Lightspeed VC Caldbeck: Why Airbnb works, why Uber faces disruption
Lightspeed Venture Partner Justin Caldbeck is excited about the wave of startups that are finding ways to put people with assets - cars, homes or even spare time - together with people who need them.
That’s why he invests in companies like Sidecar, which helps people become cabbies using their own vehicles, or TaskRabbit, which helps people offer their services to do errands.
Caldbeck, who joined Lightspeed after launching Bain Capital Ventures’ West Coast office, spoke with me last week about trends in what has become known as the “sharing economy” or “collaborative consumption.”
He thinks it’s still early days in for startups in the space and even thinks a few of the pioneers, like the Uber black car limo service, could be disrupted themselves.
The following is an excerpted transcript of that conversation.
What is it about the “sharing economy” space that interests you?
The first thing that I look to is the success of the first generation of marketplaces: eBay, Craigslist and OpenTable, for example. They taught consumers how to engage in peer-to-peer commerce online. They and others taught taught us how technology can be leveraged to help small and medium businesses leverage overcapacity in a way that had not been previously done.
But a number of those websites is left a lot to be desired in terms of the experience. There have changes since the success of those first generation marketplaces which have enabled a lot collaborative consumption through the really big growth in social media. These companies have grown at rates that we have really never seen before, because of the virality that happens when things start to be shared through Twitter and Facebook. But the social graph I think also provides this sense of real identity and trust that was not available in a lot of cases in the first generation marketplaces.
Give me an example.
Take Task Rabbit, for example. Previously if I wanted someone to come over and clean my apartment or buy some furniture that I want to get rid off, I would have gone online with Craigslist. I would have gotten a response from someone with a screen name like “yellowcat15.” And I wouldn’t know anything about that person. I wouldn’t know if we are friends of friends. I wouldn’t have a real identity associated with that person and they may or may not show up.
I think now with the real name of that person known, along with ratings and reviews, there is really a higher sense of trust for these transactions, whether it’s in person or online. I think that is enabling a likelihood of fulfillment and a sense of trust that really never existed before. I also think these collaborative consumption businesses are driven by a really strong value proposition on both sides. That is when you start to see exciting businesses.
Describe how both the consumer and the supplier win.
For the owner of the asset, the value is around renting out that asset. In the case of something like Getaround, which is peer-to-peer car rentals, the owner is actually leveraging this fixed asset that they have and making money on it in the times that they are not using it.
One of our portfolio companies, Sidecar, helps car owners make use of extra time and their car to effectively be a driver for people and make quite a bit of money that way. They get on average $35 to $40 per hour. There are a bunch of examples, whether what’s leveraged is extra time people may have to drive people around or, in TaskRabbit’s case, get a job done.
Their are plenty of examples of these businesses that leverage a fixed asset. It could be a car, like Getaround or Sidecar. It could be a house, like in Airbnb’s case. Or it could be extra clothes that you no longer use that often. There are platforms created around reselling or swapping used clothing that have been quite successful, like Poshmark.
On the demand side, it has created an incredibly different experience that provides consumers with a more trustworthy experience. Often there is a better underlying product and usually it’s a significantly lower price. All those things get me really excited.
These businesses also typically have very, very high gross margins and strong stability relative to other consumer businesses, like e-commerce.
What’s the danger of copycats? It seems there are a lot of similar sounding startups in this space.
I think that’s right. You hear people pitch about starting the Airbnb for (fill in the blank) vertical or the other one I have heard a lot is the Uber for (fill in the blank) vertical. I look at these businesses all the time, but a lot of these verticals, these business sectors, just fundamentally aren’t as attractive. That could be because they are niche verticals or they could be in verticals where, the marketplace is already very efficient. They could be verticals where the ability to change the experience for a product or the demand side or for the supply side isn’t great.
As for copycats in the same vertical, one of the attractive elements of the sharing or collaborative model is that it lends itself to scale and defensibility. I think that once you get to scale, it’s very, very challenging for new entrants to be competitive.
Take Airbnb. If I am looking for a place to stay in Toledo, they are the ones with all the supply and that makes it more attractive to the customers. And if I have got all the customers, it’s more attractive for the homeowner to put their home on that website. If I am an individual who is willing to go through the sign up process and get involved on one of these websites to earn some extra money, I want to be where the traffic is.
I will say, however, I look at something like Uber and I think one of the reasons Uber is in the process of being disrupted by companies like Sidecar and Lyft is that they entered a market and built a fabulous product, but they priced it at a point that was not mainstream. They are also doing things like double pricing on Fridays and Saturdays and, seemingly, every holiday.
So that gave rise to an opportunity for people to build a similar product experience that was on par with Uber. But instead of just appealing to drivers with black cars, Sidecar went out and said let’s not just take people who are already driving for a living. Let’s find people who want to earn some more money. There are millions of unemployed and underemployed people that own vehicles. And if we can give them an opportunity to earn $35 to $40 and offer riders an experience that is 20 percent to 25 percent lower cost than Uber, there is an opportunity for another player.
How significant do you think the barriers to business are that have been mounted by local tax and regulatory authorities?
That is one that I am quite familiar with. First off all, you have got to work with the regulators. It has been a challenge for the sharing economy thus far. It’s getting a lot of pushback from regulators and unions. It is important to be cooperative with them and try to figure out the best way to work with them. We feel that this is fundamentally better for nearly everyone involved.
In the case of ride sharing, the reality is that today many cities have an artificially low number of taxi medallions. That has created a really poor experience for riders. And on the supply side, the are are plenty of people who are unemployed or underemployed who want to drive.
I think in parts of most cities, certainly in San Francisco, it is impossible to get a cab. You find yourself calling a cab company and waiting, not knowing if it’s going to show up on time or at all. Trying to hail a cab in many areas, the chance of finding a ride are very, very low. It’s absolutely a better experience to be able to — wherever I am — open up an app, hit a button, have a car come to me and pay less than I would for a taxi.
How about the safety issue?
It is actually safer for a passenger than hailing a cab, too. If I am a 35-year-old woman and I hail a cab on a Friday evening and a cab driver picks me up, there are two people in the world that know I am in that cab. Me and the cab driver.
With an app like Sidecar, there is a electronic record. I know exactly who that person is because they are screened. I have a picture of them in the car that I can match when they pull up. There is an electronic record of back and forth between me and that individual in terms of knowing that person is coming to pick me up and exactly where. There is a GPS tracker in each of our phones that monitors where we go in that ride and exactly when I got out.
So it’s a better experience for the driver, for the passenger, as well as better in terms of safety and price point. We think that all of those things together makes regulatory changes inevitable. But we have got to do it in a patient way and work with them closely to figure out how to regulate this new evolution in the economy.
Some people have kind of put a fork in their eye, trying to make the opposition look stupid and silly and slow. I just think that’s the wrong approach. The companies I am involved with are trying to work more closely with the regulators to figure out how we can work together to make sure these things are legal and supported, but regulated in the right way.
How much of a generation and class divide do you think there is as far as acceptance of this group of companies?
The data suggests that once people try it, they use it a lot. For example, getting in someone else’s car. I certainly have heard, candidly among women in particular, “Wow, would I really do that?” But the reality is, with Sidecar there is north of 60 percent female drivers or female passengers. And the repeat rates over the course of the first year is astronomical.
It is an incredibly sticky product. So I think it really is an education thing, helping people understand this is not like hitch hiking back in the day. You are not putting your thumb out and getting in a stranger’s car with no accountability. Whether it’s a home or a car, these are background screened people who have been interviewed, who have been processed, who have been on-boarded with real accountability from a technology perspective.
Will there be incidents? I think there almost certainly will be. But I think that the reality is this is safer than a lot of other channels today.
It terms of age, it’s not just only 20-something women participating. It is gets up into the 30s and 40s. It’s not yet as popular you know with people in their 50s, 60s or 70s. But I think that like most technology, it starts with the 20-somethings and 30-somethings and gradually works its way up.
What are the ideal characteristics of successful companies in the sharing economy that you look for when you decide whether to invest?
Well, first of all, in collaborative consumption, or any other investment, you want to look at the quality of the team and the background of the team. Then the size of the opportunity.
In the sharing economy and collaborative consumption space, you also want a natural pull on both the consumer side and supply side. I want to know that consumers are already doing this behavior but want it be a lot easier. And I want to understand the value proposition for the people actually performing the function or owning the asset.
I also look for things that make it attractive to repeat use of the platform, from both the supply and demand side.
Do you believe this is more than just a fad?
I think this is still early times in this market. It’s an a area that got a lot of hype for about a year and a half to two years now. Look at any of the historically successful companies that came before, like Yelp, OpenTable, Stubhub. They take a while to build.
Social media can help accelerate things in a way that wasn’t available in 2001. But these things take a while to grow. Even though there has been some hype for a while, there really haven’t been that many breakout companies, yet in collaborative consumption. I fully expect that to happen in the next four to five years, though. I think there are going to be a bunch.
This article was published in the Silicon Valley Business Journal, by Cromwell Schubarth, the Senior Technology Reporter at the Business Journal.
Full article:
http://www.bizjournals.com/sanjose/news/2013/07/08/lightspeed-vc-caldbeck-on-sharing.html
