LODE in 2015: An $18.5 Billion U.S.Market


How big can the Local On-Demand Economy get? We’ll be examining this question in several blog posts this week as we prepare for BIA/Kelsey NOW, which happens June 12th at the Mission Bay Conference Center in San Francisco. Use the discount code “MR100″ to save $100 on tickets. Will you be there?

BIA/Kelsey estimates that in 2015 the total addressable market for in-home on-demand services, including shopping time, travel and child/elder care, is 22.8 billion hours of currently unpaid household work, representing approximately 3.5 percent of total household work, according to the U.S. Census Bureau’s American Time Use Survey. Using the reported average income of “1099 workers” from several sources of approximately $17 an hour, the total market this year, if fully engaged, could be worth up to $465 billion. At the current industry standard, a 20 percent share for the on-demand marketplace operators who connect customers and contractors, on-demand companies’ revenues potentially could be worth $93 billion in 2015.

We believe 2015 actual market penetration by on-demand companies appears, based on reported and leaked revenue data from various on-demand companies, to be approximately $18.5 billion, or 3.9 percent of total addressable market. Much of that revenue is captured in transportation, particularly by Uber, which is expected to book more than $10 billion in ride revenue in 2015. Note that Uber ride revenue includes drivers’ reported 80 percent share, giving Uber total fees of approximately $2 billion this year.

In short, there is 96.1 percent of a market unclaimed and it will grow at a compound annual rate of 13.50 percent through 2030 based on projected population growth and an increase in average on-demand earnings of 2.33 percent per year over that time, from $17-an-hour to $24-an-hour.

For now, Uber represents more than half of the revenue of organized 1099 labor. Much of Uber’s revenue comes from business travel, which is not included in the home services market, but it does claim considerable personal travel in cities where it is well known. Its rapid ascent suggests that similar growth could occur in any area where people have access to ad hoc networks of people and resources. Many of the carpools, childcare arrangements, cooking and helping services provided by neighbors to neighbors will be ingested into the formal economy through LODE organizations.

The household services market
Billions have been invested in home services companies in pursuit of work currently performed in the home by household members. In-home services, such as TaskRabbit, HomeJoy and InstaCart, cannot generate revenue if their offerings are too expensive for middle class households to replace with more profitable work in or out of the home. Affluent households can add these services at will, but their adoption of on-demand services will not deliver substantial economic growth, because workers must be able to afford to do contract work while substituting for their unpaid labor at home if there is to be a thriving market for local experience and services.

BIA/Kelsey Projected Addressable Market 2015-2030: Household On-Demand Labor

BIA/Kelsey Projected Addressable Market 2015-2030: Household On-Demand Labor

The rhetoric of LODE paints a vivid picture of on-demand workers busily exchanging services, sharing burdens while doing the jobs they most enjoy — it’s a promise on-demand companies are making to their prospective contractors. For example, a car to take the kids to school cannot cost $17 an hour for a mother making $12 an hour working at another task as an on-demand worker. If LODE home service workers are expected to adopt on-demand services as well as provide them, their earnings must exceed the cost of doing their own work at home.

The U.S. economy produced $16.77 trillion in GDP during 2013, the last year for which complete data is available. However, the calculation of GDP does not include unpaid household work. If it did, U.S. GDP would be several trillion dollars higher than it is reported today. Organizing this labor to bring it into the formal economy at a reasonable price with reasonable wages is the challenge to LODE companies if they expect to profit. That cannot be done while strangling the golden goose of ad hoc skilled and low-skilled labor with lower wages. Ultimately, both unpaid household labor and the work that can be exchanged for other services are essential to the economy, it’s time we counted both.

Household labor projections, 2015 – 2030
BIA/Kelsey has developed a model for projecting the addressable revenue in the home based on the householder’s ability to pay for services that they may forego doing themselves to make time for paid work in another area of their expertise. With reasonable and rising wages, household on-demand work can add up to $3.1 trillion to the U.S. economy by 2030 simply by formalizing transactions.

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Local On-Demand Economy: What's Next?

This post is the latest in 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.

What’s next for the Local On-Demand Economy (LODE)? Though it’s been the recipient of lots of investment and media attention (including our own coverage), much of that has focused on where it is now, and where it’s been. But what about where it’s going?

As LODE engenders an ecosystem of supporting functions, there will be entry points for business opportunities. That includes everything from app development to back-end systems that run LODE products. And there’s a big opening for existing local media companies as we covered last week.

As far as supporting functions, we discussed a few of them on last week’s LODE roundtable, including the logistical systems that will help achieve LODE’s primary end: to algorithmically connect buyer and seller. There are lots of pieces to that value chain such as scheduling, payments, CRM, etc.

Similarly, our recent white paper covered some of these potentially opportune areas that are adjacent to LODE. An excerpt of the relevant passage is below, and stay tuned for lots more on this topic.

Local On-Demand Economy: The Future
As LODE expands, its capabilities and fusions with adjacent areas of technology will grow. It will support and be supported by many parts of a growing ecosystem. Areas we’ll examine here tie directly to monetary dynamics: demand pricing, mobile payments and growth through APIs.

Demand Pricing
After LODE grows in usage, vertical expansion and solid footing (phase I), its second phase will be to optimize pricing for maximum revenue. It will begin to do this by ingesting and processing large samples of consumer behavioral and spending patterns. The age of big data meets LODE.

The idea is that all of the signals emanating from the mobile device and processed through apps can be the building blocks for dynamic pricing. This goes back to Brendan Benzing’s quote in an earlier section that LODE’s demand aggregation is a play towards yield management.

For example, knowing how far away someone is to a business — and several other variables — enables predictive modeling about their probability of transacting. This isn’t necessarily new but takes on new flavors if worked into an equation that defines their price sensitivity or elasticity.

From there, the potential is to offer different pricing to existing customers, repeat customers, faraway customers, nearby customers, customers with green eyes and a love of craft beer, etc. This gets us closer to mobile’s promise of more effectively driving offline commerce.

The idea is to segment consumers by willingness to pay for something — a function of location-oriented factors like weather, behavior, time, product category, etc. This makes it a juiced up version of the airline model that maximizes revenue with demand-driven variable pricing.

It’s especially relevant within the context of perishable inventory (empty movie theaters, restaurants, etc.). This is of course nothing new, and gets to the yield management endgame of the daily deals craze of 2010. But in volume and depth of data, LODE will better enable it.

Of course the LODE poster child has already planted this stake. Uber’s “surge pricing” is dictated by demand levels in certain neighborhoods. It not only maximizes revenue during high-demand moments, but it compels supply (drivers) to log in and move towards “surging” neighborhoods.

We’ll see some version of surge pricing become a core tenet of existing LODE apps/services, and those still to be developed. This is most ripe in areas with volatile demand, price inelasticity and temporal relevance. Urban or event parking, for example, is an area where dynamic pricing could develop.

Mobile Payments
BIA/Kelsey has a cautiously optimistic view of mobile payments. There are consumer acclimation and retail implementation challenges. And network effect is required to gain scale and compatibility on each side of this equation. It’s a classic local “chicken & egg” challenge.

But this mostly applies to offline retail (POS) payments. Since using Apple Pay all over town, BIA/Kelsey has realized the lower barrier play where mobile payments’ near-term opportunities lie: in-app payments. This doesn’t have the same compatibility hurdles (hardware) as a physical POS.

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