What’s the difference between Sharing Economy and On-Demand Startups ?

Mar 14, 2016
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The following is a guest post by Jean-Jacques Arnal, Founder & CEO of Stootie. You can follow him on Twitter at @jjarnal 

A lot of startups have emulated Uber’s approach on selected verticals like gardening, teaching or cleaning. They are often called On-Demand Economy (ODE) startups since they aim at transforming your mobile into a remote control to get things done. Their value proposition rely on the standardized quality of service and the transparency on price they are able to provide.

At the same time, Sharing Economy (SE) startups have followed the steps of pioneers like Blablacar and AirBnB. Sharing Economy startups allow people to share their material assets (housing for AirBnB) or skills and time (services for Stootie) at a price that people set themselves.

ODE and SE startups are very different. SE marketplaces are based on freedom of markets, do not set the prices themselves and do not choose the provider you will contract with. Their goal is to provide all the tools for trust and transactions. ODE startups, on the contrary, need to control their suppliers and dispatch them to their clients,  in order to keep their word on the service they provide.

Given these differences and in the case of platforms of millions of users, we think that SE startups have massive advantages allowing them to bring the same benefits of quality and transparency of price without the structural disadvantages that threaten ODE startups.

Legal Issues

ODE startups are subject to a fundamental risk on their operating costs. Legal Courts don’t hesitate to rule their contractors as employees as they control all the experience and business done on the platform, setting the price of the suppliers and assigning them to a client.

On these very grounds, the California Employment Development Department ruled last September that a former driver for Uber acted like an employee. Should this stance be more widely adopted, it is unclear whether ODE startups business models could ever be profitable. This risk was also one of the main roots behind Homejoy’s failure last summer.

Such legal risks do not apply to SE startups since they do not control price and behaviors of users. SE startups do not experience a legal risk but experience a legal issue: the clarification of tax rules and social contributions applicable to individuals carrying occasional activities. In France, Deputy Pascal Terrasse did not say otherwise in its report for the government (Proposal 12): the tax administration has to clarify its stance on the matter.   

Limited Applicable Markets

As Martin Mignot’s article pointed out, ODE models are far best suited for (i) urgent and (ii) frequent needs of a (iii) commoditized tasks, at least for the moment. This explains why startups on the transportation market whether they deliver food or transport people – are the most successful.

However, it seems pretty difficult to package a one-click experience to get a price for painting a wall or repairing a laundry machine. Both services depend on a lot of variables making it almost impossible to package easily. You have to wait for the suppliers to understand exactly what happens and what needs to be fixed.

Retention and Acquisition Costs

In a mobile environment where very few apps are used regularly, ODE models are suited for frequent needs which do not imply intuitu personae relationships. Transportation, delivery and food have been successful for these reasons.

However, plumbing, repairing and other categories fail to bring retention by themselves. Babysitting and cleaning bring retention but are bypassed by users (you recruit one user to provide him with a cleaning service and he will bypass your service next time). Repeat is therefore not the same as delivery or transportation.

Adopting a generalist approach and bundling services is therefore important since each new usage offer a new reason to open the app. For SE startups based on conversational commerce like Stootie, bundling different services is easier.

Last, on SE models and most successful SE platforms, supply becomes demand and reciprocally : many users belong to both sides. According to Frédéric Mazzella, on the order of 60% Blablacar users are both passengers and drivers after 2 years.

If suppliers become providers, you decrease your cost of acquisitions

Humans after all

ODE startups bring a robotic interaction – albeit fast and efficient – for a lot of markets but the ODE logic cannot be transposed to the majority of services like hairdressers, gardeners, plumbers or anybody willing to help.

That’s why Stootie believes in a sharing economy marketplace based upon messaging and built by the users themselves. Such a marketplace epitomizes the fact that commerce is based on social rules and paves the way for a society and an economy of peers based on direct interactions between people. That is the opposite way of behemoths like Amazon and Uber that want to control every detail of any transaction.

At Stootie, we have set our mission to reveal the invisible resources that stand around us and that we do not see any more because we are blinded by our smartphones. We think that we do not only provide the ability to get goods or services but also a key to get meaning in our everyday life. Because we allow people to meet and make good business by themselves, we does not only create a marketplace but also a society and a community that will change the way we live together.