I received this email today from Handy, an on-demand booking service for home cleaning:
We have entered into the new deal economy. Deeply discounted service offerings that are now delivered on demand instead of to your inbox.
But daily deals — in their original form — failed.
It started five years ago with Groupon. Subsequently thousands of clones emerged. Groupon for golf. Groupon for colleges (we tried to launch one). Google tried to [unsuccessfully] buy Groupon so instead proceeded to launch Google Offers. Facebook responded with an Offers platform of its own. Amazon invested in LivingSocial and doubled down with a native deals platform. Even the New York Times launched a deal site.
And then it stopped working. Excitement for 50% off was replaced by deal fatigue. Deals became a commodity. The only way to compete with the increasing supply was with deeper discounts. Discounts that were unprofitable and unsustainable.
Fast forward to today, we see a similar trend in the on-demand economy. The drivers are the same: Uber is killing it and the barriers-to-entry for new startups are low. Companies can tap into contract workers’ networks and leverage existing user lists or Facebook for distribution with limited capital investments, which has resulted in on-demand laundry, dry cleaning, dog walking, and massages. Excluding Uber, they are services of convenience. A nice-to-have. But you rarely need them urgently or use them frequently, so you are unlikely to pay a premium over existing solutions or for recurring cleanings.
To compete, on-demand service companies lower prices and/or discount heavily. Consumers become loyal to the price, not the brand or service. And with the proliferation of new services, prices are dropped further. The result? On-demand service companies that are commodity deal providers. The on-demand service companies that win will be the ones that compete on more than convenience.