Can the Juno Business Model Win Over the Uber Model?

There’s a new kid on the ride-hailing block, one that promises to take on Uber and Lyft with a simple proposition: Treat drivers better. Treating drivers better creates a virtuous cycle, said Talmon Marco, co-founder and CEO of Juno, a new service that aims to bring “a fresh approach to ride sharing.”

“Drivers are nicer to riders, riders get something extra and it keeps on going,” Juno CEO Talmon Marco told CNBC.

That’s it. Not rocket science, right? But at the same time, this is a very powerful proposition. And we can learn from the fact that in less than a year the company has managed to recruit 16,000 drivers in New York (Uber has 35,000). On August of this year, it celebrated 1 million rides in New York, the only city where it operates so far.

Still, is treating drivers nicely enough to disrupt the disruptors, especially in a field where Goliaths like Uber and Lyft are counting the days until they can offer cheaper rides in self-driving cars?

To answer this question, it’s important to first understand the business model of Juno's competitors like Uber and Lyft. “A business model,” wrote Alex Osterwalder and Yves Pigneur, “describes the rationale of how an organization creates, delivers and captures value.”

In the model below, I added ‘mindset’ and ‘culture,' which provide crucial context informing how value is created, delivered and captured.

In this model -- which I call the Uber model, but many other sharing economy companies subscribe to it as well -- the mindset is a Schumpeterian creative destruction process, in which new business models disrupt established companies and replace outdated models through innovation.

The Silicon Valley culture is highly dominant and is manifested in the focus on generating great user experiences for customers and on prioritizing shareholder interests. The operating model is centered around technology as the backbone of the platforms, describing it as an algorithm “designed simply to enable drivers and passengers to transact the business of transportation.”

One part of the equation is left behind in this model are the service providers – the drivers. Uber does relatively very little to meet their needs. And while it has shown some improvement, its business model is still optimized to create great experience for the customer, not for the driver. Its assumption seems to be that most drivers will see the platform as worth working for, even with its flaws. The company also seems to assume technology (i.e. self-driving cars) will replace drivers in the long run, so in the meantime the focus should be on the technology, not the drivers.

Juno identified this as a business opportunity – building a ride-hailing business that treats drivers fairly and creates great experiences for both drivers and riders. But there’s also the moral component to it, as Marco described in an interview with Vanity Fair:

“The bottom line is you have to treat people right. I think what Uber is doing is wrong from a business standpoint and wrong from a moral standpoint, and not necessarily in that order.” This mindset was translated into a manifesto that Talmon and his partners created, detailing a set of principles the company would apply to its drivers, including “respect, kindness, fairness and transparency."

This ethical business mindset informs the Juno business model, which is grounded in a humane culture, one that respects its service providers and is centered around their needs as much as it is around those of the riders. The focus on the drivers is translated into a series of benefits that Uber drivers can only dream on. The company only takes a 10 percent commission for the first 24 months, compared with Uber’s 25 percent commission. Juno also offers 24-hour driver phone support and, perhaps most importantly, offers drivers equity in the company if they stay for at least two years.

For drivers, Juno's business model is no doubt an attractive proposition, as it supports them throughout the different phases described in the business model: Creating great experiences for them, not just the riders (value creation), putting them at the core of the operating model along the technology (value delivery), and offering them true partnership by reserving drivers 50 percent of Juno’s founding shares (value capture).

However, no matter how attractive this model is for drivers, there are still a couple of significant challenges the company needs to overcome in order to succeed. The first challenge is proving that Juno’s virtuous cycle theory, i.e. happy drivers translate into satisfied customers, which will then create more demand, leading to more drivers joining the company and so on and so on.

This is a difficult task because, assuming price differences between Uber and Juno will be marginal, Juno must do one of the following: Provide a far better user experience than Uber, which is fairly good as the company is optimized to create great UX, or build a brand that will be far more attractive to people than Uber. Either way, this is a tough job -- just ask Lyft, which has tried to do it in the last couple of years.

The second challenge is about the culture of the company – right now, it is established on a set of ethical values the founders share. The question is if this culture will be able to evolve in a co-creative fashion as the company grows and will continue to reflect the needs of the drivers and their current position as real partners in the company.

This question may become more difficult in the long-term and here’s why: An important part of the company’s attractiveness to drivers comes from providing them with equity. This equity can be realized either when the company becomes public or is sold, which means there will probably be some internal pressure to do so. However, in both cases the culture of the company could dramatically change as a result of a new owner's agenda or pressure from the financial markets. Etsy, in its public company form, is a good example of this tension.

Last but not least, the elephant in the room is of course the future of self-driving cars and what an advantage based on treating drivers well will be worth in a market where drivers are no longer needed. It could take 10 years to see the streets full of driverless cars, but it’s better for Juno to plan ahead and consider how its business model may look then.

Going back to the initial question, it seems Juno could have a shot in disrupting Uber (and Lyft) with its business model. But it must co-build a strong culture with its drivers that doesn't only create a win-win proposition, but will also be strong enough to overcome future structural challenges, both internally and externally.

Image credit: Juno