Companies in the rising on-demand economy are succeeding despite themselves.
For every headline-making round of fundraising these startups announce, there’s another horror story that follows. Uber raised $1.2 billion and was subsequently banned in New Delhi following the alleged rape of a passenger. Airbnb touted its new “shared city” plan around the time a few squatters were taking over a renter’s home. It’s like some Silicon Valley-specific version of Newton’s third law.
Over $4.8 billion has been invested in this on-demand industry, and popular opinion says this isn’t just a bubble or a trend. Whether you want to call it the sharing economy or the Uberification of the market, it’s happening and it’s working. The simple reason is that the U.S. revolves around the service industry, and anything that makes those services more accessible and convenient is going to find an audience. Couple that with the (attempted) erasing of regulatory middlemen and flexible employee payment terms, and it’s all too obvious why these businesses are seemingly launched daily.
You’d think economic success would curry consumer favor. In fact, the biggest successes of the on-demand industry have everything that should make us trust them: excellent branding and visibility, massive investments, and instant access. But there’s something holding back these services, and it strikes much deeper than mere one-off PR debacles. You might take an Uber, stay in an Airbnb, or use a TaskRabbit, but in general, there’s a surprising amount of buyers who seem unwilling to adapt to these apps en masse.
For many, the issue boils down to trust—difficult to build and even harder to maintain.
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The challenge for startups begins with recognition. Most companies attempting to disrupt an industry are couching their services in the same terms—Uber for X or Airbnb for Y. (There’s even a service that helps service startups, well, start up.) But Uber and Airbnb still engender mixed responses, and that sort of branding casts every product the same, making it difficult to establish trust and customer loyalty.
“As startup sites like TechCrunch, Venturebeat, and GigaOm prove, there are new startups popping up daily,” said Ed Zitron, who works in tech PR. “So how can you trust these services initially? What is enough to show you that trust? It actually reminds me of when e-commerce really kicked off: You’d judge a website based on how legit it looked. In the same way I feel like this trust is built on the quality of the app, the founder, the press around it, and so on.”
Zitron added, “As humans, we’re used to looking for a storefront and a name brand.”
Whether you want to call it the sharing economy or the Uberification of the market, it’s happening and it’s working.
Before the app takeover, you’d have to turn to the Yellow Pages to find a local company, notes Wayne Sutton, a serial entrepreneur and general partner at BUILDUP.vc. At least now there are more choices and, thanks to the ratings systems most newer services employ, some customer feedback to base your decision on.
But there’s still the larger issue of accountability. On-demand startups are like mythical entities, bodiless purveyors doling out services, backpedaling from unfortunate incidences, and then floating away, hissing like the mist monster from Lost.
The issue becomes even more tangled when you consider service startups that are based around peer-to-peer sharing. Lyft, Airbnb, and TaskRabbit are all businesses built on the backs of regular people; the people who “work” for them at the product level aren’t actually their employees, and creating trust between users and the “contractors” is difficult and easily damaged.
The “I’d like to speak with your manager” scare-tactic can’t be hidden in your back pocket. And when the chain of accountability is broken, it makes us start to feel like there’s a screw-you-over ratio: Use on-demand services so many times, and eventually something bad will happen. The fact that it’s hard as a consumer to enforce this accountability doesn’t help.
“There’s very little in the way of a service economy ombudsman,” Zitron said. “You can’t take a bad Airbnb person to the Better Business Bureau, can you?”
Leading companies like Airbnb, Uber, and Lyft all employ background checks, but as we’ve seen time and again from Uber’s scandals, bad seeds are still seeping through the cracks. Even worse, that’s where the oversight of their subcontractors tends to end.
“The truth is that the actual product is moderated on a star system and a text box,” Zitron said. “Even when I’ve had some of the worst Postmates in the world, I’ve felt bad giving them low stars or reporting them, and they’ve still appeared again in circulation.”
For startups, it’s difficult but not impossible to recover from a few bad experiences and negative publicity.
You might take an Uber, stay in an Airbnb or use a TaskRabbit, but in general, there’s a surprising amount of buyers who seem unwilling to adapt to these apps en masse.
“If there’s distrust, it’s been over issues about whether these companies care about their customers over their bottom line,” wrote Ken Yeung—who is very much immersed in Silicon Valley startups and works at telecommunications firm Orange—via email. “Airbnb has certainly found itself on the short end of the publicity stick, especially when there are squatters or even when ‘guests’ destroyed a host’s apartment (Airbnb eventually increased its insurance payout to $1 million). Airbnb has appeared to have done well in rebuilding its reputation and created an army of loyalists around the world.”
That’s an important message for Uber to hear right now: Blog posts and apology tweets are not enough. Top-down change and a restructured system might be. As Yeung pointed out, it’s not just frightening stories and lawsuits that make us cringe: it’s toxic company culture. “This company has promise, but there are repeated instances where Uber has fouled up, whether it’s with background checks, surge pricing, or even the ‘slip ups’ by its executives,” Yeung said.
Research suggests that businesses that don’t contribute to the public good lose consumer trust, and you could argue that on-demand startups better serve the public by making food delivery, transportation, and lodging easier and more efficient. But when companies emit a “the ends justify the means” attitude, potentially compromising users’ safety and privacy, people have to start to ask if the ends are really worth it.
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According to a 2013 poll, Silicon Valley and our government inspire similar wariness. While the survey was focused on the Bay Area tech hub in general, it adequately pinpoints the source of our discord: transparency, or the lack of it.
While the service economy assures us of its background checks, insurance policies, checks and balances, fair wages, and high quality, the instances where one of those pillars fell short of its promise is far too common.
When I casually polled my friends—the ones not affiliated with the tech industry—about what they think about the service economy and on-demand startups, they echoed feelings of distrust, but all for different reasons and at varying degrees. For one from New York, it comes down to safety. “The risk of getting hurt or raped is too high,” she said. “That fucks up your life forever. I’d rather feel safe, wait longer, pay more. Time and money are less valuable to me than my safety.”
“Prior to economy startups, we trusted the local company in the Yellow Pages and had less choices.” —Wayne Sutton
When I pointed out that assaults aren’t limited to these new services, she acknowledged it but said the constant reports and history of unreliability these companies are now associated with is enough to avoid them.
The majority of people out there, however, seem to care more about convenience than transparency.
“I think it speaks to us as consumers more than anything else,” said Kyle Monson, the creative director at Knock Twice. “There was a hugely negative story about Uber last week, and unless it’s like they’re giving rides to the dictator of North Korea, it’s not going to have a huge impact on the average user who relies on it in their day-to-day lives.
“Consumers tend not to read a news story and actually act on it.”
We’re operating on a gray scale. We all pick and choose when we’re willing to support these companies (like at 3am when nary a cab can be found and the idea of taking public transit sounds so much worse than a Lyft) and when we won’t (when calling an acquaintance has some value over TaskRabbit). When it becomes convenient enough, it seems we ignore our gut feelings of caution.
In general, Monson believes we’re experiencing a larger and perhaps generational cultural shift.
“In the new economy, we’re all really trusting of people,” he said. “Do you remember when people starting renting their places on Craigslist and we all thought they were crazy? And now we get in a car with a pink mustache with a stranger.”
Photo by Wikimedia Commons (CC 3.0) | Remix by Max Fleishman