For investors, thin layer/fat commission ventures have been the icing on the cake:
- thin layer means no costs/hassle of service delivery; a simple app is all Uber needs because they do not employ drivers or deal with any logistics issues.
- fat commission means lots of revenue ; Uber for example makes a commission of 20%.
The technology innovation at the icing layer is simple – basic payments plus geolocation. The moat is certainly not in technology that could be built in months for 6 figures. Yes, within 6 months and for less than $1m you could get the same technology as Uber!
That simple innovation at the icing layer can be worth a lot of money. For example, Uber has a market cap over $58 billion.
Amazingly with those advantages, some thin layer/fat commission ventures like Uber struggle to produce profits.
So will Uber be like Amazon by getting such a dominant market share that they eventually produce lots of profits? Or will Uber be disrupted by innovation at the cake layer?
Uber’s $58 billion market cap is at stake in that question.
In contrast to the icing layer, technology innovation at the cake level is much more hard core:
- Electric cars. They cost a lot less to run, due to fewer moving parts and lower cost fuel. That translates to less repair costs and lower insurance premiums. At some point that will generate lower taxi fares.
- Semi-autonomous vehicles. I say semi-autonomous because consumers will want at least the appearance of human control. Would you get on a plane without any pilot even if you knew that computers flew the plane almost all the time? Some journeys will be 100% driver free. Some will have drivers who can do longer shifts because the work is so much easier. Both will generate lower taxi fares.
Digital cooperatives will also bring down costs, by eliminating that 20% commission. However that is not why digital cooperatives are so disruptive.
The innovation at the icing layer is totally simple, but consumer habit inertia is a powerful force. This is what thin layer/fat commission ventures like Uber have on their side. It sounds so trivial compared to innovation at the cake level, yet investors have learned to ignore consumer habit inertia at their peril.
Technology innovation at the cake level is available to Uber or any other venture.
The market reality is that ventures need both icing and cake, but the innovation at the cake layer is huge and disruptive compared to the super simple innovation at the icing layer.
So the battle seems to be between consumer habit inertia on the one side and disruptive innovation on the other side.
This is where digital cooperatives become so important.
Some early adopters may use digital cooperative alternatives such as TaxApp (see this post for one early adopter rationale). However to cross to the mainstream, these digital cooperatives will need to pass on their cost savings to consumers. If you could get a modern electric black cab experience for the same price as a basic Uber in an old gas guzzler…..