The Management Plays

The Infrastructure Play

What is “eServices”?

Own the Supply ChainOften eServices companies talk to investors about the flexibility of labor costs; they only pay the suppliers when they are working. However, some companies have decided to hire their workers in-house.Pros: Could attract more motivated workers. Greater employee empowerment. Lower employee churn.Cons: People are not exponentially scalable. FTEs can cost 140%+ of 1099 equivalents. Higher upfront recruiting and training costs.

Companies Doing It:

My View:Companies who treat supply management as a core business are well-positioned to stand out, but this is a drag on margins and growth velocity. In order to invest in one of these businesses, you need to believe in winner-take-all potential.

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Be a Great Front-End to Fixed SupplyMany of the successful companies in this wave of eServices don’t manage their underlying supply at all; they simply connect customers to an existing business in a much better, more user-friendly way. Others pair a great front-end experience with full supply chain ownership.Pros: Low cost-base or bulk pricing options. Proven demand for underlying service. Cons: Platform dependent. Often requires contract labor and underlying fixed supply.

Companies Doing It:

My View:The most interesting investment opportunity. Possibility for winner-take-all markets. Success depends on enterprise sales/partnerships on the supply side and b2c customer acquisition on the demand side (distinct and very different skills).

Demand for eServices is here to stay

Why did eServices explode over the last five years?

eServices Investment OpportunitiesKevin Weeks, June 2015

A technology sector made up of internet companies that provide either (a) services to customers or (b) a platform to connect service providers to customers.e.g. “I can’t believe I used to take a taxi from my expensive hotel to the grocery story before eServices companies like Uber, Airbnb and Instacart existed!”

Smartphones Everywhere

Global Financial Crisis led to High Unemployment

Dramatically Lower Costs to Start an Internet Business

u  Winners in eServices businesses will be those who create and maintain network effects. Companies tend to focus on one side of the supply-demand equation first.

u  Early winners (see graph above) focused on seeding demand with promotions, referrals, marketing spend and branding. Leading with demand worked well – customers signed up and suppliers followed. Thanks to companies like Uber, TaskRabbit and Seamless, customers expect eServices companies to give them everything they could possibly need.

u  The next battle has already begun on the supply side. The eServices businesses that best attract, retain, leverage or service the supply side will win.

Smooth Peaks and TroughsAnother common labor acquisition trick is to promise that contractors can work whenever they want. But some companies have tightened worker requirements to better balance supply and demand. E.g. mandatory “on” hours or signing up for shifts ahead of time.Pros: Better manage demand spikes (and help to avoid surge pricing). No impact on customers.Cons: Administrative burden. Risk that regulators require contractors become employees.

Companies Doing It:

My View:This is a creative way to curb technology costs (more simple back-end tech vs true real-time matching), but nothing about this seems to be defensible. Companies managing supply this way will need to excel elsewhere (demand gen, etc).

Build Ancillary Services for this Growing MarketSome companies are taking the “sell pick axes and shovels during the gold rush” approach and building utilities for eServices companies. Examples are payments, labor management, insurance and lending. Pros: Big, growing customer base. Appetite to outsource “non-core” functions. Ride the wave.Cons: Enterprise sales to small companies is very hard. eServices companies may view these services as core.

Companies Doing It:

My View:Potential customer base is not as large as it appears because many eServices companies will continue to build in-house. Will likely be difficult to grow into a huge company on a stand-alone basis. Likely acquisition or merger targets.

Demand is here to stay.

The next wave of huge companies will come from

one of three areas, all related to supply.

Those who are thoughtful about supply side management

Those who drive incremental demand to fixed supply

Those who service the supply side

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Opportunity!

Notable Launches Over Time:

(Source: me and a whiteboard)

Thank You