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.

 

Teens and Commitment: It’s an Exclusive Thing

Piper Jaffray surveyed 1,100 teens about their spending habits and the results reinforce the importance of relationships with young buyers, according to MediaPost. As noted yesterday, Gen Z is more deliberative, less prone to impulse buying, and already saving for their future. The Piper Jaffray study also found that young consumers look for exclusive offers, which are based on an exchange of information that creates loyalty: 

Teen shoppers are savvier shoppers than you might think. Budget conscious, they look for low prices. They want to protect their investments by buying quality products, but if you want to gain their loyalty, they are looking for exclusives and membership benefits. The older the teen, the more important this value exchange becomes.

The exclusive offer/price as basis for commitment is important to understand and use when establishing customer relationships.