SoftBank takes control at Uber: Stay out of Asia

SoftBank completed its $9.3 billion transaction with Uber, making it the largest shareholder in the company and returning handsome profits to early investors, as well as making Travis Kalanick a billionaire. The cost: Uber must turn its focus to the United States, Europe, Latin American countries, and Australia to become profitable. 

The Financial Times reports that Rajeev Misra, Softbank’s Uber board member, said Uber can be profitable with a focus outside Asia, where SoftBank has investments in several mobility companies, including Ola and Didi Chuxing. In a pricelessly SoftBankian phrase, Misra said of Uber’s potential: “Who cares if they lost a billion more or half a billion less?”

On closing, SoftBank comes away with 15 percent of Uber for its money.

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Revel in the details of Travis Kalanick’s fall from Uber

I think Uber’s past is well known and don’t generally revisit the issue unless significant new transgressions are uncovered. Plenty of small transgressions are still emerging, but let’s move on. But then, this description today of Uber founder and former CEO Travis Kalanick’s response to the release of videotaped verbal abuse of an Uber driver:

As the clip ended, the three stood in stunned silence. Kalanick seemed to understand that his behavior required some form of contrition. According to a person who was there, he literally got down on his hands and knees and began squirming on the floor. “This is bad,” he muttered. “I’m terrible.”

Then, contrition period over, he got up, called a board member, demanded a new PR strategy, and embarked on a yearlong starring role as the villain who gets his comeuppance in the most gripping startup drama since the dot-com bubble.

What follows is entertaining and alarming. Rather than engage in schadenfreude, we need to learn from this story. Uber’s ability to raise billions in funding was driven by the Ultimate Jerk. Can that be a sign of healthy investing practices?

Goodyear takes tire maintenance to on-demand market

Goodyear faces a double challenge. The tire company must address consumer’s growing expectation that services should come to their home or office and it faces a change in vehicle ownership as autonomous shared vehicles take over from personal automobiles.  It has a strategy and it makes sense:

“As shared mobility continues to grow in popularity, we are seeing applications where miles driven per vehicle increase from 15,000 per year to as much 5,000 per month,” said Chris Helsel, Goodyear’s chief technology officer [said in a press release]. “Those increased miles mean increased demand for tire maintenance and repair, especially when you consider customer expectations for comfort and safety from a mobility service.”

Partnering with STRATIM, a San Francisco-based vehicle maintenance data intelligence developer, Goodyear will begin to provide fleet services to on-demand companies. But the same mobile approach can serve consumers. This enables scenarios such as buying “tires for life” as an add-on to a car purchase or lease. 

Whether people embrace autonomous vehicles or keep their own cars, the Goodyear approach announced today keeps the road open to subscription and on-demand revenue.

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. 

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.