Tapestries-12 | Physical spaces have needs too
Addressing the impact of ‘customer-centric’ business models.
Photo by Jonny Clow
I flew into LAX this week and after clearing security, ordered my Uber. But instead of being assigned a driver, I was assigned a 6-digit pin and told to line up at a dedicated pick-up spot that I’d be taken to by shuttle.
Uber’s technology changed how we interact with certain physical spaces. But the physical space in this example, the airport pick-up lane, generally wasn’t designed for ride-share; it was designed for dutiful parents, begrudging siblings or elated grandparents.
Observing the pick-up lane’s evolution got me thinking about other examples where new technologies have placed demands on physical infrastructure that was designed for different purposes. I have described a few below and applied the following structure in doing so:
Name physical space;
Describe new technology or trend that has changed its use;
Describe challenges caused by the change in use;
Detail existing solutions or opportunities.
Using my Uber airport experience, I could summarize as follows: Uber and ride-sharing changed the demands on the traditional airport pick-up lane. The increased volume of traffic created moderate chaos for pick-ups, as Uber drivers and family members fought for the same finite space, in strictly mandated timeframes (e.g. ‘1-minute only’). In response, Uber (at least at LAX) appears to have adopted an approach that more appropriately fits its model and acknowledges the constraints of legacy infrastructure. It’s a good example of evolution.
Now, onto other examples. The challenges and opportunities discussed in the use cases below are being addressed to different extents. I have therefore referenced the maturity of the response: nascent, evolving or mature.
Example 1: Sidewalks
Maturity level: Nascent
Sidewalks are a ubiquitous but under-acknowledged feature of our lives. We don’t pay them much attention, but they will soon take on real importance:
The world is rapidly urbanizing. By 2050, more than 2.5 billion will move into cities… Along the way, sidewalks have come to represent the chaotic intersection of infrastructure budgeting, safety concerns, and property rights in communities across the country.
My personal experiences in Melbourne, Los Angeles and New York have brought sidewalk challenges into focus. Whether Ola bikes, Lime/Bird scooters or Amazon/Fedex/UPS delivery trucks, the changing nature of mobility and e-commerce have altered the demands on sidewalks.
Sidewalks have an interesting history. They first appeared in modern-day Turkey 4,000 years ago and took on their current form in 19th century Paris, where they were introduced to separate traffic (horses), humans and sewerage. Now, they are meant to operate as a docking station for 21st century mobility options and serve as the holding pen for vehicles delivering e-commerce packages direct to our homes or offices.
Opportunities
The sidewalk is becoming a place of chaos as these competing requirements jockey for position.
I am sure that Sidewalk Labs, Alphabet’s urban innovation organization, is devoting attention to this problem. But the scale of the opportunity creates space for real innovation, especially if we ever make the move to autonomous vehicles and reduce the need for parking too. The sidewalk of the future will have to accommodate a different set of uses, not just stepping out of your car.
I’ve trained myself to look up at buildings when walking through New York. Maybe I should re-train to look down. The humble sidewalk may just be the land of opportunity.
Example 2: Office-tower elevators
Maturity level: Evolving
Office elevators — regular and freight — ferry people and materials up and down the floors of office buildings. But with the persistent shift towards off-premise dining, they are now asked to be the last-mile of food delivery (Uber Eats, Seamless, DoorDash etc.).
This places real strain on offices, especially at peak-lunchtime, as the lobbies and elevators of buildings are full of delivery people. Perhaps this is front-of-mind as I work in the dense New York-office environment, but outcomes for all stakeholders are undeniably poor:
Building patrons: Lobbies and elevators are full of delivery-people and their large delivery bags, meaningfully slowing down building entry and exit at peak-time.
Delivery-people: Every building has its own intricacies — address, multiple entries, security procedures, person name vs. office name etc. Delivery-people potentially spend as much time navigating the building as they do getting to it.
Lobby attendants: They are forced to deal with the frustrations of both parties above and get swamped on a daily basis.
Opportunities
Sweetgreen Outpost is a concept that seeks to address this problem and provides a good model. But a larger opportunity exists to install central delivery points that place the onus back on those who order to pick up their food.
Customers could be incentivized by delivery companies (e.g. through credits) to pick-up from central points in the building. Delivery companies get their riders back quicker to deliver more orders (increased throughput); buildings take back control of their space; and customers get…
…off their ass. Increasing our daily step count or making life easier for everyone else around us unfortunately isn’t enough to change our behavior, so a delivery credit should do the trick. The incentives seem aligned; we just need someone to build the tech and the locker.
Example 3: Restaurants
Maturity level: Evolving
Above, we discussed the impact of food delivery on office buildings; here, we discuss the impacts on the restaurants themselves.
Brick-and-mortar restaurants were built mainly to service in-store patrons, and provide a smaller number of patron-collected takeaway meals. Food delivery has turned this paradigm on its head. The entrance is no longer a place to welcome patrons, but a waiting bay for delivery-people. At times, I feel like a second-class citizen in a restaurant as despite a lack of anyone in front of me, I find myself the 9th order in-line.
Opportunities
The US off-premise dining market was ~$210bn in 2019, ~$30bn of which was delivery (remainder is pick-up). Investors acknowledge that delivery is an enormous and growing prize, with companies like DoorDash ($12.6bn valuation), Deliveroo ($3.5bn) and CloudKitchens ($5bn) raising huge amounts of capital. The level of investment illustrates the size of the prize. But while they’ve experienced incredible growth, the delivery and cloud-kitchen models are yet to crack the code.
I am close to one particular concept in New York that holds real promise. It looks to provide fast-casual brands with an incredibly cost-efficient route to market (eliminating large and risky brick-and-mortar establishment costs) through building a hybrid model that avoids the problems described above. Should it succeed, we can hopefully move the needle here from ‘evolving’ towards ‘mature.’
Other examples: Notable mentions
Physical retail stores were initially built as the sole place a customer could purchase a brand’s products. However, e-commerce means that we no longer have to attend a store to make a purchase; we can do so from our couch, changing the nature of the retail store. Tesla and Casper both provide fantastic examples of adaptation. Their ‘stores’ are showrooms; they hold little/no stock and craft a much more experiential, tactile customer experience, all while avoiding the need to hold inventory. This model is expanding as retail undergoes monumental change. Maturity level: Evolving
Cafes were originally a place to drink, eat and meet. They are now a de facto workplace for the masses (disclaimer: I write this piece sitting in a cafe in Los Angeles; I’ve been here for 1.5 hours and ordered one $4.11 coffee). The value for us working patrons is insane: pay for one coffee and stay as long as you like. Cafes are now full of underpaying, laptop-wielding freeloaders. I’m not sure there’s a business opportunity here (WeWork and others have already filled the flexible-working gap), but I’d like to see more cafes institute laptop bans, or remove WiFi. They have been hijacked and are not capturing any upside. Cafes are very important to me as a cultural hub and meeting place (legit), and if people are solely using them to avoid working from home or WeWork, I say make them pay or leave their laptop at home.
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In a commercial sense, the 2010s were defined by the creed of ‘move fast and break things.’ And per the above, break things they did (not to mention the technology’s impact on society and democracy).
Customer-centric thinking delivered business models that focused on us as the customers, relegating concern for the physical infrastructure and stakeholders they placed large demands upon. We have been conditioned to sit in our homes or offices, and have little regard for how the goods and services we order on our phone interact with the world on their way to us, the center of the universe.
In the 2020s, opportunity abounds to evolve these models to more adequately integrate with the physical spaces they impact. My hope is that we train ourselves to more seriously consider all stakeholders: physical spaces, communities and the environment. As an investor, this is front-of-mind as I embark on this new decade.