A Year Ago We Spent 18 Days Living on So-Called "On-Demand O2O." Almost None of It Works Now

The early boom ran mostly on prices that subsidies had pushed far below cost.

Two weeks ago I got a call from Youyi's customer service. The company was shutting down, she said; the money left in my account could be refunded or turned into shopping vouchers. "We're very sorry. A courier will come to pick up any clothes you still have."

A few days later Shen, the SF Express courier, took away the Youyi clothes box for the last time.

For the previous year he had come to my home once a week with a cardboard box holding three garments, and left with the three worn ones I had set aside.

That was Youyi's business: 499 yuan a month to pick clothes on your phone and have them delivered, up to three at a time.

This time Shen brought no new clothes. He only took the bag I had ready, and asked, a little puzzled, "So this company's done?"

A year ago, riding the wave of one-tap hailing that Didi and Uber had set off, a batch of startups like Youyi tried to stuff the things you normally leave the house for into an app. Some sent clothes and flowers. Others went further and sent massage therapists, chefs, even hairdressers.

A year ago QDaily ran an experiment: for 18 days I would not go outside, and would meet every need through internet services — even falling ill, even losing power.

Youyi was one of those services. It is not the only one that has vanished.

In a WeChat group called "Internet BD Cross-Promotion" (BD: business development), someone asks every so often for Qingnian Caijun's contact details. The startup, a little over two years old, delivered washed and chopped vegetables to your door so you could cook at home. It had built up a name, so companies often came looking to work with it.

Lately, though, whenever someone asks, another member posts a screenshot of a WeChat contact — and then someone adds, hesitantly, "Haven't they folded already?"

Qingnian Caijun has indeed stopped. Its funding ran out. Unlike Youyi, it never announced the end publicly.

Plenty of companies end this way, without a sound. Sometimes the only way to tell whether one is still running is to check the last update on its app store listing, its Weibo, its WeChat account.

"Is XX still alive?" In the WeChat groups where people trade contacts, that question comes up constantly. So many companies disappear quietly that you have to ask it before you propose anything.

Of the 72 internet services we tried 13 months ago, most have gone quiet

Beijing in the summer of 2015 was about as close to the peak of the startup boom as it got. Startups large and small, along with Baidu, Taobao, JD.com, 58.com, Meituan, Dianping and 360, were each trying in their own way to take over every service you might want at home, and to deliver the goods and the people who provided them to your door.

To see how much of daily life these services actually solved, QDaily ran an "18 days without leaving home" experiment 13 months ago. Over those 18 days I tried 103 apps, followed 61 official accounts, and used 72 different at-home internet services. Youyi and Qingnian Caijun were two of the 72.

Youyi was the last service I used in the experiment, and it is the most recent one to announce that it is closing.

By QDaily's count, 14 of those 72 services have shut down and 13 have changed businesses — from haircuts at home to a chain of shops, say, or from meals for individuals to catering for companies. At least 38% of them, in other words, could not hold on to the vision they started with.

Of the rest, only 15% raised fresh money, and two went public while still losing it — on the NEEQ, where trading is thin.

The companies that have made no news for a long time sit in a state of being unable to die and unable to live well.

The founder of one at-home services startup, who asked not to be named, told QDaily how things stand: stop burning money on subsidies and the business can cover its own costs, but it cannot grow. And in this market no one wants to buy it, so it just holds on.

At-home services need capital to keep expanding. Thirteen months without a new round is not a good sign.

Some of the 72 services that have shut down or changed course

2015.12

Chulinlin, which sent trained chefs to your kitchen, shuts down

2016.2

Randian, which sent personal trainers to your door, shifts to selling group-buy training packages

2016.2

Dudu Nail Art, an at-home manicure service, is bought cheap by 58 Daojia

2016.4

Yaogeili, which promised medicine at your door in an hour, stops operating

2016.7

Benlai Shenghuo changes strategy and takes its community O2O project Benlai Bianli offline

2016.7

Qingnian Caijun, which sold prepped vegetables, closes

2016.7

Aixianfeng, a one-hour convenience-store delivery service, lays off large numbers of staff

2016.9

Youyi stops operating

These are only the better-known names among the services I used. For the smaller companies and the WeChat accounts, it is hard to pin down when they stopped.

Nor is it only the companies from the experiment. Over the past year, once-prominent names — Shaofanfan, Bopai Car Care, e Car Wash, Dudu Nail Art — have gone down one after another. An industry that was red hot a year ago has cooled.

"This year a lot of investors won't even meet an O2O company. Most of them don't dare invest. They feel they burned a lot of money on O2O over the past year or two and lost it, and now they think O2O is a trap," said Zhu Xiaohu, an angel investor in Didi and Ele.me, in a speech at the 2016 China Youth Internet Entrepreneurship Competition.

It isn't only startups — the big companies are backing out too

In 2015 the big companies walked into the at-home market almost in single file. JD.com, 58.com, Baidu, the not-yet-merged Meituan and Dianping, even 360, all added a delivery-to-your-door entry to their home screens.

By the start of this year they had changed their minds.

58 Daojia is one of the few platforms still adding categories and cities. It now covers 32 cities and has grown from cleaning, manicures and massages to dozens of services, including recycling, errands, locksmithing, driving coaching and fitness training.

Otherwise, the big companies are nowhere near as reckless with this market as they were last year.

Last July, at the launch of Baidu Nuomi's "Membership Plus" O2O strategy, one line from Robin Li drew applause from the whole room: "I looked yesterday. Baidu still has more than 50 billion yuan in cash on the books. Let's take 20 billion of it and make Nuomi work."

The plan was to spend that 20 billion yuan on what Baidu called its O2O ecosystem, including Nuomi group buying and Baidu Waimai.

Baidu did spend.

In the third quarter of 2015 alone, the O2O businesses — Baidu Nuomi and Baidu Waimai among them — dragged Baidu's operating profit down by 32%.

In the end Baidu, listed in the United States, gave the spending up under pressure from shareholders. At the company's annual conference this August, CEO Robin Li talked about artificial intelligence and said nothing at all about O2O.

Baidu also disclosed recently that it had caught staff at Baidu Nuomi and Baidu Waimai faking orders.

JD.com, which set up a separate unit called JD Daojia and pushed at-home services hard, has given up as well.

In April, JD Daojia announced a merger with the crowdsourced logistics company Dada. One hundred and fifty days later the combined company appeared under the name New Dada. The JD Daojia brand still exists, but the marketing people who talk to the press mostly say they are from New Dada, not from the JD Daojia that made so much of delivery to your door.

After the merger, delivery to your door no longer looks like JD.com's problem.

Meituan and Dianping, now one company, pulled back faster still. The at-home entry Dianping used to keep on its home page quietly disappeared.

Taobao is the most recent platform to try it, adding an at-home channel to its home page. Unlike Dianping, Meituan and Baidu last year, Taobao has not sorted the services into categories; it simply lists the merchants nearby.

Based on where you are, the channel shows you the merchants around you. The main offer is convenience-store shopping delivered within two hours, alongside flowers, food delivery, cleaning, beauty and laundry.

In the end every platform's at-home channel looks like Taobao's — a list of what is for sale. How the work actually gets done is no longer any of the big companies' business.

The early boom ran entirely on burned cash

A boom does not mean the demand was there. Many services subsidized new users with a free first order or a cut price, and plenty of people tried them at half price, a third of the price, or one yuan.

The startups proved one thing: yes, anything can be summoned to your home, and no, consumers do not want that much of it. Without the one-yuan massage and the 9.9-yuan manicure, it does not occur to people to use these services. The reason to bother is missing.

The gap between what the user paid and what the service was worth was covered, at first, by the platform paying the worker. To grow, and to produce transaction numbers that looked good, some companies went as far as buying their own services.

Aishang Flowers, a flower retailer that listed on the NEEQ this year, laid out exactly how it faked orders in its prospectus.

By that account, the operations team first loaded up a set of bank cards, then recruited order-fakers through QQ groups. The fakers placed and paid for orders on various platforms, leaving a note with each one, and the operations team refunded them according to the notes.

In three years Aishang Flowers faked 30.95 million yuan of revenue. Half its orders it bought from itself.

Sales went up; real purchases did not follow. In the six months after it stopped faking orders, its losses grew by 150%.

Once the money is gone, the reasons to keep using these services are thin

As a rule, once I had used up a platform's first-order discount, I would take the next job of that kind to a different platform rather than pay full price. After going through all of them, I found that without subsidies there are very few services you truly need delivered to your door.

They are not irreplaceable. Often the house call costs you more effort, not less.

During the 18 days I used an at-home barber. Before he could start I had to clear two meters square of floor, and he laid a sheet of nonwoven fabric down to catch the hair.

After all that, going to a shop was simply easier. The company later moved into a physical store and began urging customers to come in.

After a few sessions of calling massage therapists to the office, my colleagues and I went back to searching Dianping for shops nearby and going there. The setting is more professional and the choice is wider. Without a subsidy or a discount coupon, the group-buy price at a real shop is usually better anyway.

As mobile payment spread, it also became far cheaper for an offline shop to build a relationship with its customers.

Once those shops learned to promote themselves online, and — with mobile payments and third-party tools — to reach and manage customers online, the companies that had rushed into at-home services on a wave of capital were left with nothing but an online channel bought with subsidies.

Customers and workers can walk around the platform easily

At-home services all say they have removed the middleman and the shop. The platform becomes one enormous shop, and the worker answers for the quality of the work and the reviews.

Walking around that shop turns out to be easy.

A Didi driver cannot take a ride off-platform, because a passenger may need a car anywhere, at any moment, and cannot wait long. But you do not order food, a massage or a manicure while walking down the street. You order from two places: the office and home.

Over the past year I have added several manicurists and makeup artists on WeChat, and each of them said the same thing: "Next time you want your nails done, just message me here."

Whether in a shop or from a worker at your door, "add me on WeChat" is now the most common gesture after "scan to pay." With the subsidies smaller, the platform's hold on the worker is weaker than it was.

You may never get used to the awkwardness of a massage therapist working on you at your desk. But the massage parlor downstairs has learned to push its offers to your WeChat account — and that leaves at-home startups less and less room.

The survivors are the useful ones

The at-home services you still see regularly are ones like Shanxiuxia, which repairs phones where you are, and Shansong, a courier that promises 60-minute delivery in Beijing.

And food delivery. At every mealtime, the people waiting at the lights in the bike lanes are mostly riders in red, yellow and blue.

In April, Ele.me sent an internal letter announcing a US$1.25 billion investment from Alibaba and Ant Group. The letter also said Ele.me would handle operations for Alibaba's Koubei food-delivery service. Three players are left in this market: Ele.me, Meituan Waimai and Baidu Waimai.

Delivering food used to be something a great many apps and WeChat accounts did. Now those startups hang their services inside the delivery platforms' apps instead of insisting you download their own, and you are more likely to use them than before.

Besides the platforms' own delivery teams there are third-party couriers: Dada, Shansong, Renren Express.

Whatever becomes of the startups sending things to your door — crayfish, or cats and dogs — someone has to pay for the leg in the middle, either the merchant or the customer. Along with at-home services and food delivery, a crowdsourced delivery network has been built in the big cities.

What survived the retreat of capital are the services that make money directly, need few subsidies, and that people will pay for.

If the main business does not work, pivoting will not be easy either

Unable to earn money or to raise it, many companies have tried to become something else.

Nuanshi, which sold half-prepared ingredients, moved into fitness meals. Taidi, a laundry platform, had its couriers trim customers' flowers while collecting and returning clothes. Several online-assistant services worked through every narrow errand a user might pay for. A few of these pivots gave people another reason to summon a service; most of the new directions did not make anyone any money.

Helijia, an at-home manicure service three years old and three funding rounds in, announced in March that it would try advertising.

Its first advertiser was Pro Plan, the Nestlé dog food brand. Founder Meng Xing says ad revenue is only a small part of the model: "There's no skill in this money, but earning a bit of it is fine."

Helijia sells one to two weeks of advertising a month, which Meng Xing calls "restrained selling." Note, though, that this is an app a user might open once or twice a month, and that makes ads hard to sell.

Every app that earns real money from advertising — social network, search engine, news reader — takes up the time people spend consuming information. None of them is a tool you open a handful of times a month.

And in China, even digital advertising needs salespeople if it is to fetch a high price.

Advertising or anything else new costs more staff, more of management's attention, more money.

When the main business is not making money, moving into another one is harder still.

eJiajie launched a home-chef platform, Xiao E Guanfan, early this year and closed it three months later.

Meidaojia, which sent makeup artists to your door, renamed itself Meizhene in April and rode the artificial-intelligence wave with a face-recognition feature that recommends makeup tutorials. When paid voice Q&A caught on, Meizhene added voice Q&A about cosmetics too.

The subsidies fade, the users leave, and the company starts telling a more complicated business story. This story has repeated itself more than once in the internet startup boom.

Cover image from Visualhunt