In the new economy, the hot asset is assetlessness

Instacart, a grocery delivery start-up based in San Francisco, just raised $220 million to expand its operations, lifting its valuation to $2 billion. That’s not abnormal – it seems like there’s a new billion-dollar company every day in Silicon Valley, and Instacart is one of a coterie of on-demand delivery companies that are riding Uber’s slipstream all the way to the bank. What’s abnormal is the way Instacart describes its value to investors:

“We have the ability to try new things in a very quick way,” [Instacart CEO Apoorva Mehta] said in an interview. “We don’t hold inventory, we don’t own warehouses, we don’t own trucks. The changes we make are software changes.”

The “software scales faster than hardware; therefore, we’re valuable” argument isn’t new. But now, low-infrastructure start-ups are openly admitting that assetlessness is an advantage. And not just any advantage, but the defining advantage of their business model. The biggest difference between Instacart and services like AmazonFresh has nothing to do with speed, pricing, or quality of service. It’s that Amazon owns warehouses, holds inventory, and pays drivers hourly wages, and Instacart does not. A software-based middleman structure – and the nimble, turn-on-a-dime operations it enables – gives Instacart a huge advantage in the venture capital world, if not the real one.

This trend of taking an old-economy business model, stripping out the assets, adding a smartphone-based software layer, and presenting it as something new is likely to be the dominant trend among Silicon Valley “meatspace” start-ups in the coming months and years. And, as lots of people have noticed, it’s likely to lead to all kinds of legal problems for the start-ups, when drivers and delivery workers notice that they’re being treated more like wage-earning, benefits-having employees than independent, flexible contractors.

But it’s also going to have a huge impact on the big-box retailers who do have inventory and hourly workers, and who will end up serving as hosts for a range of increasingly parasitic start-ups.

It’s not hard, for example, to imagine a future in which Whole Foods becomes a glorified warehouse – each store a supply room where start-up contractors (or, ultimately, robots) come to pick up goods and deliver them to customers’ houses with a small price markup. In this scenario, Instacart and its competitors will effectively outsource to Whole Foods all the supplier-haggling, inventory management, and logistics that go into putting fresh kale on the shelf every day – without needing to pay Whole Foods a dime for its troubles. (In fact, perversely, it may be Whole Foods paying Instacart for privileged placement on the app.)

I expect we’ll see some pushback from retailers like Whole Foods, just like we’ve seen with taxi companies and Uber. (There will be a grocery chain that bans Instacart contractors from its stores – the only question is which one.) But eventually, as with Uber, it will probably be more profitable for these stores to cooperate and adapt, at least for a while.

One way in which they’ll adapt, I imagine, will be producing more white-labeled products to stock their shelves. After all, if the future of your business is supplying jars of peanut butter to delivery robots, it makes more sense to manufacture that peanut butter yourself than to pay a premium to Jif or Skippy and take a smaller margin on each jar. Slick packaging and well-known brand names won’t matter much to Instacart customers ordering from their phones, and store-brand substitutes for most goods will be readily available. (Think of the way drug stores sell “compare to Pantene Pro-V” shampoo, and imagine it happening with every category of goods.) In the Instacart world, Whole Foods could become just another food conglomerate, like Nabisco or General Mills, that just happens to have some choice real estate.

The assetless future, in other words, could make manufacturers and wholesalers out of big-box retailers. If the Uberfication of the taxi industry is any guide, it could also lead to a fierce competition over who, exactly, gets to forge partnerships with which delivery start-ups.

This tug-of-war, more than anything, is what Instacart’s $2 billion valuation is about. When huge companies with thousands of employees and millions of dollars in inventory go to war over who’s allowed to deliver their goods, the leverage shifts to the start-up standing in the middle of the fight, holding nothing at all.