Ashtabula County Development Forum This Week: The On-Demand Economy

The week the forum will be sharing a variety of points of view on the on-demand economy. I think you will find the series to be thought-provoking, exciting, and scary. Ashtabula County businesses, consumers, civic leaders, government officials, farmers, and everyone else will be greatly impacted by the massive waves created by the on-demand economy. Let’s try to understand what it is and where it may take us.

The On-Demand Economy is defined as the economic activity created by digital marketplaces that fulfill consumer demand via immediate access to and convenient provisioning of goods and services. Here is an article putting some numbers to the on-demand economy.

The On-Demand Economy by the Numbers
By Mike Dudas

Do you need food for the evening, but you’re too busy to prepare dinner? Or perhaps it’s raining, and you can’t find a taxi. Thanks to on-demand economy services, you can have restaurant-quality food in under an hour or a car service at your door in an instant. GrubHub, Seamless, and Uber are now household names with the increasingly mass market adoption and explosive growth of the on-demand economy. This tremendous growth is the result of four key factors — technological advancements, investor interest & access to capital, changes in consumer behavior and demand, and new methods of supplying services. Collectively, these forces are leading a transformation in commerce that instantly connects consumers with products and services. Let’s take a look at the statistics behind the on-demand revolution.

Advances in Technology

Three taps to go from “set pickup location” to “driver on the way” using the mobile on-demand car service Uber. Mobile apps have simplified to easy, intuitive flows as users demand a streamlined experience to match their on-the-go lifestyle. The smartphone’s ever increasing computing power and data storage capacities combined with its compact size make it an efficient platform for businesses to acquire, communicate, and transact with customers with unrivaled convenience.

Fifteen minute work time between beginning an implementation and accepting a live payment on a phone using Braintree’s SDK. Plug and play SDKs — like Braintree, Twilio, and MixPanel — improve the efficiency and efficacy of on-demand businesses by offering complex, essential processes quickly and easily. By having easy access to these core tools, young and resource-strapped companies can instead focus their attention on other critical operational issues.

800,000 sites use GoogleMaps API to create a powerful mapping experience which includes real-time visualization and street level detail. Google’s choice to open source their mapping software has facilitated the on-demand revolution by connecting users and businesses with unprecedented simplicity. On-demand service providers like Postmates, Instacart, and Uber all rely on Google’s mapping software to match supply with demand and and to provide a simple interface that allows all parties to track each step of the transaction.

Access to Capital at All Stages

34,000+ active investors are currently on AngelList, the leading fundraising and job placement platform for startup and angel investors. In 2013, new laws allowed startups to seek public funding from accredited investors. Shortly after, AngelList offered funding from syndicates with 250 joining within the first two months and raising $87 million since then. Companies like AngelList and seed-stage incubator Y Combinator, whose portfolio companies have raised $3.5 billion, have accelerated early funding for on-demand entrepreneurs by providing startups platforms to connect with a wider range of investors and at an earlier stage than previously possible.

$154M raised by SherpaVentures for a fund specifically targeting investment in on-demand businesses. To date, SherpaVentures has made seed investments in Shyp and Munchery. Fund co-creator and investor Scott Sanford says that SherpaVentures provides its portfolio companies with support in both technology and oft-neglected branding. “The technology is rarely a major barrier for entry [in commerce]. What ultimately these companies need to do is build brands, global ones that consumers will love.”

$1.2B raised by Uber in its most recent funding round, which closed in June 2014. Uber’s newest investors, BlackRock and Fidelity, are representative of an on-going shift in late stage investor behavior, whereby mutual funds are willing to assume more risk by investing earlier in a company’s pre-IPO growth. This trend was similarly evidenced by T. Rowe Price’s participation in Airbnb’s $475M Series D fundraising in April 2014. Traditionally conservative money managers moving in on startups like Uber and Airbnb indicate their belief in the sustainability of on-demand economy and their hope to capitalize its explosive growth.

Changes in Consumer Behavior and Demand

70% of Americans now own smartphones and the average person checks their phone every six minutes, about 150 times a day. Smartphones are a pocket gateway to information, services, and social interactions all within a few taps. Instant gratification from push notifications to social media combined with mobile ubiquity sets the stage for consumers who want immediacy beyond the web. The on-demand movement addresses these consumers by bridging the gap between instant online results and real world services.

173M people live in the United States’ top 50 MSAs, representing roughly 55% of the population. The growing density of US cities increases the number of people who have easy access to on-demand services. Instacart’s 15-20% customer growth rates in new markets are fueled by its choice to launch in large metro areas with eager, tech savvy audiences. Concentrated populations provide a higher volume of transactions in a smaller service area that easily allows for on-demand services to deliver top-notch response time.

17M guests have stayed in Airbnb accommodations globally since 2008. On-demand services like Airbnb and Uber use a two-way rating system and levels of verification to develop trust between the user and service provider. Consumers expect a carefully chosen pool of contractors that are vetted by the provider through background checks and by the public through customer reviews. Users already familiar with online mass opinion feel comfortable trusting on-demand services that crowdsource recommendations through comments and ratings.

New Methods of Supplying Goods and Services

53M Americans work as freelancers according to a Freelancer’s Union / Elance oDesk study released in September 2014. More than half of American freelancers have turned to self-employment by choice rather than necessity because they value the quality of life improvement and flexibility. Freelancers find freedom in on-demand companies like TaskRabbit, where freelancers can make up to $60,000 a year while setting their own schedules.

40+ on-demand companies are now available in over 10 markets. The rapid geographic expansion of these on-demand businesses has been made possible by a burgeoning class of on-demand launch experts. Launch experts provide the foundation for repeatable processes that allow their companies to easily scale in multiple markets in only a few months. When asked about Homejoy’s expansion to 30 cities in six months, CEO Adora Cheung emphasized the importance of support from highly competent, distributed employees: “As a founder, you have to find these people. You can’t be executing expansion yourself.

1,000 independent shoppers make up the front line for on-demand grocery service Instacart. These shoppers are trained to pick the best products — from unblemished produce to uncrushed potato chips. They check for dented cans, expiration dates, and they even recommend substitutions for out-of-stock products. Instacart and other on-demand businesses cultivate experts in all types of services who are accessible to the consumer at a moment’s notice and perform the service better than the consumer could do themselves.

Judging by the numbers, the on-demand economy’s increasing success and ubiquity will continue to change consumer purchasing behavior and expectations. On-demand startups are primed for success with streamlined technology, accessible funding, a talented, distributed workforce and services that deliver high quality experiences on a consistent basis. Investors are eagerly jumping in, encouraged by the blockbuster returns that are already being realized in the on-demand economy. And consumers whose fast-paced tech-centric lifestyle leave them craving instant results are jumping into new on-demand verticals. Watch what the future has in hold as the on-demand economy comes into its own.

Written by Mike Dudas, the co-founder and Chief Revenue Officer at Button, the VIP customer acquisition and retention platform for the on-demand economy. He formerly headed up mobile business dev at Braintree/Venmo and merchant partnerships at Google Wallet.

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