Are Tech Investors Subsidising Mediocrity?
The rise of services aggregators and online marketplaces can largely be attributed to massive investments by investment funds. A lot has been said about the positive impact of the aggregator model — the fact that it evens the playing field, lowers the barrier of entry for small-scale entrepreneurs, and creates a free market for goods and services. There has also been criticism of hardships that many participants experience and even the debt traps that aggregators such as Uber and Ola have created in markets such as India.
One thing that most people miss is that aggregators and marketplaces have normalised mediocrity, and lowered people’s expectations as far as service is concerned. For instance since Uber has allowed drivers with non-commercial licenses on the platform, road safety has suffered. Drivers are insensitive to feedback on dangerous behaviour, and the rider rating feature discourages real-time feedback. Uber has a serious problem with service. Some time ago, when I tried to report a reckless driver to Uber via the app, Uber called me back three days later at 1045 PM to ask about the matter. When I told the Uber representative about how disappointed I was with the fact that they took so long to get back to me, the rep shrugged it off saying that if I were really that concerned, I would have phoned the police immediately.
Now I’m sure that the data-obsessed management of these companies know full well about the issues that their customers face. Uber and Ola are frequently in the news for crimes involving their drivers, but their standard response is on the lines of “we are assisting authorities with their investigations” without any actual commitment to driver and rider safety. The truth is that simple and innovative methods to design driver behaviour are well within their technical capabilities.
These problems are not restricted to taxi services. Food delivery services, flush with investor money, are wreaking havoc on the food service ecosystem. An acquaintance in Gurgaon, India runs a salad delivery service that offers delightful salads with high-quality ingredients at a very attractive price point. Given the high cost of his ingredients, and the price volatility of perishables, he cannot absorb the 20 per cent commission that local food delivery services such as Swiggy and Zomato charge. Now Swiggy does have its own salad delivery service — a “cloud kitchen” called The Fit Food. Being a rank low-carber, I occasionally order their chicken salad (with extra chicken). Over a three-month period, I found that this salad has weighed between 280 grams and 420 grams on various occasions. What’s worse, there is no data on what the weight of this salad should be, and no one takes ownership when an order is short. The app offers an AI chatbot that finds itself tongue tied, and the one time I spoke to a phone rep, I was told that he would “take the feedback”. Things didn’t change. Ever so often, my Facebook feed has a post about Uber, Swiggy, or Zomato behaving poorly. Unfortunately, the comments on these posts suggest that people helplessly accept this behaviour.
Pepperfry, another Indian PE-funded furniture retailer sold us a USD 600 bed that developed serious quality issues shortly after its one-year warranty ran out. By way of comparison, the furniture gifted to my grandparents at their wedding in 1941 is still going strong despite being shipped around the country during the course of my grandfather’s 40-year civil service career. Pepperfry and its competitor Urban Clap have triggered a glut of furniture in the second hand market, reducing timber furniture to a consumer product for the urban affluent. We haven’t even begun to fathom the ecological impact of the millions of tons of solid wood that passes through these (online) portals.
Grofers and Milkbasket, two grocery delivery apps that are funded by private equity firms, have affected the business of small neighbourhood grocers. These two app based services have a simple response to customer experience issues such as eggs or jam bottles broken by delivery boys — full reimbursement. Milkbasket routinely reimburses me the cost of an entire carton of eggs — INR 115, on an orders that average a total price of INR 600. This practice is financially unsustainable and would be impossible — were they not flush with cash from investors. Relying on such ham-fisted delivery boys would bankrupt any neighbourhood grocery store that operates on the industry standard 15 per cent margin.
Now it wouldn’t have been a problem if all these companies existed in a sandbox, living their mediocre lives to eventually die without consequence when investor money ran out. However, the mediocrity subsidised by these investors has laid waste to the possibility of quality for those who want it. Poorly qualified and reckless app-enabled drivers for instance, make roads less safe for law abiding users. Amazon India and Flipkart, two e-commerce websites that taken together are likely a billion dollars in the red, have devastated brick and mortar players in electronics and book retail.
There is the argument that people get what they pay for, and that quality endures. I agree with the latter part of that. For instance, The Joint Cafe — my favourite burger place in India, has not lost custom to the cloud kitchens on Swiggy and Zomato, largely because their sassy menu and enormous burgers, constitute a rich experience backed up by awesome customer service. However, the mediocre, being pumped up by Swiggy, Urban Ladder, and their ilk, only survive because they are heavily subsidized by investor money.
So, what’s the way out?
First, the Competition Commission of India needs do its job and severely punish all those engaged in market abuse. This includes bad actors such as Flipkart that destroyed bookstores by offering free delivery subsidised by millions of dollars in investor money — liabilities hidden in offshore entities and hived off divisions such as Ekart. Walmart likely hasn’t learnt its lessons from its last misadventure in India and may be on even more treacherous ground this time.
Second — consumer advocacy groups need to wake up to the fact that consumers are now doing a lot of business online, and platforms such as Swiggy, Zomato, and Amazon need to take responsibility for service and quality. Counterfeits are routinely found on both Flipkart and Amazon India, and there seems to be no serious efforts from either to stop these. In a world where Gross Merchandise Value (“GMV”) is a key business metric, offboarding sellers is not in their best interest. All such platforms need to have dispute resolution mechanisms in place, and the emphasis should be on protection of the Customer’s rights.
Third — in business that have environmental impact — Urban Ladder and Pepperfry’s timber furniture for instance, the ecological demands of their supply chains and procurement must be considered and a mechanism to prevent waste needs to be enforced.
Fourth — we need increased activism in sustainability and justice. It’s obvious that all such businesses are structured on consumption — excessive and damaging consumption at that. manpower-heavy businesses such as Uber, Swiggy, and Ekart are convenient ways for a government to hide unemployment. I’m hard pressed to see how delivering cold coffee and french fries in Delhi’s scalding summers is dignified. People need to see this and the government needs to invest in real opportunity for its citizens.
Fifth — Impact investors need to up their game by identifying and growing businesses with good unit economics that are not chasing the pipe dream of scaling into profitability. Such businesses can build a client base of socially conscious users to operate profitably until the Private Equity apocalypse wipes out the bastions of mediocrity and wasteful consumption.