platformOS

A Warning to Marketplace Startups

Angela Baldwin | June 10, 2015

A Warning to Marketplace Startups

Kevin Roose (@kevinroose) recently wrote an article on Fusion about why he thinks lots of "Uber for X" startups may be in trouble.Warning

His thoughts were around these two contradicting issues:
  1. Companies that provide the cheapest on-demand services at the wrong time could set themselves up for failure. 
  2. The competitive advantage for most on-demand startups is being the cheaper option. 

He described what Homejoy, an on-demand app for home cleaning, did wrong. He described reducing costs too early, with a lack of market share or additional funds coming in, can make it impossible to provide the service you offer and grow. He described it as price dumping:

"The problem with price dumping is that you generally need one of four things for it to work long-term:
(1) High-margin offerings that can subsidize the no-margin products. (This is part of the reason why Uber can offer such low promotional rates for UberX and UberPOOL — the margins on Uber Black and Uber XL subsidize the money-losing services.)
(2) A commanding enough share of the market that you can raise prices without losing a significant portion of your customer base.
(3) Investors who are willing to lose money in the short term, on the theory that the company will eventually be able to pull off (1) or (2).
(4) Lots and lots of money from some other source, such that the price dumping doesn’t really matter in the grand scheme of things.

As we advise sharing economy startups, we'd like to echo that market share is crucial. Second, build a loyal community, start conversations with investors early, and focus on quality. Be smart about building your business.

Cheaper may be better for some businesses but quality is always worth paying for. 

Read the source article at Fusion. 

Interested in knowing more about partnering with platformOS?

Ensure your project’s success with the power of platformOS.