Editor’s note: This article by now-a16z general partner Alex Rampell was originally published in 2012 in TechCrunch.
The biggest ecommerce opportunity today involves taking offline services and offering them for sale online (O2O commerce). The first generation of O2O commerce was driven by discounting, push-based engagements, and artificial scarcity. The still-unfulfilled opportunity in O2O today is tantamount to tacking barcodes onto un-warehousable services by standardizing and normalizing the units being sold, something I call “Service as a SKU.” Just as Amazon figured out how to build the best warehouses and technology in the world for delivering boxes, somebody will do this for “unboxed” services, with customers driven not by discounts or scarcity, but rather by the Internet’s hallmarks of customer experience and convenience. And unlike how “ship stuff in a box” ecommerce seems to be gravitating towards a few winners, Service as a SKU is still a wide open playing field.
The idea is to turn every service, or unit of commerce, into what retailers typically call a SKU (Stock Keeping Unit). Imagine the following as “items” you can buy, and have “delivered,” with a simple click or tap:
“1 Unit of Plumber-Fixes-Your-Leaking-Toilet”
“1 Unit of Dentist Fixes Your Crown”
“1 Unit of 12-Inch Hole-in-Roof-Is-Fixed”
“1 Unit of Piano Tuner Tunes Your Piano”
“1 Unit of Set Up a Home WiFi Network”
Groupon and LivingSocial, early leaders in O2O commerce, started a wave I wrote about a few years ago, but have historically focused on discounting and creating demand by artificial time or quantity scarcity. There are two main problems here:
- Adverse selection: Groupon et al tend to attract customers looking for deals. This is not what Amazon does, and not how most consumers shop for necessities (e.g., fix my toilet!).
- Push v Pull: Groupon et al tend to rely on “push” (e.g., email) to drive a tremendous amount of sales. Unlike Google, eBay, Yelp, or Amazon, people don’t tend to go to Groupon “unprompted.”
To successfully create a SKU for every service, you need to normalize both the service provider (price/quality) and the service being rendered. It’s more like buying produce than buying something mass-produced in a factory. Or, perhaps more accurately, it’s more like booking a hotel reservation, where the rooms are anything but identical, there exist varying degrees of quality, but there are also quite a few commonalities.
The company that pulls this off will need to have the following:
- A seamless scheduling system, deployed at various service providers, to allow real-time inventory management. OpenTable does this for restaurants, and hence can provide a marketplace for “tables” at opentable.com. You can’t sell boxes without knowing how many items are in your warehouse; you can’t SKU-ify a Service without knowing how many hours are available.
- A trusted ratings system to allow for normalization of services and parsing of consumer feedback. How do I compare a $100 “fix my toilet” plumber to a $175 “fix my toilet” plumber? Ideally this will work like hotels: every service provider has a “star rating” and an associated cost. Hotel rooms are reasonably similar; consumers can choose between a 5 star hotel or a 2 star hotel, and even different star levels have significant variance. Yelp and Angie’s List have tremendous assets in their community-based feedback, although payment companies like PayPal and Square have perhaps an even better potential asset on their hands (chargeback rates are a good proxy for merchant quality, every completed transaction can solicit quality feedback and not just from aggrieved/fanatical customers, etc).
- A no-discounts, no-push site. OpenTable gets people looking for restaurants, and needs neither emails nor discounts to make that happen. Yelp, Google, eBay, Angie’s List, and Amazon are all contenders as they all have consumers “coming back” unprompted. If the product and site are sufficiently convenient, this often happens organically; having a well-designed and convenient search, shopping, payments, and redemption experience avoids the need for push marketing.
- Relationships with offline service providers. Despite the flash nature of Groupon and LivingSocial, their merchant relationships are significant. Yelp has virtually every business profiled but perhaps not every business engaged in an economic relationship.
It’s important to note that Service-as-a-SKU is not lead generation for offline services, nor is it just a glorified scheduling platform. “Leadgen” has been around since the beginning of the internet, but there is no standardization or normalization, not to mention the convenience of “one-click” purchase. There are leadgen services for housing relocation, laser eye surgery, insurance, etc, but none let you actually make a purchase online. The hard part is in “normalizing” to create a single “service item” that can be scheduled, paid for, and “delivered” with a mouse click or smartphone tap. As an example, Uber has done this for black cars, and EXEC is fixing hourly prices and limiting SKUs to low-wage labor services.
At 8:01 AM on June 26, 1974, a shopper named Clyde Dawson bought the first item — a 10-pack of Juicy Fruit gum — to ever be scanned with a UPC (universal product code). Today, barcodes are a part of every mass-market product bought and sold throughout the world. You won’t see plumbers, dentists, limo drivers, or gardeners walking around with UPCs on their backs, but we are poised for another shopping revolution of equal magnitude.