What’s Next in the On-Demand Economy
2014 is the year of the on demand economy. Flowers, laundry, cash, food, you can get anything on demand. We’re now living in a world where not only digital, but physical goods can be accessed with just a few clicks.
According to CBInsights, investor funding to ‘Uber for X’ startups hit a frenzy in 2014 and has reached over $1.3B up to Q3 2014.
Uber’s rise inspired entrepreneurs to create a whole wave of Uber-for-X companies. Together, they are representative of the on demand economy.
So what is on demand economy(ODE)?
Sherpa Ventures, a prominent investor in the ODE space and early investor in Uber, defined ODE as
Instant, pervasive access to goods and services, tailored to individual needs, often without the burden of long-term ownership or commitment
Steve Schlafman from RRE expands that as
ODMS deliver a “closed loop” experience by collapsing the value chain including discovery, order, payment, fulfillment (offline but within owned network) and confirmation
So what value do on demand companies bring to society? We tend to evaluate companies like Uber and Airbnb using a top down approach. Investors talk about decentralization of intermediaries, stream-lined experience and expanding underlying markets.
Not enough emphasis is put on looking at ODE from bottom up : Empowering adopters and creating social capital.
On demand economy empowers adopters. Both consumers and providers are empowered to information, choice, and lifestyle changes. The best on demand companies do not make marginal improvements. It attempts to improve life 10x for both sides of the marketplace.
Unwind me is enabling consumers to schedule expert therapists for massages anytime, anywhere. More importantly, the company is creating tremendous business opportunities for therapists. Therapists have to graduate from therapist school, undergo training and licensure in order to practice. Yet, their financial opportunities are far worse compared to other healthcare professionals. Unwind.me’s focus on helping therapists will ensure superior service and create a brand that consumers will trust.
Upcounsel improves life 10x by offering transparent, personalized and expert legal services to consumers for a fraction of the price law firms charge. The platform also provides back office tools to replace the infrastructure lawyers left behind at their old firms. This enables them to create great businesses leveraging software infrastructure.
Local services are as much about the convenience as it is about the quality of service. When value is only provided to consumers, it often means the service itself will become commoditized in the long run. When value is created on both sides of the marketplace, it’s one step closer in creating a brand and service that takes all of the market.
One way to create brand monopoly (As Airbnb has done) is to create 10x value for suppliers that said platform retains the highest quality services/inventory etc. This in turn leads to lower network churn, increased network effect and brand monopoly.
While on demand companies have sprung up in almost every vertical, very few companies have been able to establish brand monopoly.
So… What’s next?
- Premium brands will emerge within local marketplace verticals
- Better treatment (wages, benefits, support, etc) of service contractors
- Government crackdown on classification of 1099 vs W2 workers.
The contractor model has been the key to the growth of ODE startups. This is both an opportunity and risk for the future of this sector.
One of the key reasons for hiring contractors (1099) vs employees (W2) is that employers don’t have to pay for expensive benefits to contractors. As stated above, I think this will be a point of differentiation for retaining quality service and workers satisfaction. Some companies such as Zen99 are already doing this, and companies like Zenefits could also move into the space.
Another difference between contractors and employees is that technically employers aren’t allowed to dictate your work. According to the IRS
You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done).
A lot of ODE companies are in fact violating this specific distinction (See Handy class-action law suit). It’s a big risk in trading off quality for lower cost in the long run.
Finally, I am also interested to see
- How wearables interface integrate with on demand services
- High touch, professional service ODE companies build out software infrastructure for service providers
We are very bullish on local / on demand marketplaces here at Fresh VC and we’re proud supporters of companies like Bannerman, Eaze, Shyp and Unwind Me. If you’re an entrepreneur in the space, I would love to chat!
