Fri · Oct 7

Why Many On-Demand Platforms Fail

Sam Madden, cofounder of PocketSuite (W16), shares his perspective on on-demand models within service industries.

Due to the extraordinary success of Uber there is a school of thought among the tech community that every service can be Uberized. However, when it comes to home and local services, the Uber model tends to break down.

The most successful on-demand companies have had models focused around commodity services – think transportation (Uber) and delivery (Postmates). These are types of services where the range in service quality isn’t large and the trust requirement isn’t high. Most of us are not too worried about who will drive us from A to B, or who will deliver our Indian food on a Sunday night. We just want our service performed immediately and in a convenient way.

When Trust is Paramount
Home services are different. It takes a much larger amount of trust to allow a service professional (or “pro”) into your home let alone take care of your pet, or babysit your child.

Typically the preliminary pain point in home services hiring is finding the right pro who you like, who you trust, and who does great work. Once you find that pro, you don’t want to let him or her go. You want to keep them in your pocket, and reach out to them whenever you’re in need – in your own on-demand way.

The Uber model tends to break down in service industries where direct client-pro relationships are traditionally formed.

Direct Relationships Matter
As consumers, we’re not the only ones who feel this way. The home service pros themselves are on the exact same page as us.

What service pro wouldn’t want to keep a rolodex of regular clients, or be accessible for on-demand booking from high-paying clients, or even set their clients up on recurring appointment schedules?

Having a direct relationship with one’s client is crucial when gauging cash flow visibility, and also cheaper from a customer acquisition standpoint – much easier to convert a past client than win a new one.

No Scale with a Middleman
In addition, operating under an “Uber as boss” model prevents an eager service pro from scaling his or her business. The fees these pros pay on-demand platforms to act as middlemen range from 20-30% per client transaction – for each and every transaction. The dream of hiring contractors or employees becomes uneconomical if the amount a pro is pulling in at the get-go is net of a 20-30% fee for every single job.

The Future of Work
Consumers are increasingly expecting Uber-like technology and convenience when they do anything these days. On-demand platforms have been the first mover to try to capture this technology shift in consumer demand, and many companies have seen successes in a variety of service industries.

The future of work within the home and local service economy goes deeper than what on-demand platforms currently offer. Technology helping with initial pro discovery is one thing, but empowering the ongoing direct relationship between professional and client is going to be the next huge wave in platform creation within the $800 billion home services economy.

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