With a simple mobile app, Uber transformed the cab industry worldwide. Anyone could sign up to become a  driver. Users were persuaded to come onboard by the greater convenience and transparency it offered. No more standing on the street waiting for a vacant cab or multiple phonecalls to cab services, simply  tap a button and your ride arrives. The infectious success of this ‘on-demand’ business model led to a spate of startups – popularly referred to as ‘Uber for X’, trying to disrupt other industries using a similar arrangement – a mobile app connecting consumers with an immediate requirement with service providers. Services and products offered by these startups ranged from food and grocery delivery, to running errands and dog walking. This was a classic online-to-offline business model, and coupled with the rise of mobile commerce, the timing seemed ripe. Uber had showed that a small startup with a mobile app could disrupt large, established players, and win. One reason attributed to its success over larger incumbents was its business model, which required vastly lesser resources to run. Uber owns no cars, and its drivers are independent contractors, not employees. Encouraged by these inherent strengths of the business model, Uber for X startups hoped for similar success.

So does the Uber model translate to other industries? Going by the recent failures of many startups providing such ‘on-demand’ services, it does not look likely. Many of these failures were due to the inherent pitfalls of the business model – bad unit economics, quality and availability of casual labor, and spiky demand. Exec, one of the darlings of the ‘on-demand economy’, was a startup connecting busy people with errand runners. It recently sold out to a house cleaning service, after repeated ‘pivots’ failed to turn the business profitable.

Of the total charged for every errand performed, 80% would go to the actual errand runner and the rest to Exec as a commissio. It soon found out that this 20% was insufficient to fund its running and customer acquisition costs. The only way to improve unit economics was to increase the cost of using the service substantially. The fact that a majority of errands happen on weekends, when less errand runners were available, didn’t help either. Without an Uber-type surge pricing model they found that demand quickly overwhelmed supply. A majority of workers attracted by the casual, short-term work offered by on-demand startups aren’t highly motivated or reliable. Exec too was affected by missed appointments and badly handled tasks.

[pullquote]Uber did not invent the taxi industry. It simply improved the end user experience for both passengers and drivers[/pullquote]

Uber did not invent the taxi industry. It simply improved the end user experience for both passengers and drivers. The fact that many other on-demand startups such as Lyft and PickMe have succeeded in the same space hints that maybe the dynamics of the taxi industry are uniquely suitable for this model. PickMe’s success will inspire more local on-demand startups, while at the same time deterring them from entering the taxi industry, paving the way for local Uber for X startups.

What will determine their success? Startups trying to sell their on-demand services to the highest end of the market are unlikely to succeed. Locals with more money than time – who form the target market for on-demand services – have relatively ready access to a pool of labor willing to serve as domestics. Hence, selling errand runners or house cleaners on-demand will likely prove difficult.

On the flip side, Sri Lanka has notoriously inefficient supply chains, particularly for fresh farm produce. A business that eliminates some of these middle men to connect buyers to sellers directly is likely to prove popular. On-demand delivery of fresh fruits and vegetables has found some traction in India, but it must be noted that penetration of supermarkets in India is far lower compared to our cities, and purchasing involves much more inconvenience and friction due to haggling over prices, etc. Urban consumers in Sri Lanka experience such friction relatively less frequently. Other considerations aside, a successful on-demand business cannot be built on novelties. The service offered needs to be frequent repeat purchase to maximize payback on customer acquisition costs. Picking an industry that fits this sweet spot, while at the same time appealing to a sufficiently large group of target consumers, is likely to prove the biggest challenge for locals thinking of emulating Uber.