THE BLOG
09/01/2016 10:04 am ET Updated Dec 06, 2017

Is the On-Demand Service Economy Jeopardizing SMBs?

2016-08-26-1472217455-5786388-SamMadden.pngBy Sam Madden

The on-demand service economy once carried the promise of universal benefit for all professionals and consumers. Consumers could conveniently book any and all the services they needed, and professionals could sit back and let more customers roll in. The realities of an on-demand world, however, are not so simple.

Uberizing Everything?

Rapid technology growth has initially driven the media, technologists and investors to lump all service types (routine and non-routine) together, forecasting the "Uberization" of the entire service economy.

"Routine" job types include services like transportation and food delivery -- almost commodity types of services where the variation in quality is small (think Uber, Instacart, Postmates, etc.). "Non-routine" services include home services like handymen, dog trainers, childcare providers, etc., where trust and skill are involved. As co-founder of a software company that caters to the small business community, most of our customers work in the non-routine services industry, and I have seen firsthand the structural differences between these two service types.

In the market's attempt to "Uberize" all types of services in a similar fashion, what has emerged is a large amount of technology platforms well suited for routine service job types, while at the same time many being ill-equipped to properly service more skilled, non-routine professionals.

Instead of on-demand platforms supplying high-quality clients to skilled small business owners, they are diverting direct client traffic away from these skilled workers. Rather than helping SMBs grow, they have slowly become some of their biggest competition.

When Quality Matters

Uber never really encountered much market competition from cab companies (big or small alike) because the range in service quality when asking someone to drive you 10 blocks is minimal. The same goes with ordering food to be delivered from point A to point B. When it comes to non-routine and home services, however, quality and trust are paramount.

The average person does not know how to train an aggressive dog, provide counseling to teenagers or replace a broken toilet, for instance. And teaching these non-routine service skills is not something that an engineer or a startup founder knows how to do either.

As a result, certain on-demand platforms are stuck sourcing service professionals from a pool of an available yet unskilled workforce, and attempting to "train" them in-house (while also trying to balance their employment classification issues to preserve contractor versus employee status). On-demand cleaning company HomeJoy, for instance, was reported to have hired people off the street to enter client's homes and perform detailed cleaning services.

To overcome quality issues, on-demand platforms have also attempted to bring skilled SMBs within their network to improve service quality to consumers. The economics for skilled professionals, however, are not attractive enough for them to fully adopt the platform. I come across cleaners, tutors and handymen every day who rant about the low paying jobs that on-demand companies send their way. Since typical platform fees are 20-30 percent per transaction, in an on-demand world, SMBs would be forced to take home 20-30 percent less from each client on an ongoing basis. They offer no direct relationship with clients, no upside to turning a one-time client into repeat business, and the entrepreneur would be adopting a new and unappealing platform-as-boss hierarchy.

These service quality and trust issues are serious enough within the home services space that platform churn (for both the supply and demand side of the marketplace) is a major issue.

The Future of Work

The truth is, the future of work is completely dependent on the industry one serves.

For routine services, most of the workers care less about the quality of work they perform because of the very nature of the work itself. They prefer a flexible lifestyle, the ability to set their own hours, and the certainty that jobs will be sent to them as soon as they turn on the switch that they are "ready for work." Building a business is not as important as a steady paycheck and some control over their lives. For these types, on-demand truly is the boss of the future.

For non-routine services, the majority of professionals I work with have invested a lot of time building up their skillsets. Skilled professionals tend to have more of the traditional entrepreneurial mindset. They want to build their own client base, serve their customers well, keep honing their skill sets, and hire employees to work for them. They reject the "platform as boss" mindset that on-demand companies are modeled after, and tend to adopt technology platforms like Yelp, HomeAdvisor, Thumbtack and Facebook, which allowing them to find, win and maintain their own client base.

On-demand technology can certainly Uberize certain aspects of our service economy, but other workers will end up counting on their own skill sets as their core competitive advantage against today's growing technology.

Sam Madden is the co-founder of PocketSuite, a mobile platform empowering any service professional to run their own business from the palm of their hand.