The On-Demand Economy Grows Up
Before The Economist published their cover story titled “There’s an app for that” in January 2015, there wasn’t much attention given to the monumental changes in consumer behaviors and expectations associated with The On-Demand Economy. Within months, nearly every large publication started covering the meteoric rise of its constituents, including Uber, Airbnb, Postmates, and Instacart, while hundreds of on-demand start-ups were commissioned in their wake (list of on-demand services). But the euphoria seemed to wear off just as quickly as it started – a clear rift developed between those businesses delivering value and those just delivering. In the 12 months since The Economist article, The On-Demand Economy experienced massive investment, unprecedented growth, class action lawsuits, assaults from regulators, significant consolidation, and the shuttering of a few once-promising businesses.
Looking forward, we expect a variety of large structural changes in consumer habits, competition, investment, technology, and regulation to further the divide between the run-of-the-mill startups and the true disruptors in The On-Demand Economy.
Proliferation of mCommerce
The overall prospects for The On-Demand Economy could not be brighter. These mobile-friendly services are positioned to capitalize on the rapid evolution in how consumers search and discover products and services. Whereas in 2011, mobile commerce was at a nascent stage, just five years later, mobile is now central to the consumer purchasing journey. Many grossly underestimated just how much time and money would spent on our mobile devices (see chart above). After all, back in 2011, who would have believed that you could create a $62.5 billion company that is available only on mobile? The ultimate winners and losers have yet to be decided, but look for on-demand oriented services to continue to take market share by pushing the boundaries of service and convenience in a mobile-first world.
Big Brands and Retailers Join the Fray
On-demand is quickly becoming table stakes for commerce-oriented businesses. Numerous large, incumbent brands and retailers have already jumped into the fold via partnership, direct competition, and even acquisition. Most notably,McDonalds, Taco Bell, Starbucks, Whole Foods, Target, Macy’s and Walgreens all rolled out an on-demand service offering through partnerships. 7-Eleven went as far as to partner with a variety of services including Postmates, Doordash, andTapingo in an effort to provide consumers “what they want, when and where they want it.” And after using nearly every available political channel to curb Uber’s growth, NYC’s Taxi & Limousine Commission conceded to the tides of technological progress and started collaborating with a variety of “on demand” yellow cab initiatives, including Arro, Way2Ride, and RideLinQ.
In other cases, large organizations sought to build out these capabilities themselves. Booking.com has gone head-to-head with the likes of HotelTonight by launching Booking Now. Amazon launched its own 1-hour delivery service called Amazon Prime Now to challenge Postmates and Google Shopping Express.Expedia acquired HomeAway to directly compete with Airbnb and Pandora acquired Ticketfly to become a platform for entertainment and ticketing. Most major brands and retailers will have an on-demand service offering by the end of 2016.
On-demand marketplaces will continue to push the boundaries of what it means to be everywhere. We saw the emergence of open APIs in 2015, wherein consumers can access the real-time inventory of Uber, Ticketmaster,delivery.com, and Drizly in everyday browsing experiences. Major social, content, and commerce platforms are betting on this new form of monetization and user engagement, whether that be riding an Uber to your destination in Google Maps, booking an Airbnb for where you are traveling to in GoEuro, or having alcohol delivered courtesy of Drizly after you select your AllRecipes meal. As one pithy article stated, the key to Uber’s success has been “to be everywhere all the time.” Look for more services to pursue this revolutionary form of marketing in an effort to facilitate commerce in the mobile experiences where users spend their time.
Emphasis on Unit Economics
Despite all of the positive momentum, on-demand services will need to be much more resourceful in the coming year after benefitting from easy access to capital in 2015. Over $6.6 billion poured into on-demand marketplaces through the 3rd quarter of 2015, but investments abated in the later parts of the year following the closure of Sidecar and Homejoy. Capital will continue to flow steadily into a select group of hyper-growth companies, while less established businesses will struggle to capture investor attention without strong unit economics. In either case, marketers will be forced to reevaluate their customer acquisition strategies – prioritizing those channels that drive the highest lifetime value customers at the lowest acquisition cost.
On-demand leaders, such as HotelTonight and Instacart, have already taken strides to restructure their teams and/or adapt their pricing strategy. Others have charted a path to scale and profitability through consolidation; just as Seamless and Grubhub joined forces to establish market dominance in the US, international players such as DeliveryHero and FoodPanda have been on an acquisition spree. Easy Taxi and Tappsi merged in the same week that other major transportation companies, including Lyft, united in a global partnership to stave off the ceaseless march of Uber.
W2 vs. 1099 Debate Drags On
Expect evolving employment laws to generate more volatility in 2016 as well. Part-time workers constitute a large portion 3.2 million of the drivers, delivery personnel, and service professions on the supply side according to Intuit. A string of lawsuits and regulatory intervention has put the classification, tax status, and securities of these professionals into question. In the wake of this ambiguity some businesses, including Shyp, Alfred, Instacart, Luxe and Kitchensurfing, have preemptively migrated their independent contractors to employees. While a select few political leaders such as Senator Mark Warner are doing their best to progress this conversation, don’t hold your breath for an any sweeping federal policy changes and legal resolution in 2016.
We are still very early in this revolutionary trend, and yet, the pioneering services in The On-Demand Economy have already inspired new thinking and practices around commerce, logistics, technology, city planning, employment, and investment. One thing is for certain, consumers will continue to benefit from the ever improving convenience and service afforded by The On-Demand Economy, particularly as established businesses are pressured by emerging startups to further develop these competencies. Watch closely in the coming year(s) as The On-Demand Economy transitions to maturity!