Even as the global economy and established businesses continue to struggle, Uber and companies with a similar business model have found breakout opportunities. Based on its December 2014 round of fundraising, San Francisco-based Uber’s estimated market capitalization is more than LinkedIn, Tesla, Delta or Hertz, and it is closing in fast on General Motors and Starbucks.
Dozens of startups are taking on established players in categories ranging from transportation to dining to delivery to home services to events. While these companies’ services and products differ in form from those of traditional competitors, the startups and their investors believe that their value propositions will prove to be more satisfying, so they are coming hard for customers, market share and profits.
This is the emerging market of on-demand mobile services, aka the “Uber-All economy.” In every category, companies with an Uber-All business model are reconfiguring how benefits will be delivered profitably to customers.
No product or category benefit is exclusive to any particular product form or retail location. All benefits, no matter what they are, can be made available to consumers in many ways, and that is the threat posed by the Uber-All economy. It is a fallacy to suppose that product forms and product benefits are inextricably intertwined. Benefits are all that matter to consumers. The Uber-All economy is about reconfiguring how those benefits are offered.
Boiled down to its essence, three things make up the Uber business model. First, there’s personal service: Uber-All companies want to substitute their services for the products of established competitors. For example, companies like FlyCleaners and Washio—which operate on-demand through a mobile app, picking up a customer’s laundry and returning it right away, clean and ready to wear—not only compete with other laundry cleaning services, but also with laundry detergents, themselves. These companies’ services are direct substitutes for the same benefit that laundry detergents offer: clean clothes when a consumer needs them.
Uber-All companies will grow as they become viable alternatives to other forms or methods of getting the same benefit. The concept at work here is conversion: If a brand is not a service today, its value needs to be tied to service, and this service should convert a poor asset into a more valuable one. The value of a brand is more than the product form.
The second element of the Uber-All business model is the on-demand nature of the offerings—availability anytime, anywhere. Speed, convenience and immediacy are the operative concepts. Mobile apps have been central to this, but the on-demand concept is really about fulfillment in whatever way is fastest, not about the technology, per se. This means moving from a “go to” marketplace of the past, where consumers had to go somewhere to get the benefit, to a “come to” marketplace of the future, where the benefit or service will directly (and immediately) come to consumers.
The third and final element of the Uber-All business model is pricing—and, more specifically, pricing by usage. This is the most misunderstood piece of the Uber-All business model because many of the new on-demand mobile services charge a premium price for the convenience of an on-demand offering, but the essence of the Uber-All model is the “pay as you go” utility. The Uber-All business model is pricing for usage, rather than pricing for ownership. A brand sells by the slice—no more than a customer needs in that moment.
This pricing strategy has a very particular implication: It puts occasions at the center of the value equation. Not people, not segments and not products, but occasions. Most occasions will be ordinary, so pricing will have to be cheap, but some occasions will be extraordinary and special, and therefore able to command a premium price. This is the key to unlocking value-added opportunities in a slowing world economy.
Uber calls its premium pricing “surge pricing,” but note that there are no “surge customers” or “surge drivers.” There are just “surge occasions” for which “surge pricing” applies to all customers.
J. Walker Smith is executive chairman of The Futures Co., part of the Kantar Group of WPP, and co-author of four books, including Rocking the Ages. Follow him on Twitter at @jwalkersmith.
This article was originally published in the June 2015 issue of Marketing News.