Smartphone proliferation has resulted in an inexhaustible supply of on-demand services with the potential to revolutionize every industry in the city. How many of these will even survive, let alone become global players?
The selling point of Urban Company is simple:
Schedule a massage through the app, just like you would an Uber ride. A therapist arrives at your location, unfolds a large table with a hole, and has you lie down on it before you pay via the app. Urban Company, which is worth $2.1 billion, is the latest startup to make big claims about bringing about a new era in which we can use our smartphones as universal remotes to order anything from food to flowers to dry cleaning to medical care to hair styling to computer repairs. From 2022 to 2026, the market is expected to grow at a CAGR of 9.7%.
There will be no gold rush.
The term "on-demand" now refers to a distinct market segment, with many companies competing to supply you with the components needed to launch your own on-demand service. Some examples of available building blocks are Parse (for app development), Stripe (for payments), Sinch (for in-app communication), Checkr (for driver background checks), Playbook HR (for management and payments), and Onfleet (for delivery).
Despite the excitement, many people warn against treating this like a gold rush. In the midst of the inevitable post-Uber euphoria, Index Ventures investor Martin Mignot believes there has been a misunderstanding of what a genuine on-demand business is. Mignot says that "a service provided by a person very quickly in response to an urgent need" must be used almost exclusively "in a mobile context," and the service in question must be suitable for heavy use by a large number of people for it to be considered a legitimate on-demand business.
How frequently do you intend to swipe?
According to Mignot, the majority of on-demand businesses being pitched today are "marketplace" concepts, more akin to eBay than Uber, though this is largely a semantic distinction. He contends that, while the concept of connecting consumers and service providers is sound, the on-demand business model endangers the enterprise's long-term viability. Florists and massage therapists may not have the frequency and urgency needed for a successful marketplace, while cleaning and home repairs may be better suited to a more traditional online marketplace.
The ability of an on-demand concept to exist on a user's first or second smartphone screen is a difficult litmus test for its viability and growth potential. It will no longer be novel after a few more taps to the left.
Consumer preferences are rapidly shifting.
Observers like Mignot are skeptical about the viability of most on-demand concepts because they do not fit the definition, particularly in industries other than food and transportation. Risky high-wire models rely on massive scale to make up for razor-thin margins, rigid cost structures, and small commissions.
The importance of city shuttles is another distinction between on-demand businesses and marketplaces. They require careful and costly supervision, whether they are independent contractors or full-time employees. Shuttle service demand, as the industry has come to call it, can be unpredictable, or "surgery," leaving businesses vulnerable to either angry customers or idle drivers. As a result, companies like Deliveroo are broadening their pool of potential drivers to include anyone with a bicycle, rather than just licensed scooter owners.
Another issue is the workforce's composition. According to one school of thought, in order for an on-demand proposition to be successful, it must have a single focus, such as "we deliver food to you," and any deviation from this will render the proposition's original logic invalid. The "gopher model" is another way of thinking. It says that businesses can better justify the cost of keeping a large staff by offering a wide range of services to their customers.
Investing in the Future
Because of the high usage intensity that fuels more providers, improves the service, and attracts more users, on-demand markets appear to be predisposed to supporting winner-take-all scenarios. The jury is still out on whether or not there needs to be a single global player, but regional monopolies seem to work well for the business.
How do you see this relatively new method of product distribution evolving in the future? Where can I look for open positions, if any exist? Food and medicine are the two most obvious categories. People find it hard to deal with both of these things right now, and they would benefit from having ways to get what they want right away.
Nonetheless, demand-side innovation is not limited to the introduction of new services. Uber recently announced plans to integrate with Facebook, the social media platform. With future integrations with other apps and voice services like Siri, WhatsApp users may be able to order food without ever leaving a conversation.
Even though the on-demand industry is very competitive, it is clear that there is a lot of untapped potential and a large number of consumers who are ready to buy.