Four Mistakes to Avoid When Building the Next “Uber for X”

So you want to build the next “Uber for X” or “Airbnb for Y” mobile app platform? Here are four mistakes to avoid:

1. Don’t Try to be Good at Everything

This isn’t middle school. No one is expecting you to be good at everything. And not everyone’s going to like you.

Simplicity and focus are the name of the game when it comes to building disruptive and highly scalable mobile app platforms.

Whether you’re thinking about starting a platform venture or experiencing setbacks with your current platform, stop to think about the core interaction your mobile app platform facilitates. If your description of the core interaction requires you to use “and” a lot, chances are you’re stretching yourself too thin and your platform lacks focus.

So if you like the idea of your startup’s valuation going from zero to a billion real quick, then take a page from the Instagram playbook and prioritize focus and simplicity.

Instagram was first called ‘Burbn’ before it became a staple of the social networking world. The initial product was a hybrid between Foursquare and Mafia Wars and the app’s primary functions were to let users check-in to locations, make future plans with acquaintances, earn points for hanging out with friends and post pictures. Weird, right?

The team was unhappy with its product. Its platform was “cluttered” and “overrun with features,” Instagram Co-Founder and CEO Kevin Systrom noted on Quora. Systrom realized that the photo feature was by far the most popular. So the company quickly scrapped Burbn entirely to focus on building a new app whose core interaction would be the quick and easy social sharing of beautiful pictures.

“We took a step back and looked at the product as it stood,” Systrom says. “We decided that if we were going to build a company, we wanted to focus on being really good at one thing.”

The rest is startup history.

2. Don’t Screw Up Pricing

Uber and Airbnb are both services marketplace platforms. Marketplaces can be categorized as providing commoditized or non-commoditized services. The difference on this spectrum revolves around how many relevant product characteristics the service has for producers.

For example, Uber provides a commoditized service because the passenger doesn’t care about much besides getting from point A to B in the car they selected.

Airbnb provides a non-commoditized service because its renters potentially care about location, number of bedrooms, WiFi, pool, pet policy, etc. The more factors that influence a purchasing decision, the less commoditized the service offering is.

So while both Uber and Airbnb are both services marketplaces, each marketplace needs to operate very differently. For example, commoditized services marketplaces should set prices, while non-commoditized services marketplace should allow its producers to set prices. Airbnb provides pricing guidelines, but the ultimate decision of what to charge is up to the host listing their room.

An interesting platform to run through this test is Instacart, a web- and mobile-enabled grocery delivery platform. Originally, Instacart suffered from a lack of price transparency as it was marking up grocery prices to account for its overhead costs. Instacart then pivoted its pricing strategy to charge a subscription fee to supermarkets that wanted to belong to the Instacart platform. Instacart would still show a non-subscribing supermarket’s products, but it would mark up those prices. Supermarkets are willing to pay the subscription fee to ensure their prices are as low as possible to maximize the new business the platform generates.

Instacart is a non-commoditized services marketplace because there is a lot of variety in items to buy at a supermarket. Tomato sauce could be cheaper or more expensive depending on quality. Instacart is moving in the right direction by switching from its price markup strategy to a subscription strategy. The company is right in letting the supermarkets set their prices, since the producers know their prices best in a non-commoditized services marketplace. This strategy allows the consumer to benefit from lower costs due the removal of product markups.

3. Understand Full and No Stack Startups, and Choose Wisely

Chris Dixon defined the full-stack startup in his 2014 post as startups that “build a complete, end-to-end product or service that bypass existing companies.” Think Uber, Warby Parker, Buzzfeed and Netflix as examples of companies that are good at many different things as a result of their full-stack approach.

Then Andy Weissman of Union Square Ventures introduced The No Stack Startup in response to the trend of full stack startups starting to unbundle. These companies just focus on the last mile of value they provide, the one thing they can excel at better than anyone else. As Weismann says, “ This should be called the No Stack Startup – services that can focus on doing only one thing –hopefully well – and utilize other services for everything else.”

So which approach is right? It depends on the maturity of your startup.

A no-stack approach can help you quickly test your platform. As we mentioned earlier, focus and simplicity are of the essence. Founders should focus on the last mile or as we described the core interaction. Invest only in building technology that improves the core interaction, everything else can be off the shelf until your startup increases in maturity through proven traction.

4. Don’t think “If We Build It, They Will Come”

Platform have several advantages over linear businesses, but they also face distinct challenges. The main challenge is the “chicken and egg” problem. You need both consumers and producers for your marketplace. But without one group, the other group won’t want to join. So do you get your consumers or producers on the platform first? This is a very difficult question to answer.

When Uber first launched, it paid drivers even if they didn’t have passengers to transport. The young company wanted to secure their platform’s supply so that when consumers joined the platform there would always be drivers available. This strategy allowed them to acquire more consumers, which then attracted more drivers to join. This strategy is a form of subsidizing value and it’s one of the seven key strategies to overcome the chicken and egg problem that we identified in our research into numerous successful platforms. . We’ve provided the toplines of these strategies below, but you can view the strategies in-depth here in our blog post.

Enter with significant pre-investment e.g. Microsoft’s launch of Xbox
Build a cooperative strategy e.g. Google’s Open Handset Alliance
Act as a producer e.g. Apple iPhone’s initial lack of third party apps
Use an evolution strategy e.g. Airbnb taps into Craigslist’s network
Create a single- or double-sided marquee strategy e.g. Uber paying drivers even when they weren’t transporting customers
Target a user group to fill both sides e.g. Etsy’s artisan target audience
Provide single-user utility e.g. Opentable providing reservation software to restaurants

Filed under: Platform Innovation | Topics: mobile apps, platforms