The mess called 'Asset Light Model'

Asset light model is hailed as a masterstroke. Startups don't have to spend on physical assets and scale a lot faster this way with very little capital. Every major startup in recent times- AirBNB, Uber, Ola, Zomato everyone take pride in being asset light, having actual product/service delivered by someone else while the startup or their app takes credit for bringing consumers and service providers together, taking a cut from revenue in the process.

But this asset light model has several fundamental flaws no one wants to address. This post is about the same- a mess of an ecosystem thanks to lack of accountability and sense of ownership/pride due to asset light model.

Problem 1: Too many stakeholders
Traditionally, a business had two stakeholders- a buyer and seller. Seller has something to offer, buyer agrees to buy, pays and transaction happens. Any dispute buyer and sellers will sort it out on the spot.

But in an asset light model there're too many stakeholders- a customer, a service provider or partner, the platform or the app, a wallet/payment service provider, a delivery boy in some cases or a subcontractor/shadow service provider and so on. With too many stakeholders there's too little control, too difficult to enforce quality standards and with each stakeholder trying to optimize their returns, it gets out of control.

Problem 2: Each stakeholder trying to cheat or maximize his/her returns
If every stakeholder works in an ethical manner there would have been no problem. But with too many stakeholders, each is trying to maximize their returns at the expense of others. This is accentuated when initial discounts and incentives funded with investor money begins to vanish and all stakeholders feel they are short changed. Let us take a look

#
Service
How apps cheat
How partners cheat
1
Taxi
Using data to exploit customers- like hike price if battery is low, charge more on iphone etc
Installing multiple apps switching based on incentive

Teaming up with other drivers to trigger surge

Giving registered phone to other drivers to maximize earnings
2
Bike rental
Not doing enough due diligence on partners
Listing white board bikes for rental

Listing same bike on multiple apps, accepting most profitable booking and declining/forcing alternate options on other customers

Cutting cost by not spending on essential maintenance and repairs
3
Hotels
Unfulfilled promises to property owners
Denying booking/forcing extra payments

Listing same property on multiple sites and dishonoring less profitable bookings [details]
4
Food delivery
Listing food prices lot higher than actual
Compromise on quality and quantity to make up for high commissions













Problem 3: Cutting cost on customer care
Most startups do not want to have a customer care number and a support team. This costs lakhs of rupees every month so apps try to restrict support to chat and email. With often chat support is powered by an AI bot that can't handle real crisis and can only give template replies and email support not authorized to provide real solution and forced to get rid of the complaint with template replies, excuses hoping customer gets frustrated and gives up. Companies hope that 99.99% everything runs smooth and there will be no need for support- but with too many stakeholders each trying to outsmart each other, things do go wrong and it will be a frustrating experience for the consumer trying to get his/her problem solved.

Problem 4: Unsustainable growth with investor funds
Growing slow and steady with right pricing model and fair practices is the way to grow. But trying rapid growth with investor funded discounts and incentives creates more harm than good in long run.
-Consumers used to discounts want them forever.
-Partners used to incentives want them forever too
-There is no loyalty among any of the stakeholders and they would freely deflect to a competitor if the app takes away discounts/incentives.

Most of the unicorns haven't made any profit over several years in their wild chase for growth and market dominance.

Problem 5: Partners- Not employees
Treating cab drivers, delivery boys as partners and not employees allows companies to escape their responsibility of providing employment benefits. For the partners, there's no reason to have loyalty and they can shift as they feel fit or can reject transactions not deemed profitable.

Problem 6: Easy to scale up, quick to crumble.
While it is easy to scale up in an asset light model, it is also super quick to collapse if things go wrong. Consumers and partners can switch loyalties overnight and without any real asset, the app based company can go bankrupt in no time.

When companies that own assets face trouble, at least they have some cushion from their assets- like Jet Airways was owning several planes, Infosys has large land bank, IBM/Accenture have lots of patents, products and so on. But when an asset light company faces trouble, its partners and other supporters can part ways real quick, with the app company having nothing to fall back on.

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