Making money off the lazy economy

If there is a service to be delivered to Indians, there is a startup trying to find a way to put it on an app

Haresh Chawla

[Photograph by Lamoix under Creative Commons]

We are lazy. Let's admit it.

We love to give out our clothes for ironing, have someone cook our food and do our dishes, chauffeur our cars, deliver our groceries, walk our dogs, prune our plants, and shampoo our sneakers while we catch up on our favourite soap. Every day we battle with an army of assorted helpers--maids, cleaners, cooks, drivers, gardeners, watchmen, peons and dog-walkers. Heck, we even want to get our manicures, pedicures, massages and yoga sessions at home, and won't go to a restaurant if it doesn't have valet parking. At work too, we want our chai and cappuccino right at our desk, have someone do our photocopies and scans, and are too lazy to even clean up the whiteboards after ourselves.  

Someone told a bunch of enthusiastic startups this--that we Indians love to be serviced and pampered. And thus began the journey of creating what will probably become the largest tech-enabled assisted economy in the world. A new generation of startups, which I call 'on-demand@home’, are sprouting up everywhere. 

Millions of dollars are pouring into these on-demand@home firms that will bring products and services right to your doorstep. There are about 30-odd startups willing to be at your beck and call to provide you a plumber, a clown, a dance instructor, or a nice manicure at home. Add to it another score of last-mile-on-demand ventures vying to get you rasmalai from your favourite sweetshop in town--their promise is to deliver anything from any store in your city to you. 

They know there is lots of money to be made by keeping you off the roads and out of the shops. They understand that going out to get things is a pain--taking out the car, navigating the traffic, parking, the potholes and the general hassle of lugging things around. So they make sure that everything is a tap-on-your-smartphone away.

They know there is lots of money to be made by keeping you off the roads and out of the shops.

And if you do think of getting out of home, they ensure you have a coupon for a ride in an air-conditioned smart-cab. Imagine a day when all you will see on the roads are smartly-uniformed courier boys and smart-cabs. A country of cabs and courier boys!

These startups also understand that the costs of setting up physical infrastructure are high. Rentals are exorbitant, maintaining permanent staff is expensive. They see an opportunity in building light-asset businesses. Minimum infrastructure, flexible staffing, intelligent technology, and these businesses are ready to go. We are seeing on-demand@home startups in food, groceries, beauty, home services, laundry services, medical care and nursing, yoga, and health and fitness.

If there is a service to be delivered to Indians, there is a startup trying to find a way to put it on an app!

If there is a service to be delivered to Indians, there is a startup trying to find a way to put it on an app!

And wait, there is already a generation 2.0 of these startups emerging who think that even choosing among these apps will be a chore, so they want to become your personal assistants. Just WhatsApp or SMS them what you need, and they will find the right local services startup to deliver it to you. 

This serve-the-lazy-Indian economy will impact our entire society--from the people who work at minimum wages, to professionals who sell their skills; from the smallest kirana store to the large corporates. It will unleash an irreversible shift in consumer behaviour and how we transact with service providers and merchants. It has the power to create new vectors of growth for our economy, as we overcome the limitations of infrastructure and under-utilized capacity with the friction-reducing power of technology.

The on-demand economy has already changed the lives of smart-cab drivers, as some of them take home more than Rs 80-90,000 a month. New marketplaces are forming which will change the size and shape of several sectors, and will direct a transfer of wealth from the well-heeled lazy ones to the hardworking willing-to-serve workers. It will give birth to millions of jobs in the process and cause a structural shift in our labour market. We shall herald the rise of the smart-worker--all they will need is a smartphone and a willingness to do a good job. 

We shall herald the rise of the smart-worker--all they will need is a smartphone and a willingness to do a good job.

It’s happening in the West, in China and in South East Asia, but the confluence of smartphone penetration, "assisted" habits, low labour costs, along with the wall of venture money (ever happy to fund models imported from the West) is happening only in India. It is difficult to estimate the size of this market, but if you assume Indians spend as much on services as on products, it runs into billions of dollars. Which is why venture capitalists (VCs) are expected to fund between $250-300 million (by some estimates) into on-demand local services in the next three years.

Investments are pouring in to solve two problems: one is to build the last-mile delivery and tracking infrastructure, and the other is to help local businesses and service providers go online with their offerings. Both need solutions to get the ecosystem to start firing away at full steam. The list of startups is overwhelming and many don't know exactly which of these two problems they should solve. This is causing a lot of waste and duplication of effort, which is typical of the way the online ecosystem evolves.  

The opportunity

It is tough to foresee the full impact of this new paradigm of transactions, but here's what it could mean for businesses:

It will redefine local commerce: If you are a small business, it will completely change the addressable market. Suddenly the entire city will be your market, and you will no longer be confined to your high street or mall. You can have customers from across the city being serviced the same day. You will also need to change your approach if you want to be relevant to people across the city. You need to build a great franchise, be known for something special and you will see people reach out to you in droves. You could be the best brownie shop in the city or the one with the special blend for granola bars. The whole city is now your oyster!

It will rejuvenate businesses: People will find it easier to discover and order from artisanal and traditional businesses that they love and trust. So now you can get your spices and dry fruits from that little store in Mumbai’s Matunga delivered to your doorstep. These businesses will no longer hesitate from delivering their goods several kilometres away, since they will have access to an army of delivery boys. A large chunk of the money being spent by startups in the last-mile space is on bringing local shops and merchants online and aiding discovery for consumers.

The notion of a store will change: A store will become a strategic asset versus just a point of sale. A place to tell the brand’s story versus a place to stock and sell. It will be a place where the brand begins a relationship with customers--a place for them to try and discover the products. Stores will reorient themselves to service and engage customers. Why waste that precious space on stocking multiple units of the same product? Stores will have to find a way to entice you to visit and experience their brand. 

A store will become a place to tell the brand's story versus a place to stock and sell.

Trial rooms will become larger, more comfortable. Store staff will have to evolve to become advisors and aim to bridge the gap between offline and online. If you've begun your relationship in the store, they will keep in touch online and deliver what you like to your doorstep; if it’s the other way round--if you are a customer who started online--they will invite you to exclusive previews and launches to cement the relationship.  Discounts and deals are a weak glue--brands know that--they will now act on it. A brand like Canon doesn't need to use their stores for stocks; it needs to have staff who inspire people to use cameras and buy more lenses. They can offer practical tips to newbie photographers, hold events and create an atmosphere that reflects the love of photography. Apple has proven this – Apple stores are spaces that inspire you to buy an Apple device. 

Try and buy will be the future of e-commerce: You will no longer worry whether the clothes you ordered online will fit. The combination of mobile interfaces and on-demand last-mile services will empower the neighbourhood store to send over three sizes that you can try before you buy. App-based last-mile delivery also has the potential to erase the price difference between offline and online that exists today. Brands will no longer be able to look the other way as they did when e-commerce players cannibalized offline retail with discounts. 

Expensive retail space has been used as a competitive advantage by large brands. They will have to rethink whether these high-rental stores are assets or liabilities. Footfalls in malls are dropping unless they run mall-wide discounts. These brands will have to find ways of getting closer to customers. They will have to fight startups that will deliver home and have none of the retail overheads. For example, will the dying departmental stores and malls reinvent themselves into spaces where brands showcase and help customers try their latest offerings, and the orders are delivered home? Can they redo their premises and staff as a place to compare and choose? Should a Croma go on the offensive against Flipkart and use its brand of trust to help consumers choose and then offer services to help consumers learn how to use a technology device or appliance? Orders will follow and they can be delivered home from the warehouse in a few hours!

Large brands will have to rethink whether these high-rental stores are assets or liabilities.

It will create a market for individual equity: Individuals with talents will be in demand--a dance instructor will be as busy as a general physician. As long as you are rated well on what you do, online platforms will make it easy for customers to find you, book you and refer you. Quality assurance will be a concern, but ratings, reviews and mystery shopping will aim to fix that. Job opportunities will open up for everyone with a unique skill to offer or teach--whether you are a physiotherapist or a guitar coach, there is a customer out there waiting for you. We are seeing a surge in demand for delivery boys; the same will follow for virtually every service category. Ease and convenience of supply will create demand.

Individuals with talents will be in demand-a dance instructor will be as busy as a general physician.

It will expose latent demand: People will find a way to meet your occasional needs and create a market. Why should you spend your time serving drinks when you call your colleagues home? The sheer convenience and "freelance" pricing will allow you to hire an on-demand bartender for the evening at a very reasonable price. The convenience and freedom from planning ahead are game changers in driving consumption of services. 

It will create a new class of goods: There is a massive opportunity in bundling products with services to make a compelling offering. For example, why would you want to buy a mass-produced shirt off the shelf if an app can send you a tailor@home and you can then order tailored-to-fit clothes? These were traditional service businesses which became productized due to efficiencies of scale. However, these mass produced options have built-in costs of retailer and distributor margins and huge advertising spending by the brands--but the tailored-on-demand shirt could become competitive today. Similarly, the Lakme and Kaya beauty chains can become on-demand@home beauty services. They can leverage their brand franchise to recruit freelance beauticians, train them and service a much larger city-wide audience versus their current retail catchment. In fact their @home services can generate massive demand for their in-premise specializations. 

The way you run your offline business will change: Offline businesses have to start thinking of creating a frictionless mobile interface layer between consumers and their offerings. Firms will think of creating asset-light models where the focus is on branding, quality, service and loyalty--things that actually matter to the customers versus building infrastructure, frontage, or managing multiple touch points. Consumers don't care about the rent you pay for your store or how big is your accounting staff. Offline businesses will have to radically change their thinking and cut resources from non value-creating functions - those can be outsourced. This can create a new competitive intensity in local businesses and drive efficiencies across the economy. For example, if restaurants start deriving significant revenue from @home meals, it can change the dynamic of how they run their operations - their focus could shift to great packaging, speed of execution and creating compelling meal-combos. 

Consumers don't care about the rent you pay for your store or how big is your accounting staff.

There will be a cultural fall out: With services available so conveniently, Indians will start placing a higher premium on their time. When we want to step out of home, we will do it for leisure and not for errands. This will open up opportunities for leisure business ideas; every destination (be it a mall or a restaurant) will have to create ambience and an experience to attract audiences. Food businesses will probably have to cluster so that they become attractive destinations. We are already seeing failure of several malls in India and some of the clever ones are expanding their food and gaming experience zones to remain attractive. 

The on-demand@home revolution will trigger a wave of partnerships or acquisitions between offline firms and innovative online platforms, as offline firms will struggle to adapt to this new reality and would rather invest or partner with a startup platform to stay ahead. In a way the heat is on the offline players to move quickly or face extinction.

Simply put, the smartphone is a powerful transaction engine for the buyer and the seller. Clever designers are thinking about how we can use this engine to transact seamlessly and with transparency on what to expect. Right now we use apps and text but soon with 4G, we will be able to talk face-to-face with a service provider and bypass physical infrastructure altogether. 

We can now re-imagine business models, build businesses around our new connected lifestyles and transparent service levels and transactions driven by trust and ease of transactions. The days of receiving bad service and seething in silence are over. Consumers will have the power to punish and reward businesses, and eventually only the best will survive.

The challenges

This new, accessible and transparent on-demand@home world also has several challenges:

Does the math add up in India? As we ape on-demand models from the West, I would strike a note of caution. Western consumers place a huge value on time and convenience and are willing to pay for extra services. In India, consumers expect all the extras to be bundled in and loyalty is difficult to buy. They will hunt for better options even if it costs them time and effort.

Presently, these models are funded by venture capital--in a way, they bribe consumers to adopt. No one is charging the real cost of these services. So, one should check whether there is enough room in those business models in India. A plumber in India costs Rs 200 a job versus $200 in the US and may not have the same service ethic as his counterpart in the US (who is probably professionally qualified as well). The margin you may earn on his services may not be enough to sustain the cost of the team of IITians!

These models are funded by venture capital. No one is charging the real cost of these services.

How will the platforms differentiate? Consumers have a very basic need--they want a reliable and professional service at a reasonable price. But chances are that as the service expectations are matched and delivery becomes a commodity, these platforms will have to compete in a relatively low-differentiation environment. Another debate in VC circles is, who will win? Will it be the horizontal players (who are willing to connect you to a myriad of services) or the vertical players (specialists in one segment, like beauty)? The winners will be the ones that have something special to offer or use social connections to generate stickiness. Else simply, the well-funded ones will win, they will be the ones left standing. 

The winners will be the ones that have something special to offer or use social connections to generate stickiness. 

How long will the freebies last? There will be a bloody battle to win over consumers. We can already see the price wars, the freebies to woo consumers to startup platforms and to download apps. Cab drivers and delivery boys are being poached, merchants are being offered minimum guarantees to stay as exclusive suppliers. Cost structures that you built into your model will no longer hold and margins will be under pressure. E-commerce and last-mile businesses are already seeing huge wage increases for delivery teams, and companies that ran captive delivery infrastructure to save costs are now realising it’s more efficient to outsource.

This battle will leave many players dead (or “acqui-hired”--the new euphemism that VCs use). Several on-demand startups I have met are unwilling to admit that their business won’t survive without these unsustainable incentives and promotions. Consumers in India revel in this novelty and are always on the hunt for discounts and deals--and loyalty is a misplaced expectation till the froth subsides. We have seen how Groupon failed. Signs of fatigue are visible in the US as VCs are losing appetite to keep subsidizing consumers for growth. Homejoy, a poster child of the on-demand world, is up for sale and finding it difficult to get a buyer. 

What about service ethic, security and regulations? These are people entering homes when women or kids are alone. How will startups mitigate these risks? Have they factored these costs into their models? It’s not enough to simply get a police verification done. We will have to get cleverer on how to recruit right and ensure service ethics and safety. Regulations too have to be reframed to account for this new reality. Is the on-demand freelancer a worker or on contract? What is the nature of contract between them, the platform and the consumer? Who assumes the liabilities of a failed or flawed service? Who is accountable for fair conduct and compliance with the law? It’s a regulatory nightmare and governments across the world are battling it. 

It's a regulatory nightmare and governments across the world are battling it.

So how does one win this battle?

Be the best you can: People now have the means to rate you, review you; there is nowhere to hide. Sloppy service providers will be punished in this new transparent economy and the good, diligent ones who care about their craft and excellence, will win. We’ve all received bad service or been overcharged by people who repair our appliances, or repair our furniture or paint our walls. That era is over.  

People now have the means to rate you, review you; there is nowhere to hide.

Survival of the super-efficient: The entry barriers are low and margins are thin. Winning firms will have to be very clever about usage of technology and keep their overheads to a bare minimum. They will have to find a way to automate even supervision of these service providers and delivery boys. To drive efficiency, they will have to create hyper-local clusters--i.e., the delivery boy can do 30-40 deliveries a day if he operates in a super small cluster--the same will hold true for any service. The survivors will be a handful of super-efficient firms that are able to defray their infrastructure and technology overheads over as many markets and transactions as possible. Startups will need to find a way to leverage their customers across different use cases, or collaborate with other on-demand players to cross sell their services or share infrastructure.

There is some good news too, of course. Once we change the habits of consumers, there is no turning back. On-demand@home businesses are here to stay. Let's watch how this heady mix of technology, innovative founders and easy VC money will play out into the hands of couch potatoes with smartphones.  

Meanwhile, my laziness will hit a new low by this time next year. I expect to slip on my 4G-powered virtual reality eyewear and go shopping while sipping a beer! And my refrigerator will automatically order milk and bread, the ACs will switch themselves off when I leave the room, and I won’t have to fish out the house key--my home will know it's me at the door. 

Read a related article on the on-demand economy

[An abridged version of this article was printed concurrently in Mint]

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Comments

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Kaustubh Khade on Mar 21, 2016 2:44 a.m. said

"Ease and convenience of supply will create demand."
Aren't we grossly simplifying things here? The pitfalls you've mentioned are all pretty deep.
Inertia, cost of acquisition, low loyalty, price wars with no differentiation. Not to mention everyone refusing to believe they will end up an 'also-ran'.
With low price margins (&high iitian salaries) when does this make sense as a profitable business. When enough VC's pull out to leave two players?
Lastly, businesses thrive through experienced leadership. It's a big point that's been overlooked. Apart from 'Great team' do we look at leadership as an element of running a venture /company / business?

Madhusudan CP on Jan 12, 2016 11:30 a.m. said

And why would you leave home, now we have Netflix as well?

Abhishek Shankar on Nov 01, 2015 5:42 p.m. said

... and you nailed it. The way it survives will let us know about how we hold on to support our laziness. Its tougher for the founders , no doubt, than their ecommerce fathers.

About the author

Haresh Chawla
Haresh Chawla

Partner

True North (formerly India Value Fund)

Haresh Chawla is currently a Partner at True North (formerly India Value Fund Advisors). True North is one of India's most experienced and respected private equity funds, with over $1.5 billion under management. At True North, he focuses on investments in the food and consumer sectors where he identifies and helps transform mid-size businesses.

He is best known though for his leadership in transforming the Network18 Group into a formidable media network. Under his watch as Founding CEO, Network 18 became India's fastest growing Media and Entertainment network.

In his dual leadership roles at Network18 and Viacom18, he built a media conglomerate that reached over 300 million households across platforms including television, print, films, mobile and internet.

His career at Network18 spanned 12 years, and he grew revenues from $3 million in 1999 to $500 million in 2012. He transformed the company from a TV production house to India's leading multi-media house with over 11 TV channels including Colors, CNBC-TV18, CNN IBN, MTV India and Nick India. He forged joint ventures and long-term partnerships with the world's largest media companies including NBC (Comcast), CNN, Viacom, Forbes, A&E Networks.

Haresh has also been keenly engaged in the consumer internet revolution in India from the early nineties. He is credited with building India's largest most well-known internet businesses like Moneycontrol, Bookmyshow, Yatra, Firstpost and Homeshop18. He continues as a successful investor and mentor to several internet and consumer start-ups today.

Earlier, Haresh has been part of founding teams at the HCL Comnet; ABCL, where he set up the Film Distribution Business, and at the Times of India Group where he launched Times Music.
 
Haresh holds a Bachelor's degree in Engineering from IIT Bombay and a Master's degree in Business Management from IIM Calcutta. He lives with his wife and two children in Mumbai.

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