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Why Do On-Demand Platforms Fail and How to Solve the Issues?

By Prateek Saxena
June 16, 2020 5. min read
Last update on: June 25, 2020

The glaring success of the on demand era has given birth to a school of thought among the tech community. They have started believing that following the uber business model and entering the on demand industry will be the only move that is keeping them from reaching complete success. 

While it has worked for a number of businesses like GrubHub or Airbnb, the number of businesses that have failed are also extremely huge. In fact, if you sit down to make an excel sheet comparing the on demand services fail vs success ratio, you will find that the number of businesses that struggled to survive were more than those which didn’t. 

But does this mean that you should give up hope on your on demand platforms’ business success and give up? Of course not. What it implies is that when you plan to succeed in the crowded on demand market, you should also factor in the reasons behind the application’s failure.   

The intent of this article is to help with just that.

Table Of Content 

  1. Understanding Uber’s Success in the on demand sector
  2. The List of on demand Brands That Failed Miserably
  3. Reasons Behind on demand Business Failure
  4. How Can on demand Businesses Save Themselves From Shutting Down Prematurely?
  5. Conclusion

Understanding Uber’s Success in the on demand Sector 

UBER business timeline

When you dissect the on demand economy, you will find that it is mainly built on three building blocks: delivery immediacy, consumption passivity, and a fixed cost. Uber did not just ticked all the three boxes of the on demand business model, but also aced some other factors that helped it build a seamless ride booking user experience. 

Here are the two factors which added to the brand’s success, making it one of the most successful on-demand companies:

  • The company operates in populated urban cities where there’s enough liquidity for making the marketplace work.   
  • The customer base were already very familiar with trusting a stranger to take them places. Thus, creating a trust in the market was never a problem. 

The Uber model doesn’t care about the transaction’s intimacy aspect nor about the disintermediation challenges. Imagine once you on demand home service app users find a person they like for cleaning their house or planning their kids, how would you stop them from contacting those service providers directly, without going through your application? This disintermediation when continued can lead to greater burn, churn, and in some cases extinction of the business. 

Since the Uber model didn’t include the need to care about intimacy, they could survive and grow on a much greater speed. But not every Uber-like story has a happy ending. There are a number of once top in the game on demand platforms that have fallen owing to the on demand challenges

The List of on demand Brands That Failed Miserably 

1.  Happy Home Company 

Happy Home Company was a twist in the otherwise traditional home service market. The idea behind the brand was to offer users home maintenance plans which included recurring things that had to be kept in top working conditions. Inspite of bagging $7 million from investors, Happy Home’s founder wrote a shutdown letter which stated, “Ultimately we weren’t able to make the transition from a scrappy startup to self-sustaining company.”

[Further read: The Happy Home Company shuts down, team members move to Google]

2.  Pronto

The business was set out for helping people get healthy meals faster. The UK based service had the work with the intent of connecting the users with chefs while enabling food delivery in under 20 minutes. It had every element to make it one of the most flourishing on demand delivery apps. Even though the idea sounded good to investors and adopters, the company couldn’t keep up with the promotion budgets of Uber and Deliveroo – one of the very commonly occurring on demand challenges

[Read: How to Build Successful On demand Delivery Apps]

3.  Workers On Call 

AI has changed the face of work, this is something that has been established over time. The Workers On Call services used AI systems for streamlining matching of employers with freelancers who needed jobs. The application that boasted of freelancers getting matched and started to work in under 30 minutes, although backed by a powerful vision, was a little ahead of its time. The brand even after raising $30K funding, signed off with a tersely message saying, “Bye Bye. Sorry Workers On Call is closed.”

what to do when your idea is ahead of its time

4.  Homejoy 

One of the textbook examples of failed on demand businesses is Homejoy. Started with $20,000 seed funding in 2000, the business became a big name in 2013 when it raised $38 Millions – making it one of the most successful on demand startups. But soon the customers started failing to convert past their first booking. In fact, only 15-20% people re-booked in a month. The numbers were simply not enough for the brand to survive. Add to this the legal battles against classification of workers a s independent contractors led to the business’s death in 2015. 

[Further Read: Why Did HomeJoy Failed]

The truth of the hour that still remains is that even after these on demand platforms failure instances, the fact how the internet has trained consumers to get services in real-time is not stopping budding entrepreneurs from entering the on demand economy. But how can businesses ensure that they are not destined to become yet another name in the list? 

While one way to get some satisfaction would be to partner with an on demand software development company that has worked with the inception of popular on demand businesses, it would also help to know the on demand services failure reasons that can lead to their failure. 

Reasons Behind on demand Business Failure

Reasons Behind On-demand Business Failure

1.  High Competition

The upsurge of hyperlocal service demand has led to a rise in demand of on demand services attending to the complete needs of their customers. One way entrepreneurs are competing in the market is by lowering their service costs. This, in addition to the high operational costs of transportation, infrastructure, and labour has been keeping on demand startups from flourishing. 

2.  Reluctance among Venture Capitalists 

With on demand failure stories shooting off the roof, investors have started becoming wary of where to put in their money. As it is, getting funded on your application has been a difficult process and when you add in the unsureties that the sector now comes with, the probability of raising money lowers even further. 

VCs are now becoming all the more cynical about the startup’s longevity. Businesses that are promising a strong long-term vision with a cash flow picture backing it have become the only answer to the types of apps investors will be backing in 2020

3.  Product Incompetence 

If there is one event that follows every successful startup, it would be the fact that competitors are soon to follow. The value that your business once offered starts getting challenged and bettered by the competitors. This, in turn, is leading to the product becoming incompetent in the market, irrespective of the efforts that went behind on demand app development services

Brands that are failing to keep up with the changes with timely pivots are soon finding themselves crawling out of the on demand space. 

4.  Inefficient Resource Set 

The lack of an experienced set of people can most often than not result in the failure of on demand companies. The same applies for the on demand industry. Irrespective of which on demand domain you pick, you will find that the ones that survived were known for their skilled workforce. A lacking on this front can lead to on demand business losing their worth in the industry and thus get closer to their demise. 

5.  Not Being Able to Solve Real Problems 

A number of on demand companies that fail deal with band-aid type of problems in place of emergency room type problems that make the solution extremely non attractive to the end users. Example: For example, imagine an on demand car wash service. Just how frequently would users demand the service? But the expenses a business will have to make to keep it afloat would be huge. In short, the business neither ends up being cost-efficient nor effective. 

6.  Under or Over Valuing Demand and Supply 

The last in our list of reasons that tend to lead directly to business failure is under or over valuation of demand and supply that your on demand business would garner. Businesses, more often than not undervalue the demand that they would attract and thus plan low on supply. Likewise, they at times think too much of demand and end up with an underutilized supply of resources. 

Now that we have enlisted the most common reasons behind an on demand app business failure, let us dive into the way outs – how can on demand businesses prevent this fate. 

How Can On demand Businesses Save Themselves From Shutting Down Prematurely?

Market Expansion

One of the biggest issues with today’s top on demand businesses is that they don’t expand from their existing markets. The entrepreneurs who are very new to the industry end up being limited to a pool of loyal customers and don’t think of expansion opportunities. The problem with this is that the moment a new competitor with deep pockets enters the market, the probability of them getting out of business increases. 

Here’s a look into the expansion roadmap that we generally share with our clients when we assist them with on demand app development

how to diversify your on demand business

Make Your Customer Needs Your Bible 

In the fight between what you can offer and what your users need, your offerings should always prevail. Although it can be a sweet attraction to invest in tomorrow’s big need, it can be extremely unwise to let go of your customers’ present day needs. 

The truth is that you will get a multitude of opportunities and time to pivot. But what you won’t get is the current time and your users present day needs. Getting insights into this information is what a sound on demand mobile app development company can help you with. 

Think of Being Monetarily Prepared First 

The matter of the modern day fact is that it is very difficult to get funding on an application. No matter how well propositioned your application is or how green your cash flow statement looks, there is zero guarantee of you getting funded. 

The solution on this front can only be to look into alternate financing options and not remain limited to VCs. 

Conclusion

The growing cases of on demand industry failures have led to the sector getting the image of being a house of card. The only way for entrepreneurs to enter and succeed in the domain would be to do extensive user research. One way we suggest to achieve this effortlessly can be through the mode of product design and development sprint – one of the key practices that on demand app developers follow.

Prateek Saxena
Prateek Saxena
Co-founder of Appinventiv
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