On-Demand Economy Notes, February 12, 2018

Although Uber and Waymo settled there intellectual property case last week, the status of workers as independent contractors took a new twist in a California court. Worker payment, training, retention, and earnings drove much of this week’s on-demand news. During 2018, worker retention will be a major issue for on-demand companies.

Wirecard, a German payment card vendor, is bringing pre-paid cards for on-demand work to the United States, Payment Source reports. As we noted recently, payment cards are a lever for bringing the unbanked out of the gray economy.  The technology avoids engaging with the payee’s bank account. Direct-deposits add costs to payments while prepaid cards are easily distributed, Wirecard argues. Kate Fitzgerald writes: “Wirecard’s ability to function as both an issuer and acquirer enables customized disbursement programs ranging from reimbursements to rebates and rewards, is a positive, but not entirely unique.”

Waymo-Uber Settlement: After months of tense preparation, an appearance by former Uber CEO Travis Kalanick, and a couple days of courtroom testimony, the Battle of Autonomous Cars Case came to a close. Uber has agreed to transfer slightly more than one-third-of-one-percent of its shares to Alphabet, Waymo’s parent company, and to submit to ongoing reviews by Waymo of its autonomous car developments. That stock, valued at $244 million, based on Uber’s largely fictitous $72 billion valuation, which was deeply diluted by SoftBank’s recent investment, Uber settled for about a quarter of the damages Waymo had been seeking.

We believe the significant move in the case came from new Uber CEO Dara Khosrowshahi, who has made apologizing for, and improvement of, Uber’s behavior the hallmark of his leadership.“While I cannot erase the past, I can commit, on behalf of every Uber employee, that we will learn from it, and it will inform our actions going forward,” Khosrowshahi wrote in a statement. Again, this is Uber growing up.

Women see Uber pay gaps, despite algorithmic work assignments. The wage gap persists in the on-demand economy, partly due to the duration of their Uber driving career. Forbes’ Erik Sherman reports that researchers at Stanford University and the University of Chicago found in separate reports that women consistently earn seven percent less than men. Part of the difference is accounted for in shorter driving engagements by women generally — female drivers churn out of the fleet faster than men, reducing their compensation over their Uber earnings lifetime. However, the culprit appears to be in the cost and time involved in training to become a driver, use the Uber apps, and build a consistent practice of driving.

Grubhub gets Yum-y. The holding company that operates Kentucky Fried Chicken and Taco Bell, Yum Brands, is investing $200 million in Grubhub, by buying the stock on the open market. The company will also sign an agreement with Grubhub to deliver KFC and Taco Bell food from 5,000 locations in the United States. Yum will take a board seat. Grubhub shares shot up 27 percent on the news., and have given back much of the gain in the market correction.

Quartzy says hairstyling is all about relationships. In a piece that details the rise and fall of several on-demand beauty companies, Noël Duan details the travails of hair care in the jet set, suggesting it does not translate to the consumer needs of the average person needing a “blow out” at work or home.  She concludes that customers want to go to salons because it is a special occasion and that the relationsjip with the stylist is central to the perceived value of a beauty experience. That last element, the personal relationship is the deciding factor in most home and on-demand services: People want to know their preferences are understood.

Duan conflates in-salon experience, like the free glass of champagne proferred to guests, with the intimacy of the experience. The edge of the network is made of human relationships, not just the details of the engagements that justify an on-demand hairstyling that is twice the price of a salon. On-demand is poised to deliver the same experience as the salon for the same or a lower price, because there is no overhead for the A-list location of a high-end salong. But Duan is right that if the human connection is missing, the industry will fail.

Grubhub case points to worker classification as independent contractors. The U.S. District Court for Northern California ruled in Lawson v. Grubhub that the company satisfied the state’s Borello common law test when it treated Raef Lawson, a Deliveroo rider in Southern California, an independent contractor. Lawson’s behavior, such as setting his phone to airplane mode during work time, drove the decision. It is not clear this case will build a solid foundation for gig companies to treat all workers as contractors.

Deliveroo faces union showdown. The Independent Workers’ Union of Great Britain has requested a review of a November ruling that denied its riders holiday pay, the national living wage, and the right to bargain as a collective.  The case now revolves around a clause in the Deliveroo contract relating to the rider’s obligation to provide a substitute if they cannot make a delivery, which the union says was misinterpreted by the court last year. The disputed clause makes the rider responsible to vet the replacement’s right to work and conformity with health and safety laws, a role traditionally relegated to the employer. The outcome, along with the results of other British, European, and U.S. cases, continues the debate about the nature of work and employment.

Amazon’s attack on grocery stores ramps up. Building on its Whole Foods acquisition last year, Amazon has tapped the Dallas and Austin, Texas, Virginia Beach, Virginia, and Cincinnati markets for free two-hour delivery of groceries. Bloomberg Technology reports the twist is that the Whole Foods locations will provide the inventory instead of relying on a regional warehouse. Known as Prime Now (apps are available on Apple and Google devices), the service is the first to combine Amazon’s Prime program with grocery delivery. Philadelphia grocers are preparing for the Amazon Prime onslaught with Instacart partnerships, The Inquirer reports.

Shipping By Amazon, for Amazon. The news that Amazon will build its own in-sourced shipping capability shocked the shares of United Parcel Service and FedEx last week. This makes sense from a local perspective, as much of the last-mile delivery traffic is outsourced to the United States Postal Service, FedEx, and UPS today. However, Amazon’s inventory systems will be the ultimate driver of shipping strategy, and most inventory needs to be near big cities. Amazon’s extensive regional warehousing system is in place to support Prime two-day and other shipping. Getting inventory to the warehouses, however, if an inter-modal shipping problem that requires multiple carriers and alternative routes if one mode of shipping is unavailable. This is not the death knell for traditional shipping, but it does place the focus in traditional shipping on the longest hops in the supply chain.

Instacart ramps up its funding, again. On the heels of 150 percent year-over-year revenue growth, Instacart closed a new $200 million round last week. Now valued at $4.2 billion, the company has raised $874.8 million, according to Crunchbase.

Instacart is slashing delivery fees. The Buffalo News reports that Instacart drivers and shoppers in the region are seeing their compensation cut by more than 50 percent. Just six months after launching with a $10 payment for each order delivered, shopper/drivers now average $4.75 a delivery plus $0.40 per item. It would require an order of 13 items to reach the previous $10/delivery level. Instacart offered a rich bonus for early delivery staff, but has failed to explain why its fees to drivers appear to be falling. The company is hoping repeat orders will include more items, and that may be an erroneous assumption.

Facebook doles out $5 million to community leaders. The story of local markets, which Facebook would like to support through improved storytelling and local advertising, will get a big boost from its selection of as many as five people to receive $1-million grants to “bring people closer together.” We recomnmend starting with local news and that Facebook refrain from seven-figure contributions to kick-start community engagement; Instead, find 200 journalists in local markets who will cover those markets closely and with real engagement with the citizens, business, and government issues. Pay them $50,000 a year to launch local Facebook-hosted communities and the results will be better.

Agency workers account for more of the British workforce, the Independent reports. The number of “agency workers,” or temps, has risen by 40 percent over the last decade to 800,000 people now serving permanently as temporary staff, according to a survey by the Resolution Foundation, a non-partisan think tank.

On-Demand Economy Notes, February 4, 2018

Every week sees a new “peak” or “maximally absurd” on-demand economy story, and this was no exception. As I rundown of recent news and data points of interest to on-demand companies, investors, and workers, I keep in mind that this transformation of our economy remains controversial.

It’s a commonplace to argue that “We get the society we’re born into,” but in this era, we can redesign society during our lifetimes. The vast majority of human generations have been stuck in their times because of the slow advance of knowledge and technology. The on-demand economy is only one aspect of a renegotiation of social value, and it can do far better than the first generation of companies if we keep worker retention based on fairness. We need to argue about this passionately and patiently to evolve a more sustainable and equitable economy in the era of technological acceleration.

Send your “Human Uber” instead of going yourself. New York Magazine points to the announcement that Japanese researchers have developed an iPad-based solution to sending someone in your stead. Dubbed a “human Uber” and announced at an MIT form, this may be the most ridiculous and dehumanizing gig economy idea yet, as proved by an Arrested Development running gag based on the idea during its first run on television.

Slapping an iPad over a person’s face to send them to be present for you is stupid and dehumanizing. The joke on Arrested Development revolved around a rich man sending a shlub to attend meetings while he was in prison. Telepresence, on the other hand, makes sense. Scott Hanselman, a former colleague at Microsoft, accomplished a proxy presence without subjecting a human to serving as a meat puppet. Scott worked remotely, sending “Hanselbot,” a rolling platform with a screen, to meetings in Redmond. We don’t need to subject people to this.

Doctors on-demand, that makes sense. Lexology has a good summary of the risks associated with on-demand approaches to healthcare. In addition to the employment risks, such as failing to validate citizenship of workers and changes to healthcare organizational structure, which the articles covers, the rigors of HIPAA compliance, medical privacy, and care standards for non-employee workers are critical to understanding this market. Accenture projected that healthcare investments in on-demand would eclipse $1 billion in 2017.

Josephine announced it will be shutting down in March. Founder Charley Wang, co-founder of the Oakland-based community cooking service, announced the move on the company’s blog Thursday. “We knew that Josephine was an ambitious idea from day one and, as you all know, there have been many highs and lows over the years,” Wang wrote. “At this point, our team has simply run out of the resources to continue to drive the legislative change, business innovation, and broader cultural shift needed to build this business.” Enabling neighbors to cook for one another, Josephine invested in changing California law to allow home-based cooks to sell their food. The site will operate for 60 days, free to the cooks. Wang also said Josephine will transfer cooks’ business information and recommendations for next steps to their members.

Centralized kitchens bets are growing. Kitchen United, a Pasadena kitchen designed to support restaurant delivery and catering services, raised additional funding this month, according to Pasadena Business Now. Combining food preparation with order and delivery infrastructure, the company offers kitchen space by the hour or month to restaurants.

For what it’s worth, the Global Online On-Demand Food Delivery Service Market Overview reports food delivery will grow 32 percent CAGR. 

Evernote CEO predicts multi-role software services for on-demand workers. In a short piece on Business News Daily, Chris O’Neill, CEO of Evernote, described an emerging software environment based on users with many work and organizational roles rather than one. He is betting his company on understanding small business’ use of services to establish networks of “products and services.” We wholeheartedly agree with this philosophy at Gig Economy Group. Integration of services will be essential to consumers, as well, because the prospect of managing multiple on-demand services through dedicated apps will be too complicated. “The biggest bid we’re making as a company is to make the product more powerful when you use it with other people, team settings, group settings, nonprofits,” O’Neill said.

African household labor market points to lower marketplace fees. Workclick, a U.S.-Nigerian startup said it will take only 20 percent of worker revenue as a fee for connecting them with customers. Workclick’s app is offered in the U.S., but the workers appear to be only in Nigeria, where it has about 5,000 people on the platform. Low-income countries may be where lower marketplace fees initially take hold in on-demand work. U.S. companies like Uber have taken between 25 percent and 30 percent of revenue. In an age when Amazon and Wal-Mart thrive on sub-10 percent margins, on-demand marketplaces should expect to see their share of revenue under pressure. In low-income countries, labor marketplaces will not support high fees. Workclick’s initial fee structure hasn’t gone that far, but it’s a step in an inevitable direction for on-demand companies.

Careem, the Dubai-based competitor of Uber, Didi Chuxing, and Ola, among others, is profiled by Bloomberg Businessweek. Of note: Careem, currently worth $1.2 billion, is active in 80 cities across 13 countries. Four out of five Saudi Arabian women have used the service, which is training female drivers in the country. The story does a good job of exposing the difficulties of social transformation in the Arab World.

Ford takes Chariot to London. Engadget reports on the expansion of the carmaker’s first on-demand van service to the U.K. Focusing on South London, which is less well served by the Tube, with fares for daily rides between $3.41 and $2.27 after an initial two-week free offer.

Allygator Shuttle, a Berlin on-demand van service, has launched. Smart Cities World describes the service as a partnership between door2door and the Allgemeiner Deutscher Automil-Club, the German auto club and driver services company. The trial will consist of 25 vans running on Fridays and Saturdays only.

Speaking of auto clubs, Jrop wants to obsolete the monthly membership in favor of on-demand tow and roadside repair services. TechStartups.com has a summary. We think

Another flavor of robot. They are already wandering the sidewalk in many cities, and delivery robots are evolving into specialized breeds that will take to the streets. Robomart has a concept design for a fruit-and-vegetable delivery service that brings the produce department to the consumer’s door. Robomart’s concept is a problematic model for two reasons: 1.) It depends on the customer being at home and willing to walk to a van, rain or shine, to select their produce. On-demand services will not monopolize the customer’s time like this. 2.) The produce robot will suffer from the same problem consumers identify at the store, a lack of selection if the van has been picked over by previous customers. Optimizing routes to provide stock refreshment during a day will be challenging.

Crypto your tip? Finally, WIRED’s Zohar Lazar asks why Kudos, a blockchain-based system created by “Uber for buses” company Skedaddle to replace traditional tipping, makes any sense. With so many newly minted crypto billionaires, the solution to tipping isn’t to create a new currency to solve the problem, because the billionaires have a troubling habit of taking their cut first.

Home Delivery: Gen Z, Millennials, and Their Values Define The Market

2018 will be a watershed year in local on-demand, particularly home delivery of food. The industry has set down roots in North America, Europe, Asia, and the Middle East. McKinsey projects 25 percent growth for food delivery companies in 2018. UberEats reportedly accounted for $3 billion in 2017 revenue, suggesting that its revenue could climb by as much as $750 million in sales this year. GrubHub could see more than $170 million in additional revenue.

In short, there is $1 billion in growth to be captured by food delivery companies this year.

UberEats, which is reportedly driving more revenue than the company’s car services in some markets, has carved out an early advantage in prepared meals by partnering with McDonald’s and smaller local restaurants in the U.S., Europe, Asia, and elsewhere in the world.

Deliveroo (restaurant delivery), GrubHub (restaurant delivery), DoorDash (restaurant delivery), Instacart (groceries), Amazon (groceries), Home Chef (meal boxes ready for cooking), Blue Apron (meal boxes), among others, are the chief competitors in UberEats’ markets. Deliveroo and  Peach have invested in centralized kitchens to prepare their own and local restaurant’s recipes for delivery. Multiple models for the preparation of food are emerging:

  • Distributed Restaurant Delivery Networks, such as UberEats and GrubHub;
  • Centralized Kitchen Delivery Services (office- and home-centric, which account for 16 percent and 82 percent of the market, respectively), a la Deliveroo and Peach;
  • Delivery of Prepared Ingredients for Cooking, and;
  • Grocery Delivery.

Generational progress is poised to reinforce the trend.

Millennials, who live at home in Depression-era numbers in their 20s and early 30s, and the 18-and-younger Gen Z, who have not had a chance to move out, are redefining the values that influence buying decisions. In particular, they want healthier, responsibly produced food and are more selective than older people, who weren’t offered as much information about their eating choices.

Source: USDA Economic Research Service; Information Resources Inc.

Where older Americans order less food at home, younger people are showing early signs that they have embraced the convenience of home food delivery. Millenial eat out in restaurants more than their parents. The quality and provenance of food, notably its sustainable production, are the levers of differentiation for these generations.

Given the growing values-based scrutiny young consumers apply to their decisions, which may trump convenience and price when deciding what to order, differentiation of services will be essential to food delivery services. Millennials prefer to eat out — for the experience — rather than stay in. However, they haven’t entered their parenting years en masse and we can expect home delivery to displace some dining out as they age. Even when living with their parents, Millennials tend to buy more prepared food, notably candy, than older Americans.

Gen Zers, on the other hand, may be even more home-centric. These 18-year-olds and younger save more,  exercise resistance to impulse buying, and already represent $44 billion in discretionary spending. They also seem to impact their family’s spending more than previous generations, based on their parents’ reported spending. Gen Z has embraced the frugality of the times with discipline and digital information, doing more research and tapping social sources of recommendations more than earlier generations.

Source: McKinsey & Co.

Millenials and Gen Z will account for more than 60 percent of the U.S. population when they have grown to their majority. They will transform food consumption from a commodity to a values-supported experience. Food and information will be combined to delight the customer and confirm the sustainability and healthfulness of meal tim. There lies the missing link: Human trust.

Usability is currently the focus on food delivery platform and app experience. Simplicity, however, does not remove the tedium from selecting meals day in and day out. So much new information, from calorie counts to organic certification, is involved in choosing the next meal. Ordering for children, as well as keeping within a food budget, are just two complexities that Choosing meals is work that will be outsourced, too.

The need for local curators or influencers to craft menus by customers’ personal and demographic preferences is the critical gap in this process. A story of why the food one buys and eats, that they feed to their family, is essential to food delivery success.

Food choices are strongly influenced by media, by tastemakers, and chefs. Especially chefs, who are brand unto themselves these days. The Food Network and its myriad competitors prove the importance of suggested meals and stories to support consumers’ embrace of new foods and unfamiliar cuisines.

A local food media and influencer network closely attuned to regional tastes, trends, and crop quality is the missing layer of this market. As infrastructure investment-driven growth tails off and people find the limits of their patience with meal selection tools, human contributions to the customer experience will transform food delivery from the current gradual growth rate to hockey stick adoption.