The Year of Reckoning for On-Demand Companies

A reality check nears as Uber, Postmates and others go public

Over the past decade, innovations in mobile app-based technology have powered the on-demand economy and revolutionized consumer behaviour. In other words, a new generation of smartphone-based services has been a boon for people looking to make their daily activities simpler and to buy products and services in a new way.

The emergence of on-demand services, particularly for transportation, retail, lodging, dining and grocery shopping, has disrupted traditional business models in these industries. Companies like Airbnb, Uber, Lyft, Grubhub and Instacart have quickly built brand loyalty and gained “unicorn” status, that is, valuations of billions of dollars.

By 2020, the number of smartphones in use in the world is expected to reach 5 billion, providing even more opportunity for on-demand services with real-time supply. As consumer expectations continue to evolve, new and existing companies are stepping up to meet the need.

With Lyft going public last week and other much-anticipated initial public offerings (IPOs) including Uber and Postmates coming later in 2019, there’s a feeling that this will be the year when the rubber meets the road (see Uber Readies for Its Initial Public Offering).

Lyft ended its first day as a public company with a valuation of $22 billion before seeing its share price fall below the level of its IPO and settle at a market capitalization of just under $20 billion this week. It’s still a striking value for a business that has never turned profit and lost $911 million in 2018. But investors are positive because of Lyft’s revenue growth, which soared 103% in 2018. Of course, this level of growth of on-demand companies comes at the expense of traditional businesses, which scramble to keep up and risk becoming obsolete.

However, it hasn’t all been smooth sailing in the on-demand marketplace. Several companies have faced dwindling funding, been through lay-offs, had to shutter operations or pivot. Some of them have had to deal with lawsuits over intellectual property, employment rights and even discrimination. These companies often bring unregulated substitutes for regulated markets, so there are inbuilt tensions with lawmakers, and tightening regulations have caused turbulence to their businesses. And not least, they’ve also been criticised for only really shifting control from one powerful group — the traditional providers — into the hands of another. On-demand players are expanding at breakneck speed with a winner-takes-all mentality. Competition may not have increased in the long run and consumers may not have benefited, except for the greater convenience of using the apps.

As several on-demand companies go public in 2019, this will be the year of reckoning for these companies. If anything, they’re all coming to a sobering realization that new technology can only carry them so far, and they need to push for profitability to survive. Playing by the financial markets’ rules is different from life as a unicorn.

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