Succeeding in The Highly Competitive On-Demand Economy
Jenna EricksonJanuary 27th, 201710 minute read
Jenna is the Marketing Manager at Codal, blogger, and technology + startup enthusiast. With a responsibility of Codal's marketing programs and brand management, she is always strategizing new ways to reach clients through content and inbound marketing tactics. In her free time, Jenna enjoys traveling, cooking and reading.
On demand apps have come to define the 2010 era of "next gen" technology. Uber launched in San Francisco in 2010. By 2015, the Uber company was valued at $50 billion in Forbes magazine.
Following the success of Uber, on demand apps have popped up for all types of services ranging from housekeeping to health care.
An on demand app connects a person who needs a task done with a freelance employee who will take care of the task.
These on demand apps generally require a credit card and act as a "middleman" for the transaction between the user and freelancer.
Not Every App Is Uber
The market for freelance employees is nothing new. Named for the tax form used by freelance employees, the "1099 Economy", isn't as fruitful as some might want you to believe.
Housecleaning on demand app Homejoy went out of business in 2015 despite being backed by Google Ventures.
Of course, housecleaning apps were quick to crop up in replacement of Homejoy. One app in particular, Fly Maids, was created by Homejoy cofounder Aaron Cheung based around previous employees of Homejoy.
For every on demand app that succeeds, there is another app that has failed.
Many of the on demand apps that fail do so because too many of their freelance employees end up quitting.
Freelance employees don't have the same types of benefits as W-2 "wage earner" employees and must pay for transportation expenses out of their own pocket.
Breaking Down The Successful On Demand Formula
If you're considering a venture into the on demand app business, you should take note of the on demand apps that are successful in order to determine what works. As a mobile app development agency, we hear ideas for on-demand apps for everything.
In this section, we take a look at three of the more popular on demand apps: Uber, Pager, and Instacart.
Despite multiple protests and lawsuits filed against Uber, the company has maintained a level of success that has become the inspiration for other on demand start ups. The term "Uberification of ________" has become synonymous with the on demand industry.
Although it may be unpopular with customers, surge pricing is one of the things that Uber has done right.
Surge pricing provides extra incentive for Uber drivers to work on high demand nights such as holidays. Uber is so fond of their surge pricing algorithm that they tried to patent it in 2013. The patent was rejected, so on demand apps are free to use surge pricing in their own applications if they choose.
What makes Pager a unique app is that it allows sick patients to summon board certified doctors to their house. Pager aims to reduce the amount of traffic in waiting rooms and revive the "house call".
Pager is currently an "out-of-network" provider, but it is working to integrate insurance payments. For the time being, first time visits cost $50, and each visit thereafter costs $200.
The most common services by Pager are treatment of bronchitis, laceration stitching, flu shots, and testing for strep throat.
The self described "Uberification of Groceries" allows users in select US cities to order groceries and have them delivered to their doorstep. Grocery outlets supported by Instacart include Costco, Publix, Target, and Jewel-Osco.
Instacart's pricing model varies from store to store, but the grocery prices are generally marked up by 10-20 percent, and the delivery fee is distance dependent.
Much like Uber, the couriers delivering Instacart groceries are considered independent contractors, and are not entitled to employee benefits.
However, unlike Uber, the independent contractors can eventually become part time employees if they perform at a high level. This platform for upward mobility is part of what earned Instacart the 2015 blessing of Forbes magazine as the "Most Promising Company in America".
Conclusion: On-Demand Monopolies
The on demand economy is likely here to stay, but the variety of different apps available in a given market might decrease.
During 2011, the eCoupon app Groupon acquired seven smaller companies that were competing in the same market as Groupon. With time, you may see a similar trend with on demand apps.
Instead of such a wide variety of different on demand apps, we might expect the the most successful of delivery apps to start buying out the less successful apps that they are competing with.
Thin profit margins and difficulty retaining freelance employees have made the on demand market incredibly difficult to succeed in.