New technologies have given rise to the On-Demand Economy, and it’s turning 4,000 years of conventional business wisdom on its head. In the business world of yesterday, ownership was everything. In today’s On-Demand world, Access is better than Ownership. This very simple concept is causing reverberations throughout the economy, spurring on tectonic shifts across entire industries. Some will say I’m exaggerating. That’s fine, but by the time you finish running the numbers, getting into On-Demand is likely to be your highest business priority.
Back in 2009, Uber was just a next-to-no-value startup that no one had ever heard of. Smartphones and apps were available, but the ecosystem to properly connect services and consumers was very much in its infancy. The advance of technology, as well as a new generation’s urge for immediate gratification of every need, heralded a new era – the era of the On-Demand economy.
Fast-forward nine years and Uber’s practically a household name. Now, customers get immediate access to products and services by means of technology. With a market value of $72 billion, Uber has disrupted the entire taxi industry, prompted hundreds of “apps like Uber” while pushing every major automotive manufacturer and delivery service to revise or accelerate their plans.
Now, it is true that Uber has had plenty of problems. It’s important to not confuse the business model with the management team or execution. Uber’s not the only on-demand business to make mistakes: you can’t disembark from 4,000 years of conventional business without getting into unexplored territory and maybe taking some wrong steps. So, let’s back up and start with the basics first.
The on-demand hyper-growth is upon us. In the next 5 to 20 years most people will be able to get anything within a 5 to 60-minute window. -Gary Vaynerchuk
What is the On-Demand Economy?
Also known as the access economy or shared economy, the on-demand economy fulfills consumer demand on the basis of immediate access to goods and services. It is a business model driven mostly by technology companies. They’ve created efficient digital platforms that make more efficient use of existing unutilized assets and infrastructure at scale.
Access is better than Ownership is a fundamental principle of the on-demand economy. It asserts that it is better to temporarily rent something than to buy it permanently. Likewise, on-demand businesses rely more on freelancers, rather than the hiring of full-time employees and contractors.
How Does the On-Demand Economy Work?
This question has three answers, primarily relating to technology used, business model and business operations.
One reason On-Demand works comes from 77% of Americans owning a smartphone capable of connecting to the Internet. By downloading your app, they get direct access to your business. Everything related to your business is handled by your backend, which includes the software and databases you have on a server or cloud computing service. Your backend also connects with third-party billing services to reliably handle payment processing for large volumes of multi-party transactions.
On-Demand Business Model
On-Demand focuses on developing access to everything it needs versus trying to own everything it needs. So, let’s say you need a car for your business or job. According to AAA, Americans drive an average of 46 minutes per day. That indicates the average vehicle is used less than 5% of each day. By almost any standard, that’s hugely inefficient. You have two basic options:
- Buy a car, pay the tax, title, registration, insurance, maintenance and a place to park it.
- Rent a car and pay proportionally only for the time you use it.
In on-demand, we are talking about scale – not just one car, but tens of thousands of cars. It is the difference of buying one car to service one city or renting hundreds of cars to service to a wider metropolitan area or potentially dozens of cities.
On-Demand automates a large portion of your administrative and logistical tasks. The automation is provided by your app and backend to match your customers with available service providers. In most cases, service providers are independent contractors. Uber, for example, has an estimated 750,000 drivers as independent contractors in the United States alone. The rideshareguy estimates Uber as having about 3 million drivers worldwide, translating to 4x as many cars than Enterprise Holdings, the world’s largest car rental company.
So, if you were Uber with 750,000 drivers available, your business operations would be best focused on a) keeping your drivers happy, and b) continuing to grow your market. Business Operations can be the trickiest part of an on-demand business for many reasons. The #1 mistake is that on-demand companies tend to see themselves as tech companies when in reality it is critical for them to be much more people-focused than most traditional businesses.
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“Teeth to Tail” Ratio
While “teeth to tail ratio” is a military term, it serves as a major advantage for on-demand businesses over a traditional business. Traditionally, it is used to measure how many people work behind the desk, in the warehouse, driving trucks to support each soldier on the front lines. In business, it is a gauge for how much supporting staff are required to support your money makers – like salespeople, technicians paid by customers by the hour, or with on-demand, service providers.
Axiom, the largest “New Law” firm is offering legal services on-demand. Most law firms have 1 supporting staff member for each attorney. Axiom is estimated to have 1 for every 8 to 10 attorneys.
Its revenue model or commission structure is not easy to find. However, it does claim to offer legal services at 50-75% below competing “Big Law” firms. Attorney billing rates often run $150 and $350 per hour. We can assume Axiom attorneys offer a significant discount to their firm especially for the wonderful option of being able to work from home on a flexible schedule.
On-Demand = Your Business and Brand as a Service
Normally, everyone who participates in a business activity gets paid. Everywhere you go, in any supply chain, someone makes a sales commission on products or services sold – whether or not it’s called a sales commission. It might be wages for labor, a service fee, or even an interchange fee. Manufacturers, distributors, retailers, sales agents, the girl who does the installation, the warehouse-guy who unloads the boxes, even affiliates, credit card processors, and the banks issuing credit cards – they all get a slice of the pie.
In On-Demand, your main goal is to continuously grow your business by constantly increasing access to everything it needs. A large part of that involves continuously improving your product – the app and all of its supporting architecture. It makes everything else possible and to that extent, it IS your business. It involves a substantial investment – one that all of your individual service providers would not likely ever be able to afford.
In on-demand (and really all businesses), it is very helpful to see the revenue share of everyone involved in the supply chain.
- Where do you fit?
- What roles will you perform?
- How much can you charge?
- To whom can you charge it?
Some of the answers are quite surprising:
On-Demand Service Charges
|Product or Service
|Omnichannel and Online Sales Platform
Plus monthly billing up to $39.99
|3% from owner plus
6-12% from guests
|Taxi Service and Food Delivery
|25% on all fares
30% on food orders
|20% on fares + Service Fees
|$3.99 2-hour deliveries plus up to 15% product markup
|Crowdsourcing on Bounties – Those who find the bug get paid.
|Banks and Credit Card Companies
|Credit Card Interchange Services
|About 2% in interchange fees – “merchant discount”
The Point? Amazon has over 2 million third-party sellers and receives an average 15% commission on every item they sell. That amounted to about 51% of Amazon’s total online sales for 2017. Uber receives 25% on every fare serviced by its 750,000 American drivers.
On-Demand is a Perfect Fit for Service Industries!
On-Demand is best suited to service industries, which comprise roughly 80% of the US economy by GDP. The cost to develop an On-Demand App like Uber is roughly the whether its used to manage and support business operations in 20, 200 or even 2,000 cities. By using your brand to connect customers to other suppliers whose services you trust, you can expand your market rapidly, without new offices or vehicles.
Many service industries are labor intensive, requiring a nominal amount of equipment, but needing an actual person to do the job – to settle a court case, make a delivery, park a car, clean a house, etc. The tricky part, where companies like Uber have problems, is treating their service providers or independent contractors as employees. Otherwise, your focal point is on providing a value or cost advantage over your competition – some of whom may be your service providers.
You have a few mechanisms working on your behalf in being able to carve out a respectable share of revenues:
- Your service providers do not have On-Demand apps of their own – by having one, you are affording the customers needing the service you offer unparalleled convenience.
- Convenience is a commodity – you can attach a price tag to it.
- Your On-Demand App can make multi-party payments super simple and convenient for everyone.
- Your On-Demand App can also function like a Loyalty Program while providing you data on your customer’s spending habits, giving you a foothold in the Data Economy, too!
Finding your product market fit which will take a fair amount of research. There’s good news for your market research. Searches on the North American Industry Classification System (NAICS) can be used to find county-by-county labor statistics by industry. Reports show number of establishments by county, number of employees, average wages, quarterly employment fluctuations and wage/employee quotients. This last item compares the local wages and number of employees relative to the national average.
It may require some hunting, but the Bureau of Labor Statistics and Census Bureau’s The American FactFinder both provide a wealth of statistics that can be practically used to identify potential hot spots for your On-Demand business. While there are some broken links, the SBA’s Business Data and Statistics page can also help point you in the right direction for just about anything you might want to know for your business.
Additionally, as you probably know, Uber doesn’t charge the same rates per mile everywhere. Geofencing is another tool that can help define rates for service providers and customers, all automatically.
List of Service Industries:
IT Service Management
|Service industry associations
Are We in an On-Demand Economy Bubble?
Absolutely not. On-Demand’s cost advantages are more than likely to make it the standard business model of the future. Most businesses today still operate more or less as we have for the past four thousand years. But, citing all kinds of historical tech adoption statistics tends to leave doubt in that past performance is not always indicative of future results. So, for let’s take a quick look at what is happening today in the arena of Autonomous Vehicles.
Uber, Lyft and Autonomous Vehicle Investments
When looking at technology, it’s worth looking at how things operate today and how they will operate in five years. One thing consistent to almost all on-demand business models is the need to “immediately deliver” products or services. All major players in the on-demand market involved with shipping or transport services are active in autonomous vehicle development, of one sort or another. So are all major auto manufacturers – Ford, GM, Toyota, Mazda, Honda. And so is Amazon. The following provides a snapshot of some of the most recent AV announcements:
- Invested $500 million into Lyft in 2016
- Invested an undisclosed amount (believed to be over $500 million) in acquiring Cruise, which in late September 2018 received a $2.75 billion boost from Honda.
- Launched BOOK, a “Cadillac subscription service” that lets subscribers try out 18 different Cadillacs over a year.
- Actively engaged with Lyft.
- Backed Argo AI with a $1 billion investment
- Recently announced the launch of Ford Autonomous Vehicles, LLC, projecting $4 billion in investments through 2023
- Partnering with Lyft and Uber, recently announcing SharedStreets, “a new data platform designed to make it easier for the private sector to work with cities around the world and leverage data to improve urban mobility.”
- In March of 2018 announced its own $2.8 billion AV investment in TRI-AD, Toyota Research Institute-Advanced Development.
- With SoftBank announced in October of 2018, launched Monet Technologies Corp, an “autonomous mobility company to deliver on-demand service to people’s doorsteps by robocar” – starting with $17.5 million and scaling up over time with another $87.7 million.
- In collaboration with Amazon, Uber, Didi, Mazda and Pizza Hut to develop, “an autonomous shuttle that can be used to deliver people – or the packages they’ve ordered – to their destination.
On-Demand and Autonomous Vehicles
In the not very distant future, AVs will be able to cut out a major middle-man. In the process, it will change the automotive industry as we know it. That’s all kinds of scary, but so many big businesses are moving toward automation that they’ll be putting pressure on everyone else. If it’s not on-demand, it’s Foxconn replacing 20,000 factory workers with machines. If it’s not Amazon Go, it’s Creator’s automated burger restaurant. While everything is pointing to a lot of jobs being displaced by tech, historical tech advances have always led to a net increase in jobs. The problem we have is that a lot of those jobs haven’t been invented yet.
Either way, for business owners wishing to jump into on-demand, it appears likely that the cost-advantage will again shift back to ownership. In that case, however, Uber and Lyft will be aiming to solve a different problem. Now their objective is to make it faster, cheaper and easier to get a ride by distributing demand across everyone capable of fulfilling it. Tomorrow’s objective will be to reduce, or even eliminate, the need for anyone to own a vehicle in the first place.
How to Get Into the On-Demand Economy
It’s difficult to think of a business that cannot take advantage of the On-Demand economy in some way. Remember its first principle: Access is better than Ownership. Now, we do recommend to anyone looking at On-Demand to start with a business and industry they already know. But the same principle applies there, too – having access to someone who knows an industry well could work just as well.
From there, getting into On-Demand involves four stages of development.
1. Find Your Industry or Niche
Uber for X companies are numerous, yet it doesn’t mean that you can’t find a vacant industry to disrupt. Look for an existing market. Do you see any industries where technology can simplify the interaction between suppliers and consumers? After you find it, build an MVP, test the business idea, collect data, and analyze whether you can beat the competition if you get in.
To deal with competition, you’ll need to work with your target audience: offer free products and services, provide quality and bring value. When you launch your app, it should be perfect with great features and provide an incredible UX: User Experience.
2. Build an Efficient App
What’s the secret weapon of the on-demand economy? The one-click app like Uber. Simplicity is what earned Uber its billions, and it should become your marketing message too. Otherwise, consumers just find another app.
Your app is your interface to suppliers and consumers. It should be seamless. If you’ve ever used Uber or its alternatives, you know what we mean: rich but easy-to-use features, impeccable UI and intuitive UX. You get to what you want in the most natural way.
Recommended for you: How Much Does it Cost to Build an App Like Uber?
3. Optimize the Value Chain
Rich features and sleek, streamlined interfaces with great UX are necessary to satisfy and attract users in the on-demand economy. But they’re not enough. If you want customers to use your ‘uberfied’ app, ensure you go the extra mile to optimize your value chain in the long-run.
The whole concept of an on-demand app is about speed and convenience. Therefore, you should reduce waiting time between order and delivery. Your customers won’t wait for hours – they want it here and now. Work hard to simplify and even revolutionize the value chain. After all, it’s what Uber did (and its numerous clones do), to succeed.
4. Attract Users and Build a Network
The on-demand business model is here because of how people use technology to communicate. An on-demand business is another Facebook if you wish. Unless your app has visitors and a network of suppliers behind it, it’s useless. That’s why you’ll need to attract users and build a network from Day One.
How to do it? Focus on tech-savvy audiences because they’re first to adapt your app and spread the word about it. Make your presence known at tech events and conferences, and then offer your products or services for free. Collaborate with other networks and make it into the news, too.
As soon as your app attracts enough consumers and suppliers, lower the prices. This combination will create momentum and accelerate growth further.
Bonus Point: What to Expect from the Shared Economy?
Although the on-demand economy has been around for some time, it still has a long way to go. Here’s what awaits it in the future:
Explosive growth and expansion to new markets.
Big players inside and outside the on-demand model are flush with money to take advantage of a radical shift in consumer behavior. It’s expected that they’ll invest billions to disrupt more industries and expand overseas.
Growing competition and better User Experience for users.
There are dozens of Uber for X companies on the market already, and new players are entering every day. While some of them try to consolidate efforts to improve their chances, some seek the help of big investors and attract tons of investment money. Inevitably, the competition will yield better results for customers in terms of better variety, greater UI and UX, lower costs, and quality products.
A shift in spending.
The on-demand economy has changed the way we spend. While more industries get disrupted, people spend less on intermediaries, but more on services. Spending behavior is increasingly dependent on the immediate gratification of people’s needs. So, businesses need to work hard to make their operations simpler, more efficient and convenient.
The On-Demand economy is definitely the future. It offers consumers what they’ve craved for many centuries: immediate gratification of every need, at the tap of a button. Empowered by smartphones, people have developed a sense of entitlement to get what they want faster, easier and cheaper. As a result, businesses need to push hard to improve and optimize value chains, simplify features and make the UI and UX of their apps friction-less.
The On-Demand business model is changing the way people think, buy and spend globally. The technologies that make it possible are still very new – and rapidly evolving. Tech-savvy customers around the world have already figured out how beneficial the On-Demand economy is. They’re the perfect target audience to work with.
The future is already here — it’s just not very evenly distributed.