Shawn Porat is the CEO of Fortune Cookie Advertising, a non-traditional and out of home media placement company selling advertising space within fortune cookies at Chinese restaurants throughout the United States.
The sharing economy has become one of the most recent trends and buzzwords of the last few years. With the rapid growth of businesses such as Uber, Lyft, AirBnB and others, many startups are proposing the "Uber for X" model, where buyers and sellers come together using an app. There's little doubt that this trend will grow in 2016 and beyond. It's certainly been relevant to my own business. I am constantly seeking ways to incorporate more sharing options for my customers.
We should, however, look at this phenomenon realistically. This is especially true if you are thinking of an Uber-for-X startup or you're considering the possibility of introducing a sharing app to your current business. From both personal experience and studying other businesses, I've observed that this model works very well in some instances and not so well in others.
Uber for X: Unlimited Possibilities?
Once momentum started building for Uber and AirBnB, it was natural that other businesses mimicked the model. It does offer many advantages to both service providers (Uber drivers) and those who purchase their services (Uber riders). From the point of view of the business, there are also undeniable benefits.
Companies may need to invest substantial time and research into developing a sophisticated app, but they don't need the kind of physical products/structures traditional businesses do. The users provide everything: Uber doesn't have to invest in cars and AirBnB doesn't have to build hotels.
While companies providing transportation and accommodations have been getting most of the press, other types of businesses have been quietly using similar models for years. On-demand book publishing, for example, allows authors to self-publish books without investing in thousands of copies. Amazon, through its CreateSpace service, is one of the largest providers. Another is Lulu. Companies such as CafePress, meanwhile, allow businesses to create a wide variety of on-demand products, from T-shirts to coffee mugs.
By some accounts, there will soon be an Uber for everything. There are already on-demand or share type apps for purchasing groceries, ordering food, getting spa services, dog walking and so forth. The possibilities are endless. At the same time, this creates some challenges for businesses who are anxious to jump on this bandwagon.
Challenges for Sharing Economy BusinessesSome of the challenges that this type of business is likely to face include:
- Profitability: This is a big one. Even as Uber grows, it has been suffering heavy losses. A business model that's mainly based on an app can make it difficult to profit. In my own business, I've introduced apps that customers found helpful, but they didn't necessarily help our bottom line. One of these was a game that, based on feedback, people enjoyed. However, we ultimately had to scrap it because it wasn't producing revenue and it was too costly to keep updating it and ironing out all the bugs.
- Competition: As this rapidly become a mainstream model, businesses will face increased competition.
- Laws and Regulations: Many share economy companies are facing regulations and, in some cases, calls for banning their whole business model. In some cases, pressure comes from competing businesses (e.g. taxi companies trying to outlaw Uber). Since this is all new, it's far from clear what laws and regulations will look like in the coming years.
If you want to become the next Uber, you must exercise caution and have a realistic attitude about what's possible. If you have an existing business and are considering an app to "Uberize" all or part of it, make sure you do plenty of market research first. Find out how many of your customers would actually value this type of service. Take a close look at the competition and recognize that more competition is likely to arise in the near future.
As more and more Uber-for-X type businesses pop up, it's inevitable that many will not survive. Just because sharing apps are convenient and efficient for some businesses doesn't mean it works for all types. In addition to studying success stories, it's essential to understand the conditions that cause Uber-for-X companies to fail.
You don't necessarily need a brilliant new concept. I recently worked with a company that wanted to provide gourmet meals to people in several cities. Using the sharing model, the concept was to connect consumers with local restaurants and delis that best met their needs. While many restaurants already use apps, the app we developed made it easy for busy professionals to pinpoint and quickly order what they wanted. As with any business, this worked because we first identified a niche market and then found an efficient way to serve that market.
The Future of the Sharing Economy
It seems inevitable that the sharing economy will continue to grow despite facing some real challenges. It's simply too powerful and efficient to disappear. This has profound implications for the future of the economy. People have come to expect that they can quickly access just about any type of service by pressing a button on their smartphones. This doesn't mean that this model will work for every business. In many cases, however, it's the simplest way to connect consumers with service providers.