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Logistics in the Uber World

2010 to 2018 saw the theatrical rise and fall of the on-demand startup model, often branded within the investment circles as ‘Uber for X’. Whether it was food delivery, laundry, household chores or dog sitting, there was an Uber for that. Banking on a fast growing smartphone user base, a hyperlocal approach to last mile delivery and a tried and tested business model, Uber for X startups took over the  industry by storm.

Uber itself shot into the spotlight when it gathered $11 Million in series A funding in early 2011. It went on to become a company that revolutionised the landscape of how we merge offline services with online technologies. Shadowing Uber’s footsteps were a slew of clones that took the Uber model and applied it to a wide variety of marketplaces. Between 2010 and 2014, the total amount of VC funding that Uber for X startups received rose from $55.6 million to a whopping $1.46 billion. 2014 alone saw more than 20 deals per quarter go to on-demand mobile startups, with an average series A deal of $7.83 million.

Here are the numbers for total VC funding acquired by on-demand mobile startups (not including Uber) between 2010 and 2017

Year Total VC funding in on-demand startups (US$) Number of VC Deals Made Average ticket size (US$)
H1 2010 1.6 M 4 0.4M
H2 2010 54 M 8 6.8M
H1 2011 174 M 18 9.7M
H2 2011 175.1 M 13 13.5M
H1 2012 81.4 M 15 5.4M
H2 2012 284.9 M 24 11.9M
H1 2013 217.8 M 23 9.5M
H2 2013 200.6 M 25 8M
H1 2014 674.5 M 37 18.2M
H2 2014 785.5 M 45 17.5M

India too caught the Uber for X bug around this time. What had begun with the likes of Zomato in 2010 became a full fledged industry trend by 2014. Between 2014 and 2016, more than 400 new on-demand startups popped up in various markets across India, 180 of them appearing in 2015 alone. 2015 saw a net investment of $700 million in startups with an Uber for X model, and the overall category soon broke the $1 billion ceiling in terms of funding.

And then, it all collapsed. By 2017, the on-demand startup bubble in India truly burst. While in 2015, nearly 20% of all VC deals went to Uber for X startups, by 2017 the number dropped to around 8%. More than 100 startups shut shop, while a number of others were acquired by larger and more established players.

Indian Uber for X bubble burst in 2016.

Year Total VC deals in India Total VC investments in on-demand startups in India Percentage of deals made with on-demand startups in India
H1 2015 379 70 18.5%
H2 2015 559 106 19%
H1 2016 546 82 15%
H2 2016 474 62 13.1%
H1 2017 396 33 8.3%
H2 2017 297 25 8.4%

What is it about the Uber for X model that made it such an unsustainable venture? Was it just a passing trend that VCs got tired of listening to, or is there a structural fault line within the business model itself? It is interesting to note that while on one hand so many Uber for X startups failed, Uber itself is enjoying a spectacular 73% market share in US at this moment, well on its way towards an IPO by the next year. What is it that Uber does different that its copycats struggle to emulate?

Venture Capitalist and Uber ex-employee Andrew Chen has an interesting take on the Uber for X problem. He argues that the business model itself is economically skewed – it puts too much faith in the demand side of the equation and not enough attention to the supply side. The result – infrequent demand leads to higher standby times for the assets which translates to the startup bleeding cash.

Essentially, the core of a typical Uber for X startup is built on a simple idea – the demand is registered on a digital platform to trigger a physical supply chain of goods or services. The problem with most failed Uber for X startups is that while they put a lot of effort into aggregating demand, it is the supply side that suffers. Spikes and falls in demand result in problems of scaling – either you are scrambling to fulfil commitments or you are in downtime, waiting for business to arrive and wasting precious resources in the process.

Adapting a stock business model into a new industry needs nuance. And the questions that are almost always overlooked are those from the supply side – how does the model work for the labour pool? Does it incentivize them enough? How much downtime do the assets experience? Are you transporting empty or half full assets? Without due consideration to these key questions, it is the model itself that ends up constricting the business.

It is interesting to look at recent investment trends in maritime logistics startups in this context. The key up and coming players in the market are tech startups that are in many ways similar to Uber – they are trying to shake up a slumberous industry by eliminating highly time consuming physical processes and replacing them with more instantaneous digital solutions. But they also come with some key differences that make them not sit squarely in the Uber for X bracket.

Maritime logistics startups are having their day in the sun

Company Deal Size in 2017/18
Freightos 25 M
New York Shipping Exchange 14.8 M
Flexport 100 M

Consider Freightos – an online freight marketplace that is trying to enable freight forwarders by providing software to automate and manage shipping pricing quotes. Or the New York Shipping Exchange – a trading platform for container slots that is tailored specifically for shippers. Both these startups have received funding upwards of $15 million through venture capital in this investment cycle.

The interesting thing about both these startups is that they treat the maritime logistics industry as an expanded field. Like Uber, these startups are leveraging digital technology with an aim to reduce and eliminate paperwork, manual errors and response times within the maritime supply chain. They are also committed to making the process much more transparent for all the involved parties. At the same time, these companies reflect an in-depth understanding of the maritime logistics industry from the perspective of multiple players – whether it is freight operators, shippers, agents or ocean carriers. As a result, rather than looking for or even producing demand within the industry, these companies look to connect disjointed aspects of the supply chain and make it faster and more efficient for everybody.

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