Uber, but for “Uber for X”

There’s a good reason why half the startups in the world call themselves “Uber for _______”. However, something about the phrase has been bothering me a lot, and I’ve realized it is about the different dynamics of capital and labor. Uber is about more than just car service; it is a testbed for the idea of a better capital marketplace. Instead of purchasing capital (e.g., buying a car), users rent it with their phone. Social welfare can be increased because the cost of capital is amortized across near-continual usage instead of twice a day when the car is used for commuting. The surplus is large enough that both Uber and the driver can take a cut while the user still saves money. It’s a great idea! It also works even better in many other sectors because Uber is so heavily labor-dependent and so introduces a high variable cost that induces a lower limit on available cost savings. In other applications where the user is purely renting capital (e.g., Airbnb), the clearing price might be very, very low. The user gets a benefit, the capital owner gets rents, and the platform gets a cut: social welfare is massively increased.

It works conceptually less well when the user is hiring labor – e.g., delivery, cleaning, grocery-shopping. The laborer requires pay, which means that there are variable costs. You must pay the laborer enough to make the task worth her while, because she has the opportunity cost of doing your task instead of something else. This cost structure is a huge difference from renting unused capital (e.g. a car or house), where the opportunity cost is zero or negative. There’s no reason to believe that platforms can actually provide labor-intensive services more cheaply than traditional methods. They might increase social welfare by improving matching and making the market more liquid, but that’s a marginal improvement compared to utilizing capital much more efficiently. This liquidity advantage might allow some of these startups to gain market share, but it won’t throw off huge profits because it has to be cost-competitive with existing incumbents. While some of them might be able to offer lower costs than incumbents now, that’s due to both the slack labor market and subsidies from VCs.

In short: we should expect general success of “Uber for capital”, and much slower adoption of “Uber for labor”.  If you want personal service delivered to your door, you should expect to pay the same premium whether or not you book it via an app.

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