Tag Archives: Postmates

How On-Demand Economy Can Prosper

Even some of the most successful innovators in history would tell you, “Don’t quit your day job.” George Eastman worked full-time while tinkering in his mother’s kitchen on the inventions that let him found Eastman Kodak in the late 1880s. A century later, Steve Wozniak worked at Atari while developing the computer that he and Steve Jobs would turn into Apple. The fact is: No matter how great the idea, or how great a worker’s skill, it’s hard to mesh with an existing enterprise or any other group.

The reason is explained by Nobel laureate economist Ronald Coase in his influential 1937 essay, “The Nature of the Firm.” He theorized that people choose to organize themselves in companies and corporations rather than contracting their services out directly because of transaction costs. He cited: search and information costs; bargaining and decision costs; and policing and enforcement costs. “Within a firm, these market transactions are eliminated, and in place of the complicated market structure with exchange transactions is substituted the entrepreneur coordinator, who directs production,” he wrote.

Essentially, marketing, selling, pricing, negotiating and getting paid as a self-employed person isn’t all rainbows and unicorns – the work critical to running a business can be enormously complicated, time-consuming and costly.

Thanks to technology, much has changed since 1937. Mobile connections, broadband and ubiquitous data have reduced transactional search and information costs considerably. It is much easier, faster and economical for a small business to effectively compete with larger firms.

There has been a major shift in our buying behavior, too – consider how profoundly Amazon or iTunes has altered the way we discover, compare and purchase goods. Companies like Uber have used technology to reduce our search and information costs, as well as our bargaining and decision costs and policing and enforcement costs. If reducing one transactional cost shifts the economy, then reducing all three transforms it….

We are now officially unlocking the potential of the on-demand economy – one that will revolutionize the 21st century workplace and workforce. It’s so new, we haven’t decided on a name for it yet; it goes by various monikers like Uberization, the gig economy, the on-demand economy, the access economy and the peer-to-peer economy.

This on-demand economy offers the exchange of goods and services between individuals instead of from business to consumer. The people providing goods and services aren’t necessarily employed by the company connecting them with the customer, either. Many are independent contractors or freelancers.

Technology acts as the intermediary automating the handling of pricing and payments, vetting providers through a user-rating system and matching providers with consumers’ needs. This intermediary speedily brings together supply and demand via a platform that can be controlled by an app on any mobile device. The platform makes information available and accessible in the manner most efficient for the business, ensuring that transactions that are started are more likely to be concluded. The platform often obviates bargaining, directly polices its members, enables community-driven self-policing and enforces the terms of interaction. The costs of this coordination is added to each peer-to-peer transaction.

The new economic model is a highly efficient, productive and cost-effective marketplace. Platforms like Luxe, Lyft and Uber offer transportation services; Caviar, Doordash and Munchery deliver food from local restaurants; Instacart will shop for and deliver grocery orders; AirBnB, HomeAway and Onefinestay connect renters and homeowners offering available space with people seeking accommodations; Handy, Taskrabbit and Thumbtack will help a household find an available plumber, drywaller, cleaner or furniture assembler; and delivery services like Postmates and Shyp will pick up, pack up and send packages.

There appears to be no lack of supply or demand in this rapidly evolving phenomenon. Almost 53 million Americans currently serve as providers to on-demand platforms, at least part-time. Having goods and services on demand satisfies our need for “instant gratification” and allows consumers to find a broad array of competitively priced services 24/7 – they can get what they want, when they want with the touch of a few buttons.

The advantages for providers are many, too. No longer saddled with the time-consuming chores of the self-employed, like marketing and promoting services, negotiating transactions or chasing down payments, the on-demand economy provides freelancers with a turnkey, hassle-free method of accessing a large market of ready-and-willing customers whenever they want to work. It’s freelance freedom and flexibility with almost no barriers to entry.

You don’t need to be an economist to envision how the on-demand economy business model can benefit the marketplace as a whole: The Ma & Pa local restaurant that can easily deliver through a fleet without incurring staffing costs can substantially expand its market and service underserved markets. People can now use their cars to transport passengers and generate income rather than leave vehicles parked in driveways, resulting in a very good use of underutilized resources;. And, when a student can help an eBay seller package and deliver parcels on the fly, a job and professional support network are created that had not previously existed.

The new economy is here. It’s poised to democratize the marketplace and its workforce by maximizing underused assets, creating jobs, expanding markets and meeting the needs of underserved markets, all while creating a faster, easier way for us to get what we want, when we want it.

But this new business model comes with new world challenges as the distinction between personal and commercial activities becomes blurry. To thrive, policymakers, regulators, insurers and the companies enabling the new economy will have to work together to design a platform that protects consumers when they are operating as businesses.

5 Questions That Regulators Must Ask

Fast growth and disruptive strategies make the likes of Uber, Airbnb and Lending Club a vanguard of young, fundamentally digital companies that are changing the way people travel, save, learn, eat, pay, lend—and more. Typically positioned as alternatives, they offer, among other things, financial services without being banks, car services without being taxi companies and somewhere to stay without being hotels.

In other words, the companies don’t play by established industry rules. And that’s the reason regulators and courts in a number of countries struggle to make sense of the changed industry ecosystems they oversee as they try to determine whether to permit or prohibit these digital disruptors. We believe the choice doesn’t have to be black or white: Regulators will want to enable the potential of these digitally contestable markets to deliver efficiency and innovation, while minimizing risks for consumers and the burden of adjustment for incumbents. The question is, how should they approach this difficult task?

The entrepreneurs who create digitally disruptive companies are routinely guided by a number of related strategic questions. We believe oversight bodies can use similar questions to arrive at appropriate regulatory responses. Here we suggest five:

1. How can we better serve customers’ needs and wants?

Many of the new digital business models work by putting underemployed talents or assets—like spare rooms or underutilized cars—to productive use. These business models usually won’t fit into traditional industry categories, such as “hotels” or “taxis.” Consequently, to make sense of them, regulators should fully consider the perspective of the consumer, setting aside purely industry sector approaches and taking a market view—the market for overnight stays or for travelling within a city, for instance. This way, they can support the successful operation of the market as a whole, namely balancing the many different outcomes demanded by consumers, including price, quality, availability, choice and safety.

Doing so will enable regulators to make a sober and impartial assessment of a new player’s potential to improve or upset this balance. Ruling out new players from the start simply because they don’t fit an existing industry definition could deny consumers better or cheaper ways of fulfilling their needs and wants. Worse, a start-up whose activities fall outside the realm of regulation could decide to enter an unregulated “shadow” sector that could ultimately create even greater trouble for incumbents and consumers. The recent rise of the so-called shadow banking sector should give consumers and regulators alike pause for thought.
In practice, regulators may be constrained by existing laws; they can, however, start the conversation about how regulation will need to adapt.

2. Are we considering all the competition?

Within a digitally contestable market (for example, the market for payments) new entrants very often straddle multiple industries. A good example is Apple Pay, a new way of paying for things with an Apple device. It has the potential to reinvent in-store and mobile transactions, simultaneously disrupting the telecom, financial services and retail industries. The market for wearable biometric technology is another example, bringing together high-tech, mobile and healthcare services within accessories and apparel that needs to be demonstrably safe for personal use.

As digital markets run beyond industry boundaries, regulators in different industries will need to collaborate with one another to catch up. Collaboration between regulatory bodies, where appropriate, may be both necessary and desirable—not only to execute current responsibilities but also to create common frameworks that encourage businesses to invest in digitally contestable markets. This approach can drive growth and productivity for the economy as a whole.

3. Are we thinking globally?

Just as digital disruptors don’t conform to traditional industry definitions, neither do they confine their ambitions within national borders. Mobile apps can work in the same way the world over as long as there is unfettered Internet access, and providers want to back them with consistent services. Moreover, customer expectations exhibit a ratchet effect. If it’s possible to use a mobile app to arrange a ride in London, why not in any other city? Why should a consumer’s experience of VoIP services from the same provider vary from country to country?

The work of regulators will increasingly depend on international collaboration. National bodies should actively align their work programs to increase the evidence base, accelerate the uptake of “next practice” and coordinate regulatory responses where it makes sense to do so in the interests of consumers.

4. Where can we experiment?

Digital disruptors don’t just compete in existing markets—they explore, create, define and shape new markets. Take Postmates, a San Francisco startup launched in 2011 that has built its business model on the entire process involved in “getting things,” including queuing, purchasing and delivering. Consumers and businesses can use the company’s app to arrange for a “Postmate”—an individual with spare time and wheels—to buy and hand-deliver any item within a city in less than an hour for a distance-based fee starting at $5. Using technology to combine elements of the retail, courier, concierge and postal sectors, the company is opening up a market for integrated convenience services previously available only to the affluent. Postmates can now be found in 13 metropolitan areas in the U.S. and has inspired similar services in Europe. It is also developing a merchant program to enable local businesses to initiate deliveries to customers and establish virtual stores within the Postmates app.

Disruptive businesses don’t wait for market potential to be proved before they act—and neither should regulators. While regulators will always base their oversight activities on deliberative, comprehensive assessments, today they also need to become as agile as the new players to react quickly to events, or even anticipate them. Digital tools and techniques can help.
One example: A/B testing, frequently used by digital disruptors to run multiple fast experiments on small samples of their customer base. This enables them to refine and improve proposed changes to the online user experience—design, offerings, prices—before rolling them out in full. While taking care to secure the consent of participants, regulators could harness techniques like these to test regulatory adaptations. If a market’s participants innovate and succeed through speedy knowledge of what works and what doesn’t, why shouldn’t that market’s enabling framework benefit in the same way?

5. Do we know what’s around the corner?

Digitally contestable markets often catch regulators by surprise. The head of the UK’s Competition and Markets Authority called digital disruptors “a Schumpeterian gale” sweeping across the economy. To harness the power of this storm of creative destruction, regulators will have to do more than simply react to change. They also need to be prepared before markets are upended.
To prepare effectively, they should make renewed use of horizon-scanning activities to spot systemic risks and emerging trends. When postal agencies (and their regulators) were debating the competitive merits of “last-mile” delivery companies, did they really envisage the breadth of service integration that players like Postmates would provide? Regulatory agencies will also need to develop techniques that encompass new technologies, encourage innovative business models, and explore new and more effective policy tools.

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Getting Started

The level of uncertainty generated by digitally contestable markets is unprecedented. New market dynamics are rapidly altering the boundaries and methods of oversight. Regulators will need to build new capabilities if they are to ask and meaningfully answer the five critical questions. They can start in three areas:

1. Talent: They should recruit people with experience in startups, to acquire the range of skills and mindsets needed to cope with fast-changing markets. Agencies should also ensure they have employees who are well-acquainted with disruptive technologies, whether through their work or simply in daily life.

2. Technology: To inform and enhance decision making, regulators should become comfortable with employing digital technology, including the “SMAC” of social, mobile, analytics and cloud. In particular, they should make full use of the intelligent data collection tools available today, including consumer apps such as Field Agent, as well as the burgeoning Industrial Internet of Things. Their goal should be to improve decision making using an evidence-based and data-driven approach. Beyond that, big data analytics can help them more accurately predict changes in customer and regulatory demand.

3. Tactics: To better anticipate and meet regulatory challenges, there are some no-regret steps regulators can take. For example, they can undertake “social listening” via Twitter, LinkedIn and other conversation spaces; this will help them identify future market players and spot market trends. Regulators should also participate in industry “hackathon” events to learn about the challenges entrepreneurs and innovators are currently facing, and even employ their own open, problem-solving events—physical or digital—to understand current concerns and explore potential solutions.

Digital innovation hasn’t changed the objective of regulation: promoting consumer welfare. But how to do it—developing and applying rules that deliver efficient and equitable outcomes—has become more complex and difficult. In economies increasingly populated by digital disruptors, the first step for regulators is to begin to question, think and act like the companies they oversee.

This article was originally published in Outlook, Accenture’s online journal of high-performance business. It is available here

Read more about digitally contestable markets here and ecosystem collaboration here.