Have you heard of Fear of God?
It’s been around since 2013 but I only heard about it a few weeks ago (since I am fashionably uncool) and have since discovered that they sell t-shirts for $300 and people actually buy them.
But not me. I prefer Uniqlo t-shirts which cost about $8 and I think have pretty good fabric quality and design which is why I wear them pretty much everyday (this may also be because I am fashionably uncool).
Now let’s assume that somehow we could justify that the fabric and design of a FOG t-shirt is 10x better than Uniqlo. That would make the value of a FOG t-shirt say $80 which still leaves a price difference of $220 to be explained. In other words: it’s probably not just the t-shirt fabric and design that people are buying when they make the decision to purchase a FOG t-shirt.
So what value are FOG wearers actually buying for the additional $220 they are spending?
It’s hard to articulate in this case, but I think it’s important to understand our customers and the underlying problems that they are trying to solve so we can deliver maximum value to them. In other words: what are customers actually buying?
What value does Airtasker provide?
At Airtasker, we operate a marketplace. In exchange for use of our marketplace, we earn revenue mainly through fees that we charge to our users — the Booking Fee (charged to Customers) and the Service Fee (charged to Taskers) both of which are calculated as a percentage of the task price.
But customers aren’t buying our marketplace per se. So what are they actually buying?
I believe that our marketplace offers two main types of underlying value to our users: connecting value and handling value…
What is connecting value?
The connecting value that we provide to our users is enabling our Customers and our Taskers to access the Airtasker marketplace and connect with the other side of the marketplace.
Providing our users with connecting value leverages the unique network effects of our marketplace since as we acquire more users, the speed, quality and range of connections increases. This means that as we scale, we can uniquely offer more value to our customers compared to alternatives.
What is handling value?
The handling value that we provide to our users is the facilitation of the transaction between a Customer and a Tasker mainly through the provision of a payment service (Airtasker Pay) and public liability insurance coverage.
Providing users with handling value does not leverage the unique aspects of our marketplace and whilst the way that Airtasker transacts payments or provides insurance is super important and critical, it is not unique (which is why we outsource these services to Stripe and IAG).
The businesses of handling and connecting
Now, for any business it’s important that:
- the value being provided to users is greater than the price being charged
- the cost of providing that value is less than the price being charged
As mentioned above, in exchange for providing our users with both connecting value and handling value: Airtasker charges fees (Booking Fee and Service Fee) which are calculated as a percentage of task price. So, it’s worthwhile thinking through how the two types of value and the cost of providing that value changes with respect to task price.
It appears to me that relative to task price: connecting value is significant and only moderately variable. It is significant because the cost of finding customers is high (ie. marketing is very expensive) and Airtasker is able to offer a unique solution to solve this problem. It is only moderately variable because the cost of finding a customer doesn’t keep increasing at the same rate as the task price and I believe is capped past a certain point (ie. the value of connecting with a customer for a $1,000 job is not perceived to be 20x greater than connecting with a customer for a $50 task).
On the cost side of the equation, the main costs required to build and maintain our marketplace (ie. salaries and wages of our team) are mainly fixed and there is a very low incremental cost of connecting a Customer and Tasker for each additional task transaction.
Considering that connecting value is significant and the incremental costs are low, providing connecting value is a high margin business and in general terms, it’s a very good business.
On the other hand: relative to task price, handling value is slight and almost fully variable. It is slight because the costs of providing services like public liability insurance and payments is relatively low compared to the value of a task (eg. credit card costs are usually only 1% or less of the transaction) and it is fully variable because the value being provided is closely aligned with the cost of the task (eg. providing insurance on a 2x bigger task costs about 2x as much).
Looking at the costs of providing handling value: they are generally pretty high relative to that value. That is, for every additional task transaction in our marketplace, we have significant costs that we have to pay (eg. payment costs to Stripe and insurance premiums to IAG)
Because handling value is slight and the incremental cost of providing it is quite high: providing handling value is a relatively low margin business. Therefore: whilst providing handling value and facilitating end-to-end transactions is critical to Airtasker’s overall business model, it isn’t a great business in it’s own right.
Total value versus total price
Whilst for each task transaction we are providing our users with a combination of both connecting value and handling value, the way that we charge users for this value is through our Service Fee and Booking Fee. From Airtasker’s perspective, we can view the sum of these two fees as a total fee price that we charge users for each task transaction in exchange for the total value that we provide.
At a high level, Airtasker’s current fee pricing works reasonably well for our users (compared to other platforms) because it aligns Customers, Taskers and Airtasker to all want the same thing (more completed tasks). That is: Airtasker earns more revenue as Customers get more done and Taskers earn more. It’s a win-win-win :)
But whilst our fee pricing alone won’t necessarily compel a Customer to buy services (or a Tasker to provide services) through Airtasker it does present a huge area to unlock additional use cases and service categories and to create more opportunity for our marketplace.
Understanding the two types of value that we provide explains how we could iterate on our fee pricing to create even more value for our customers and at the same time build a good business. For example, if the same Customer and Tasker want to reconnect for ongoing work (another task) then in that transaction Airtasker would mainly be providing handling value. Or because connecting value is only moderately variable, charging a fee based on percentage of task value won’t work for task transactions above a certain price.
Wrapping up: I believe it’s important to articulate the underlying value that we’re providing our customers through our marketplace and one relevant lens is to think about connecting value and handling value. By iterating on our product with this lens, we can impact the underlying value that our users perceive, the price that Airtasker can charge for that value and the costs of providing that value — and this will help unlock plenty more opportunity for our marketplace.
