speakers can help make connections, but will not be able to handle simple objections for years to come. Think of the smart speaker like the new switchboard for consumers to connect with companies rather than as an unstaffed sales interface.

Where do the voice service leaders rank in units sold during 2017?

Google used heavy discounting during the holidays to sell 6.8 million Google Home speakers between October and Christmas. Consumer Intelligence Research Partners, a research firm, reported that Google had sold seven million Google Home units before the fourth quarter. Hence, Google Home sold approximately 13.8 million units through December 31st.

By contrast, Apple did not have its $349 HomePod speaker ready for the holidays, and we can count only Siri-enabled phones and Macs sold, for a total of 211.88 million iPhones and 19.25 million Mac computers, or 231.05 million Siri-capable devices in 2017. This is a considerable number, but currently has no speaker complement to these devices, nor the tens of millions of Apple TV devices its sold.

Apple’s ability to meld voice interfaces to a wide range of services through HomePod, iPhone, Apple TV, Macintosh and in-car systems is the company’s residual opportunity. The Siri strategy remains too fragmented, as it is missing an ambient listening post in most homes. The HomePod story and user experience is a critical test for Apple in 2018.

Amazon is the leader with real-world tools and services in consumer homes. By the end of Q3, 2017, 20.5 million Alexa devices had been sold, according to voicebot.ai. Jeff Bezos, Amazon CEO, founder, and richest person in the world said Amazon sold “tens of millions” of Alexa devices over the holidays. Assuming Bezos is using the phrase accurately, there are at least 45 million Alexa devices boasting the largest variety of “skills” of any platform.

Is Cortana out of the picture for good? Microsoft has continued its increasingly open approach to partnering, announcing it will integrate Cortana and Alexa for Windows users. While the PC market is slowly declining compared to mobile devices, it still accounts for more than 200 million units shipped annually. That’s a beachhead of a different kind; one Microsoft must leverage to compete in its cognitive services business. Cortana may not be the voice speaking from PCs, but Microsoft could become the master integrator of voice services.

Ultimately, smart speakers will extend the voice and P2P aspects of on-demand services in the home. People in local markets will deliver the personalization promised by intelligent speaker hype by tying into and using voice UX to connect with customers when appropriate.

 

This Week’s On-Demand Business Activity Rundown

Didi Chuxing, purchased Brazil’s 99 for $600 million, in addition to its previous investment in the target company. 

Splend, an Australian fleet management company that provides cars to Uber, Lyft, and other transportation network company drivers, raised $220 million in new debt financing this week to support inventory expansion. Between equity and debt financing, Splend has $232.2 million on hand to spend now.

Search and content don’t always go together. In fact, they may work at cross-purposes, raising barriers to search access to competitive content sources and reducing trust in the search engine’s objectivity. Google seeks to sell restaurant guide Zagat after purchasing it for $151 million in 2011.

GrubHub’s annual Year In Delivery list is out. Lettuce Chicken Wraps were the biggest gainer among orders last year and is expected to be popular in 2018. Avacado toast peaked earlier in 2017, but earned the biggest gain in orders overall.

Transportation network companies are changing wealthy New Yorkers’ home buying preferences, sais a leading realtor.  “Today, in our Uber-tech world — I [can be] in the back of a car with my iPhone, and I’m not losing out on anything. That has changed [commutes] dramatically. Your commute time is not lost productivity,” realtor Leonard Steinberg told Business Insider. Consequently, the wealthy are willing to buy homes further from work than in past years.

Consumers experience of media will inform their retail expectations. Now that the majority of audio consumption is fulfilled through streaming services, with video close behind, consumers have come to expect immediate gratification in most transactions.  Watch for media to set consumer’s patience levels with on-demand delivery and service experience.

Beauty products companies are shifting to chatbot-based and interactive customer interfaces.  The idea is that beauty-related tasks are immediate and susceptible to machine analysis. Wondering if you have too much eye shadow on, let a camera-equipped bot check it out? What if a human being was also able to provide advice? That’s a one-two punch that will convert.