The hidden costs of the on-demand economy

Uber sticker. Photo by Jordan Novet/VentureBeat
Uber sticker. Photo by Jordan Novet/VentureBeat

Despite what economists like to think, people do not always make rational economic decisions. That’s nowhere more apparent than in today’s service-centric, app-based consumer Internet.

The fact is, people are willing to pay more — often a lot more — for services that are pleasant to use. Uber, Zipcar, Munchery, and Washio all prove the point. They cost more than old-school alternatives that have been around for years, but make up for that by offering an experience that just feels nicer.

What’s more, they bury their cost disadvantages by creating false comparisons.

For example, Uber’s founder Travis Kalanick frequently talks about how he wants to make Uber a cheaper, more convenient alternative to owning a car. That’s a reasonable comparison to make, but only at first glance.

Investor Megan Quinn, a partner at Kleiner Perkins and an investor in Uber, recently broke it down in a post titled “I don’t own, I Uber.” It’s worth a read. She estimated that the cost of owning, parking, and maintaining a car ran her $10,281 a year, while in a comparable period the following year, after she’d sold her car, she spent $4,656 on Uber, taking frequent trips with the car service in London and in San Francisco.

So by Quinn’s estimate, using Uber whenever you need to get around is less than half the cost of owning a car. Sounds like a great deal, right?

The issue is that many people who live in dense cities already don’t own cars, for the exact reasons Quinn points out. Parking in particular, is especially pricey, accounting for $4,200 of Quinn’s total. If you have access to free parking at your house, Uber may still be cheaper than ownership, but the difference shrinks.

But the high cost of owning a car in the city has been true for years and years, long before Uber ever came on the scene. It’s just that city dwellers used to take cabs (at a comparable cost to Uber) or public transit (generally far, far cheaper). In New York, you can buy 12 monthly unlimited-use MetroCards for $1,398. Even if you have to supplement that with the occasional cab ride or car rental, you could still live in a city with decent public transportation and get around for $3,000 a year, without relying on Uber, Lyft, or any of the modern car services.

In San Francisco, I occasionally use Uber, Lyft, or a taxi to get from point to point. Business Insider did a detailed analysis of Uber vs. taxi prices last year, and UberX came out on top in almost every situation. In my experience, it’s not always so clear. For instance, during a peak demand period one recent evening in August, Uber was advertising rates at 200 percent normal, while Lyft was at 150 percent to 180 percent. (I checked a couple of times, hoping the rates would go down, but instead they went up.) At that rate it would have cost me about $20 to go from downtown to the train station. I reserved a Lyft, it promised to arrive in 1 minute, but more than 5 minutes later I was still waiting. Meanwhile, empty taxis kept driving past me. Eventually I got tired of waiting, canceled the Lyft, and hailed a cab. Ten minutes later I was paying a $10 taxi fare (with tip) and getting out of the car at my destination.

You could do a similar analysis for Zipcar. Sure, it’s super convenient to rent through Zipcar, and compared to traditional car rental agencies the experience is light years better. Also, you can rent a car for just a few hours. But if you’re renting a car at $7 to $10 an hour, it doesn’t take long before the daily rate is far higher than what you could get through Avis or Enterprise, where it’s common to be able to rent a car for $60 a day. If you’re not in a crowded city center, rates are even better – often $40 per day or lower.

Munchery: Similar deal when it comes to food. Prices for Munchery’s delivered meals have come down a lot, but they still run $8 to $10 per person. For a four-person family, that is easily $40 a meal. You can cook your own food for half that price — but at far less convenience, of course. I recently spoke with Munchery founder Tri Tran on NBC Bay Area’s “Press:Here,” and he spoke about how much time this could save an individual or family. That’s true. But the cost is definitely higher than cooking for yourself.

My point is this: Uber, Lyft, Munchery, and Zipcar are all wonderful examples of companies using mobile tech and smart back-end logistics to deliver services in a far more delightful and convenient way than before. But the same fact that makes them such good businesses means that, economically, they’re not such a good deal for consumers: There is a lot of potential profit margin baked into their fees. And when their executives start talking about what a good deal they are, watch out: They’re probably not comparing themselves to the most economical alternative.

For consumers, that simply means buyer beware: You are paying for the extra convenience and for the experience of using an app that actually knows who you are. Add surge pricing, and the extra cost could be quite high.

For these businesses and their competitors, there’s a deeper lesson: They may be vulnerable to future disruption by businesses that offer a similar level of convenience, but which are more competitive on price.

Imagine, for instance, that a savvy municipal bus service got its act together and made it super easy to find a bus route to your destination via an app or mobile site. Or imagine a car rental agency that learned how to keep track of its customers so you didn’t have to fill out six pages of paperwork every single time you went to pick up a subcompact car. Established, low-cost companies like these might have a hard time embracing the kind of customer-first, experience-centric model that startups have built themselves around. But it’s not in principle impossible.

That’s something investors need to keep in mind when evaluating these companies and others like them: There is a price for convenience.

This column originally appeared on VentureBeat.

The hidden costs of the on-demand economy

Press:Here August 23: Munchery, Tripping.com, and HackerOne

The set of Press Here, with Jen O'Neal, Dylan Tweney, Laura Mandaro, and Scott McGrew

The lovely folks at NBC Bay Area invited me back to Press:Here, Silicon Valley’s answer to “Meet the Press.” I was on the show on Sunday with Laura Mandaro and host Scott McGrew. We talked for about 8 minutes apiece with the founders of Munchery, Tripping.com, and HackerOne. Here are the three video segments!

Tri Tran, Munchery

Munchery offers meal delivery, not by shipping you meals from restaurants but by cooking and shipping food from its own kitchens. The company has raised $117M in funding to date. But is it just contributing to the infantilization of Silicon Valley?

Jen O’Neal, Tripping.com

Tripping is a travel aggregator, letting you find a place to stay among hundreds of vacation rental sites around the world. We talked about how the travel market is so big it not only supports, but actually needs aggregators and intermediaries like this.

Alex Rice, HackerOne

HackerOne helps companies set up bounty programs, so they can pay hackers to inform them about security flaws — instead of exploiting those flaws. Alex was a HackerOne customer at Facebook and then joined the other two cofounders to help launch the company.

Press:Here August 23: Munchery, Tripping.com, and HackerOne

How Tile went from crowdfunding to 2M units sold in two years

tile-lost-wallet

Tile makes a deceptively simple gadget: a rounded square of white plastic, about the size of a poker chip, that you can clip to your key ring, slip into a backpack, or stick onto any other object you want to keep track of.

Today the company is releasing a new version of its gadget and updating its app. Tile is also saying that it has shipped 2 million of the $25 gadgets since it launched a year ago — a remarkable milestone for a product that started life as a crowdfunding campaign.

The inspiration: just being able to use technology to solve one of life’s persistent problems.

“We were shocked that you could go on your phone and find out anything, but you couldn’t find your keys,” Tile cofounder and chief executive Mike Farley told me in a recent interview at Tile’s San Mateo, California headquarters.

Here’s the basic idea of the gadget: If you lose track of anything connected to a Tile device, the Tile app on your phone can help you locate it. It uses Bluetooth to connect with the Tile, so the app can tell you the last place it “saw” the device – and when you get close enough, it can make the device beep so you can hear where it is.

The new version of Tile, being announced today, is three times louder than the old one, so its beeps are noticeably easier to hear behind a flowerpot or under a pile of mail.

A Tile in every block

Anyone with the Tile app can help you find your stuff, too: As their phone walks past any Tile device that has been marked as “lost,” it silently connects to the Tile via Bluetooth, then anonymously uploads the location to Tile’s cloud servers, which then ping the owner with the location. That comes in handy if you left your keys on a park bench, or in a coffee shop, and didn’t have your phone with you to keep track of the Tile at that time.

You might think that for this to work, it would depend on a pretty high critical mass of Tile users, and you’d be right. But the company says that’s already happening: In Manhattan and San Francisco, you don’t have to walk more than an average of one block to pass a Tile user.

Next step: getting even more people to use Tile. One way is through a real-world retail partnership – the company’s first – with T-Mobile. Previously, Tile was only available through online retailers; now it will also be for sale in 3,300 T-Mobile stores around the U.S.

The other is through an improved app, for Android or iOS, that turns the phone it’s running on into a virtual Tile device. If you can’t find your phone, you can sign in to Tile’s web site and look for it, just as you’d look for any Tile you own.

So how did Tile go from idea to launch in one year, and from launch to 2 million sold one year after that? A smart crowdfunding decision early on played a key role. Lucky timing helped. And an assist from a major contract manufacturer also made a big difference.

“It’s amazing how much work goes into that little piece of plastic there – it’s insane,” Farley said.

Smart timing

The release of Bluetooth 4.0, which included a “low energy” specification, was key. The spec has been around since 2010, but the iPhone 4S was the first smartphone to implement Bluetooth 4.0, in 2011, with other devices following in 2012. Farley had been noodling around with the idea for a while with cofounder Nick Evans, but “Bluetooth 4.0 becoming ubiquitous is what made it all possible.”

In November of 2012, Farley quit his job and began to work on the project full time. By February 2013, the duo had raised a $200,000 seed investment from Tandem Capital, a seed-stage venture firm with an interest in hardware startups.

In June 2013, they had launched a crowdfunding campaign. A month later it had exceeded all expectations, netting them 200,000 pre-sales and $2.7 million in working capital.

DIY crowdfunding

Notably, the company did not use Kickstarter or Indiegogo for its campaign: It built its crowdfunding campaign using Selfstarter and ran it on its own website. That was harder, but it had a lasting benefit for the company.

“We weren’t relying on people who went to Kickstarter – we had to figure out how to get people to our website,” Farley said. Ultimately, that made Tile a much better direct-sales company, because once sales started, it already had the necessary marketing expertise — and a killer list.

Partnering up

Going into the crowdfunding campaign, Tile had planned to make 20,000 units, and had lined up some local contract manufacturers.

“But once we hit it out of the park, we had to find a high-volume, top-tier manufacturer,” Farley said. Candidates included Foxconn, one of the world’s biggest electronics manufacturers, not just for Apple but for many companies; Flex, formerly known as Flextronics; and Jabil, a gigantic company that has mostly stayed out of the limelight for the past five decades. (It has 180,000 employees around the world, is publicly traded, and has $15.8 billion in annual revenue, but for some reason Jabil doesn’t hit the tech industry headlines the way its competitors tend to.) Jabil won the business, starting work with Tile in August 2013.

The crowdfunding campaign, and the cash it raised, were critical.

“Getting to that point was what it took to get someone like Jabil to pay attention,” Farley said. That’s because manufacturers are taking a big risk when they take on a new client: They have to invest in manufacturing tools, customizing a production line, and so forth. They want to be sure that the client has the ability to pay.

Manufacturing

Turns out that it’s not so easy to move from the prototype phase to high-volume production, a theme I’ve heard from many other hardware entrepreneurs. Tile’s team spent months flying to China and back, testing out production samples, learning about injection molding and ultrasonic welding (it’s what bonds the two halves of the Tile’s plastic body to one another), and fixing a weird problem where bits of the welded plastic were sticking out of the finished product. It was an involved, iterative process.

Eventually, they ironed out all the kinks. In May 2014, an assembly line in China started producing Tiles and shipping them back to the U.S. From there, sales seem to have really taken off — both directly on Tile’s website and on online retailers like Amazon.

Farley says that none of this would have been possible without crowdfunding.

“Hardware is so dangerous, and VCs stay away from it, because it is so easy to screw up,” he told me. “Crowdfunding is one of the best things to happen to hardware, ever.”

Originally published on VentureBeat: How Tile went from crowdfunding to 2M units sold in two years

How Tile went from crowdfunding to 2M units sold in two years

My take on Alphabet Inc. (video)

CCTV reporter Mark Niu interviewed me and included my somewhat skeptical take on Google’s new corporate structure — Alphabet Inc. — in his report this week. My hair is doing some weird thing but I think other than that I make some kind of sense.

My take, in a nutshell: The new structure, so far, is largely symbolic. Yes, it clarifies who is in charge of each division and sets up the succession plans much more clearly. But at the end of the day, it’s the same company, with the same components. As a result, I think this is just the first of several steps, which might include spinoffs down the line.

Video

How Trello and couples counseling helped make this startup a self-managing success

InDinero-camping-trip

Jessica Mah has been starting companies since she was 13. As a teenager, she built websites for small businesses, and then created a company that managed online services for companies. It was pulling in $100,000 in revenue before she was even in high school, Mah said.

So after finishing an undergraduate degree in computer science at U.C. Berkeley, Mah did what came naturally to her: She started another company. She and cofounder Andy Su decided to tackle an area they knew well: providing services to companies.

The initial idea was to build a “Mint for businesses” — a simple Web dashboard that companies could use to keep an eye on their financials.

“We figured if we could figure out this whole computer science thing, then accounting would be a piece of cake,” Mah said.

On the strength of that pitch, Mah and her cofounders got into Y Combinator, then raised $1.2 million in 2010.

But after that, it didn’t go so well.

“The million dollars burned away. We basically threw that money in a fire,” Mah told me.

With the company down to $150,000 in the bank, the founders had to make a tough call. They laid off everyone except for Mah, Su, and one other person. Personal relationships frayed. Mah and Su even went into couples therapy (though their relationship is platonic) in order to learn how to work together more effectively.

The trio then got to work on reinventing the company from the ground up. Five years later, it now provides a complete back-office solution for businesses, each of which pays it thousands of dollars in fees to eliminate all their headaches with payroll, accounting, and taxes.

Today InDinero has 125 employees, and closed a $7 million round about six months ago. And it’s not just VC money fueling the company’s growth: InDinero landed on Inc.‘s list of the 5,000 fastest-growing companies thanks to an impressive 3-year growth rate of 2,685.6 percent.

But how the company operates is one of the most interesting things about InDinero. Like a handful of other tech companies, it has adopted an approach to management that gives far more power, autonomy, and respect to its employees than traditional companies would.

For some companies, that has meant giving employees unlimited vacation time, like Hubspot does, or unlimited paid maternity or paternity leave, like Netflix recently announced.

For other companies, it goes deeper. Zappos, for instance, has adopted a completely decentralized approach to management called “Holacracy.” Zappos founder Tony Hsieh even recently required all of the company’s employees to sign on to Holacracy (or leave the company, which 210 of them did), and he asked them to read a book on self-management called Reinventing Organizations. (I’ve read it: It’s a little weird, but is also quite eye-opening about how many different kinds of companies around the world have successfully tried this approach.) San Francisco-based content platform Medium also has adopted Holacracy. And Seattle-based game studio Valve takes a similar approach, eschewing titles and management structure altogether.

InDinero’s take on self-management incorporates many aspects of Holacracy and self-management, but still retains an executive management structure. The executive team sets the company’s overall goals and lays the framework, but employees make all other decisions collaboratively.

And interestingly, the employees rely heavily on modern communications tools like Slack and Trello (as well as more traditional mainstays like Salesforce) in order to keep everything coordinated. Trello, in particular, seems to be a constant point of reference.

InDinero calls it “entre-ocracy,” which is probably too awkward of a term to ever catch on. But the principles are fascinating to watch in action. I attended a weekly sales meeting recently, which was run by a sales rep who acted as the moderator and facilitator for the discussion. The executive ostensibly in charge of the team, InDinero’s director of sales, was part of the meeting, but he didn’t identify himself as an executive to me beforehand, and I wasn’t able to figure out during the course of the meeting who was actually the boss. The sales director got no special treatment in the discussions — and in fact, there were times when the rest of the team overruled his suggestions as impractical or incomplete.

During the course of the meeting, team members referred repeatedly to Trello cards that listed things they needed to discuss, and as they agreed on solutions they updated those cards with follow-up actions and who was responsible for following up. They weren’t making trivial decisions, either: One of the big agenda items was how much to pay current customers for referring new customers to InDinero, a decision that put a decent amount of money in play and could have a substantial impact on the company’s revenues.

InDinero even extends collaborative decisionmaking to things like figuring out who deserves a promotion and how much people in various roles should be paid. Everyone’s performance is evaluated quantitatively, and is publicly known to everyone else on their team, so Mah says such decisions are very straightforward and uncontroversial.

More significantly, perhaps, this approach has allowed the company to eliminate middle management entirely, and it has freed up Mah and other members of the executive team to focus on really strategic things, rather than distractions like approving vacation requests or figuring out how much to allot to the travel budget for next quarter.

“We’re taking the decisionmaking out of management,” Mah said. “Our job is to facilitate the structure, not to make all those decisions.”

I asked Mah, who is now 25 years old, if she got any resistance from the InDinero board. After all, as anyone who has ever held a job could tell you, executives and board members are often extremely resistant to any notion of employee empowerment. She didn’t, she said — though the corporate structure of InDinero is such that she has considerably more autonomy than most entrepreneurs, since all of her board members are advisory, not voting board members.

“In short, they really don’t mind,” Mah said. “But a lot of boards probably would be like ‘what the hell?’”

With nearly 3,000 percent growth over three years, however, most board members with any sense would probably tell Mah to keep doing exactly what she’s doing.

InDinero’s approach to “entre-ocracy” probably isn’t going to work for most tech companies. It seems clear that it comes from the founders’ unusually high level of emotional and interpersonal skill (maybe that couples counseling really does work!). And it requires employees who are eager to take on a higher level of responsibility.

But for the right entrepreneurs and the right companies, this could be an incredibly powerful way to remain focused on what really matters, even while the company is growing — and it could be a great way to recruit, empower, and retain the most talented people.

Originally published on VentureBeat: How Trello and couples counseling helped make this startup a self-managing success

How Trello and couples counseling helped make this startup a self-managing success

How Matt Mullenweg built WordPress into a giant platform powering 1/4 of the Web (podcast)

In this week’s podcast, I talk with Matt Mullenweg, who created WordPress as an open-source blogging platform twelve years ago and turned it into a parallel, for-profit company called Automattic ten years ago.

[Click the image above to hear the MP3 of this podcast.]

Since then, WordPress has grown into one of the most successful platforms on the Web. According to W3Techs, WordPress powers 24.2 percent of all known websites — and 60.4 percent of websites for which W3Techs is able to determine the content management system. I can’t think of any other content system that owns such a dominant share of the Web.

But WordPress is more than just a blogging tool; it’s an extensible platform and a massive open-source community. In this podcast, Mullenweg explains how he created the blog, nurtured the community, and how he balances the needs of an open-source project with those of a for-profit company. And that company, Automattic, is worth over a billion dollars, according to its most recent investors.

Mullenweg is a sincere, low-key, and remarkably effective CEO who does things very differently than most tech execs. I think you’ll enjoy this conversation with him.

Also in this episode, Jordan Novet and I tell you what to think about:

You can listen to the podcast in the player above.

Or, click here to get the MP3 of this episode of What to Think.

You can also listen to What to Think on Soundcloud.

And please subscribe to What to Think in iTunes, where you’ll get every episode delivered to the device of your choice as soon as it’s released!

Originally published on VentureBeat: How Matt Mullenweg built WordPress into a giant platform powering 1/4 of the Web (podcast)

How Matt Mullenweg built WordPress into a giant platform powering 1/4 of the Web (podcast)

Social media will ‘trump’ tonight’s GOP debate winner

Fox-News-debate-promo

If you’re like most politically minded Americans, you’ll be grabbing some popcorn and sitting down to watch the first Republican debate tonight at 9pm Eastern.

With ten contenders, most of whom are masters at the art of making provocative and outrageous statements, and all of whom are desperate for the precious attention and donor dollars that will keep their fledgling campaigns alive, it promises to be a lively, entertaining evening. But the debate’s impact on policy or on the ultimate outcome of the race? Negligible. With the election more than a year away, it’s way too early to declare a winner. For now, it’s all sound and fury, signifying nothing.

There’s one winner we can declare, though, even before the debates start: Social media.

Barack Obama’s 2008 campaign proved that having a savvy grasp of social media can help a candidate win an election, and Mitt Romney’s 2012 campaign proved you could easily lose a campaign by failing to grasp the power of social media (including its ability to turn surreptitiously filmed videos into viral sensations). Nobody is going to take social media for granted this time around.

All of the candidates have social media strategies, and most of them are doing pretty well at the game. Their campaign managers understand that it’s not enough to tout policy positions and broadcast the same tired campaign slogans; you have to project an image of humanity and warmth. You have to have a ‘voice.’

And for tonight’s debate, social media sites will be where a lot of the action takes place. Facebook is co-hosting the event with Fox News, which seems like a symbolically significant achievement for Facebook, in light of its bid to be taken seriously as a news channel. Unfortunately, you can’t watch a live stream of the debate on Facebook, but you can watch clips, and chatter to your heart’s content, on the Fox News Facebook page.

On Twitter, you can find the hashtag #GOPDebate, which, despite questions about Twitter’s ability to surface interesting discussions and relevant links, actually does a pretty good job of pointing you to highlights of the coverage. Follow that hashtag, plus a few reliably snarky news pros, and you should have plenty of fun using Twitter as a second screen.

Or consider taking to Instagram to get a look at how the candidates are presenting themselves. VentureBeat got an intriguing list of early highlights from the Instagram media relations team today, which included Jeb Bush name-checking LeBron James, Rick Santorum going to Mass, Ted Cruz posing on the plane with his daughter, and the Fox News crew prepping their best curve ball questions.

If you want to get a bit more substantive than Facebook, Twitter, and Instagram, you might check out Flipboard. It’s not really a social network but it’s powered by a network of sorts, using the social signals of its 70 million users to assemble relevant news that’s customized for you. Its Election Central channel promises to provide “insightful political coverage and the best campaign moments.”

So, social media has established itself as a key player in campaign coverage in the U.S. Congratulations, Facebook, Twitter, and all the rest.

Now my question is: What are these networks going to do with their new-found political power? Sponsoring an early debate and highlighting hashtags is one thing. Capitalizing on the American public’s desire for ever-more strident points of view and ever-more-outrageous statements is fine, too.

But is there a way that social media could empower people to make more informed and smarter choices? Or is it always going to be a large-scale version of the shouting match that we’ll see on stage?

Former Twitter CEO Dick Costolo noted last year that the company could do a better job at handling abusive comments. You could say the same thing about Twitter’s — or any social network’s — ability to foster intelligent debate. The same dynamic that propels people toward name-calling and threat-making in their personal disputes can make political debate an exercise in futility and frustration.

I wouldn’t want social networks to put any significant restraints on the ability of their users to say whatever they want, however asinine it might be, but it would be interesting to find some intelligent debate in these vast social webs.

Then again, maybe that’s asking too much.

Originally published on VentureBeat: Social media will ‘trump’ tonight’s GOP debate winner

Social media will ‘trump’ tonight’s GOP debate winner