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Uber. Airbnb. Instacart. The most talked about companies of 2015 all fall into one category: on-demand. But why? Hasn’t the shock value of jumping into a stranger’s personal car worn off by now?
The answer is controversy. Between labor disputes and legislative battles, these companies are never boring. But as the private sector begins to cool and the network effect slows, how will this increasingly crowded space evolve to ensure its survival? Here are my predictions for 2016.
1. “Uber for X” will fail
From dog-sitters and gardeners to hair-stylists and masseuses, it’s easy to lose track of the number of companies self-describing as “it’s like Uber, but for X.” Throughout the past two years venture capitalists have invested in startups claiming those six words, but that will change in 2016. Valuations are starting to drop. The private market is correcting itself, and some investors have publicly stated that previously determined valuations may have been too aggressive (see: SnapChat). In this environment, companies that burn capital quickly without a proven business model like some small-time players in the on-demand economy space may become acquisition targets when faced with a tough fundraising climate.
There will, of course, be winners. Companies with diversified business models and significant traction, like Thumbtack, are more likely to flourish. But startups with niche or limited offerings that attempt to scale too quickly will ultimately fail.
As niche startups learn from Homejoy’s story and cozy up to acquisition prospects, sprawling horizontal marketplaces with a host of different services or products will be the ones to cut a deal. For them, an acquisition is a way to ramp up growth and bolster quality in a particular vertical.
2. Freelancing will win
If you’re sick of reading about the contractor vs. employee debate, don’t hold your breath in 2016. As regulators attempt to catch up with innovation, they’ll continue to argue over outdated labor trends and fail to account for the employment preferences of millennials — new data shows that 70 percent of on-demand workers are actually satisfied with their work.
Ultimately, there will be a separation between dispatch service providers, like Lyft, which will embrace formal employee designation, and companies that will take steps to better accommodate for the classic freelancer-by-choice who doesn’t want a traditional 9-to-5 job. The bottom line is that companies will do whatever it takes to get the best talent, and if that means allowing a four-day work week or overhauling the hiring process for contractors, they’ll do it.
Eventually, though not likely in 2016, employee benefits will also evolve and become available to contractors. Insurance plans, retirement accounts, commuter stipends, you name it, will be tied to every type of employment status, blurring the lines between freelancer and full-time.
3. Startups will continue to proliferate, but can they scale?
The price of starting up will continue to be small in 2016; almost too small. Commoditized tech (even AI is going open source) and the abundance of early stage money will result in almost impossible signal-to-noise ratio with so many startups launching.
What will continue to be a challenge in 2016? Scale. Whether it’s the infrastructure of a company, the business model it relies on, or the culture it’s attempting to foster, scalability will continue to be what sets the truly successful companies apart from the also-rans.
4. They’re coming for you, [insert legacy industry here]
Uber users can now order lunch to their offices, kittens to their doorsteps, and flowers to their girlfriends. If you think Uber’s expansion into established industries is just about marketing buzz, think again.
The network effect can sometimes last for a decade or even two, but verticalized on-demand players have realized that in order to grow their businesses, they need to move beyond delivering one service and diversify. Just as Amazon’s AWS business became a high-growth, high-margin revenue stream when its e-commerce growth showed signs of slowing, ride-sharing companies will realize that saturation is on the horizon and look at what’s next.
And “what’s next” may be your legacy business. While people may use FedEx to get something from New York to Tokyo, what’s to say they won’t turn to Uber and its partners to find, locate, and deliver a gift domestically in the U.S., all from a familiar app on their phone? It’s already happening in hyper-local settings, but more legacy industries — starting with shipping and receiving — will begin to feel the impact of on-demand convergence in 2016.
The example of Uber is a good one. It has become a company that has almost perfected moving things from point A to point B; the fact that it started with people is almost irrelevant to its future developments. Driven by technology that allows the company to effectively use the capacity of its network, Uber’s branching out is a sign of things to come. If I was in FedEx or UPS’ shoes, I’d be worried; especially on the domestic level.
Micha Kaufman is CEO of Fiverr.