The Local On-Demand Economy: Flipping a Century-Old Local Ad Model

This post is the first of a weekly series of excerpts from BIA/Kelsey’s recent report on the Local On-Demand Economy (LODE). The series will lead up to BIA/Kelsey NOW, a conference on LODE that will take place June 12 in San Francisco.

One of the many attributes of the local on-demand economy (LODE), is it’s potential to flip local advertising models we’ve known for more than a century. It will do this in some cases by replacing marketing with a commerce engine; or as we’re calling it, the “logistical last-mile” to the consumer.

As background, LODE is our newest coverage area. Also known as the “uberfication of everything,” it’s poised for massive investment, innovation and economic impact. To continue the discussion, below is the first of many excerpts from our recent report. It zeros in on the “flipping the model” theme.

This all leads up to BIA/Kelsey NOW, a conference taking place June 12 in San Francisco. Let me know if you’d like to participate (mbolandATbiakelsey.com) and stay tuned for lots more coverage. Meanwhile the report excerpt is below. Next week’s excerpt: LODE’s Economic Impact

Flipping the Model

LODE’s departure from local search has important ramifications for marketers. Stepping back, consumer behavior has evolved from print directory lookups to search engines and even social networks to find items or services that fulfill specific needs with varying degrees of urgency.

These models have progressed towards more of a user pull and less of an advertiser push. The trend has also moved towards more targeted advertiser placement, to establish positioning in front of consumers at strategic times and places of explicit commercial intent.

In a print directory context, this means physical positioning — through size, color and heading priority — to capture that coveted phone call at a time of consumer need. For search engines, it means formulating the right keywords and ad groups to likewise capture high-intent clicks.

With search came certain efficiencies in reaching high-intent consumers in a more cost-efficient way than traditional media. LODE continues down that evolutionary path by aggregating real time consumer demand in a given service category, allowing nearby providers to respond accordingly.

So instead of a consumer search for a business — requiring a previously devised marketing plan where a message is placed in front of that user — LODE flips the model. User demand is captured and revealed for service providers to react in real time to a marketplace now made transparent.

“There’s no advertising in these apps, it’s purely a grossed-up transactional value,” Comcast Ventures Partner Michael Yang told BIA/Kelsey. “Local isn’t reviews anymore, it’s on demand… The business model is consumer pay, and the merchant is being aggregated into a network.”

Put another way, the need for advance advertising to stay competitive is eliminated in some cases. Service providers thriving with LODE don’t need to market themselves proactively to generate demand. They’re now given an operational tool to capture demand reactively.

This is analogous to the Just in Time manufacturing principle. A Japanese innovation popularized in the U.S. by Harley Davidson, and more recently by Tesla, inventory is produced much closer to its sale. This improves cash flows and reduces capital requirements for cost of goods sold.

In LODE services, capital requirements for customer acquisition are likewise reduced. Demand generation at the app level creates marketplace transparency to deploy inventory — for example, a service provider’s finite set of appointment slots — exactly where it’s needed in real time.

“What we’re seeing is yield optimization,” MyNeighbor CEO Brendan Benzing told BIA/Kelsey. “Uber in early days had a brick business which was town cars, but it was all the time in between rides that was the mortar. That’s the value that technology is finally extracting due to mobility.”

Next Excerpt to Come: LODE’s Economic Impact