The on-demanders transforming urban services

Spurred by the ubiquity of smartphones, there appears no end to on-demand businesses promising to shake up every conceivable service in the city. But which ones will still be around in years to come and even become big global players?

Urban Massage has a simple pitch: book a massage on your phone like you would an Uber. A therapist turns up, unfurls a big table with a hole in it, you get a rub down and pay through the app. Valued at £8m, Urban Massage is yet another startup breathlessly promising a new age where the smartphone functions as a remote control to instantly order an array of services: food, flowers, dry cleaning, doctors, hairdressers, computer repairs, the ideas are limitless.

A lot of this is down to Uber. Its popularity with consumers has translated into a frenzy among investors with no end of ideas prefaced with ‘introducing the Uber for X’. Replace ‘X’ with, say, massage, and you get the idea.

No gold rush

On-demand has become an industry in itself with companies queuing to offer the various elements needed to form the architecture of your very own on-demand operation. Among the various off-the-shelf building blocks are Parse (building apps), Stripe (payments), Sinch (in-app communication), Checkr (background checks on drivers), Playbook HR (management and payment) and Onfleet (delivery).

Despite all the activity, many warn of mistakenly believing this to be an on-demand gold rush. Martin Mignot, an investor at Index Ventures, argues that amid the inevitable post-Uber excitement, there’s been a misunderstanding about what a true on-demand business is. Defining it as ‘a service provided by a human very quickly for an urgent need’, Mignot says that it follows that the service should be used almost entirely ‘in a mobile context’ and for it to qualify as a serious on-demand business, it has to be something that lends itself to frequent use by lots of people.

How many swipes?

It’s more of a semantic point but many of the on-demand business being pitched today are, in fact, ‘marketplace’ ideas, more akin to eBay than Uber, suggests Mignot. While matching a buyer and a seller of a specific service is a valid enterprise, he says, applying an on-demand model to the idea risks jeopardising its viability. Cleaning and home repairs would perhaps be more suited to a standard marketplace website, while florists and massages perhaps lack the requisite frequency and urgency.

A tough question to test the longevity and potential size of an on-demand idea is whether it can feasibly live on a person’s first or second smartphone screen. Any further swipes to the left and it’s likely to be little more than 
 a novelty.

Volatile demand

Beyond food and transportation, most ideas fall by the wayside under this definition, which is why observers like Mignot cast doubts that most on-demand ideas will endure. They’re also high-wire models, demanding enormous scale to justify the wafer-thin margins, rigidly stuck in heavy cost bases and living off small commissions.

Another distinction between on-demand businesses and marketplaces is the pivotal function of people shuttling around cities. And these people — whether they’re contracted or on the payroll — require intense and costly management. Demand for these shuttlers can be highly volatile and — to use an adopted word — prone to ‘surge’ at certain points of the day or week, leaving companies see-sawing from either frustrated consumers or drivers twiddling their thumbs. It’s led many like Deliveroo to extend the pool beyond licensed scooter owners to anyone with a bicycle.

The nature of that workforce also presents a dilemma. One school of thought says that an on-demand proposition only works with a clear focus — for example, ‘we get food to you’ — and any variance on this undermines the reasons it works. Another theory advocates the gopher model, where offering different services enables a company to make the most of its fleet with a variety of odd-jobs to build in a frequency of use that creates habit, making the economics of running a large workforce stack up.

Future proofing

That intensity of use; a virtuous cycle of success feeding more providers, enhancing the service and dragging in more users suggests that on-demand markets are predisposed to support winner-takes-all scenarios. Even if the jury is out on single global players, the sector does appear to lend itself to local monopolies.

So how will this still nascent way of delivering stuff mutate and develop? And where are the next opportunities? The two obvious categories are groceries and healthcare. Both are frustrating for people today and ripe for an on-demand fix.

But it’s not just in new services that the development of on-demand lies. Uber announced that it was integrating its service with Facebook. Tie-ups with other apps and voice services such as Siri could follow, with the very real prospect of being able to order food directly from a Whatsapp conversation, for example.

Despite the heat in the on-demand sector, there remains an undimmed imagination and a proven consumer appetite to suggest that there’s a lot more to come.

Read more: Deliveroo: The making of an on-demand giant

This story originally appeared in Courier Feb/Mar.