There’s been an influx of on-demand mobile services – the Ubers, Lyfts, Postmates, Shyps, etc. of the world. They’re great and I think we should continue to invest in these companies, especially at a vertical level with industries like cars (Beepi) and food (Sprig). There’s one issue that’s been cropping up in my head for the past couple of months and that’s: what’s the end-game for many of these services? I don’t say this in a “it’s 1999 bubble and burn rates are high” manner. I say this in a genuine and optimistic, we haven’t seen anything like this before and many of these services will have to have an exit, but the buyers for these companies are different than just the usual Google, Facebook, Apple, and Microsoft . Here are the different buckets and where I think on-demand mobile services might shake out in terms of liquidity.
Don’t think of them like technology companies
Many of these services are the next generation of the industry that they’re helping transform i.e. – Uber for transportation or Shyp for shipping. They’re transforming their industry by utilizing software as a way to scale instead of just pure human resources. When you start to think of these services not as players in the horizontal category of technology, but in the vertical categories they seek to disrupt, the potential liquidity becomes clearer. Instead of them creating software to enable 3rd parties (ie- software for taxis), they are creating the software for 1st party use so that they can replace the existing incumbents (ie-existing taxi companies).
Scenario 1: Some will become independent giants in their vertical displacing or sitting aside the old guard
Uber will replace the taxi industry and sit beside the logistics giants of UPS and FedEx. Seamless has already made itself a new giant in the food category. Instacart is now becoming a food brand that doesn’t replace, but supplements many of the existing brands like Whole Foods. We’ll start to see the big winners in vertical industries stay independent.
Scenario 2: Consolidation into the independent winners
Many of the ride-sharing applications will consolidate together to unify supply and move the market forward. We even saw Seamless and Grubhub consolidate in the food industry. Investors are going to be placing their bets in all the vertical industries and hope their bets are on the number 1 player. The smaller players will provide returns due to the size of the market being played in, but much smaller.
Scenario 3: Consolidation from niche to wider net vertical
There are on-demand services for almost everything and many more to come. Some are playing in niches that are too small to provide a venture backed exit. As lifestyle businesses, they are awesome, but as venture backed businesses, they likely can’t scale to the size they need. I wouldn’t be surprised if we saw a rollup of many services into larger holding companies. Lifestyle and wellness come to mind along with home services.
Scenario 4: Acquisitions by e-commerce companies looking to enter specific segments
Amazon and eBay have been the leaders in commerce for over a decade now. Local has always been a holy grail that’s tough to tackle. The on-demand mobile players allow them to expand their offerings and acquire similar DNA. Postmates being acquired by Amazon is a logical potential conclusion. Google has shopping express as well.
Scenario 5: Acquisitions by the existing incumbents
This is where the most exciting deals will happen. What if Walmart bought Postmates? What if Bliss Spas bought Zeel? Every company that has not been transformed by software and mobile, certainly will. A company can choose to be transformed and prosper, or choose not to and wither. Either way, the effects will be felt. Building out on-demand mobile services from a domain expertise, technology, and supply-side acquisition aspect is not easy. Incumbent players will make purchases here to try to ensure their future. I think this is the likely and in many cases, good exit, for many of these companies..
I’m not going to go into the “shut down and fail” scenario. That’s a possibility for any startup. Yes it will happen and yes when it does, everyone will say the sky is falling. It’s the natural course of business, not every company makes it and it’s not indicative of the market. The independent companies created here are going to be around decades from now and those that are acquired by incumbents may give those incumbents a new lease on life. Overall, we’re seeing a radical reinvention of every business that has come before us by applying software and ubiquitous computing.