How big is the market housekeeping startups such as HomeJoy, Handy and Thumbtack? Is the business big enough to justify Amazon Home Services' leap into the market? We'll answer that question the last week before BIA/Kelsey NOW, coming up on…
The Local On-Demand Economy (LODE) will be all about transactions. The ease of transaction between buyer and seller will need to match the lowered-barriers and "immediacy" of the on-demand service and experience itself. Otherwise, LODE's promise won't be fulfilled. It's…
Button, the New York-based developer of mobile deep-linking integration tools for use in local on-demand services, announced the launch of Uber integration into third-party applications. Foursquare used the tools to add a button to its location-based social sharing application to…
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
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, its 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.
Flexibility and other attributes of on-demand work are tailor made for millennials. This was affirmed today by Mary Meeker's annual "data dump" at the Code Conference. We argued a similar point in our report on the local on-demand economy (LODE):…
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…
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.
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…
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…
Uber's low fixed costs are a key to its on-demand car services. Why then is the company seeking to acquire Nokia's HERE Mapping business for $3 billion instead of simply partnering or cutting a deal to use the mapping service?…
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…
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.
One of the marks of the local on-demand economy (LODE) is compressing the traditional local search process. We see it with companies like Uber: instead of searching, viewing listings, reviews, calling… you simply press a button and a car shows up.
Of course that’s easier said than done: Ceding the decision to Uber of which driver shows up requires a great deal of trust. Consumers are accustomed to the traditional local search process of choosing their individual driver/cleaner/lawyer, etc.
So successful LODE startups will build that trust over time using technology to match buyer and seller more quickly and reliably than local search. Beyond technology chops, it’s all about building balanced two-sided marketplaces, and network effect.
Meanwhile Google, the king of search, is already building its way into this LODE paradigm with tools like Google Now, and its rumored move into on-demand home services. LODE might be the anti-search, but Google will have a part in its future.
A related excerpt from our LODE white paper is below. Consider it a primer for the discussion we’ll have on stage at BIA/Kelsey NOW. Let me know if you’d like to participate (mbolandATbiakelsey.com) and stay tuned for lots more coverage.
Next week’s excerpt: LODE’s Impact on Local Media.
The New Search
LODE threatens traditional “local search” with a user value proposition that is more natural and natively designed for smartphones. It does this by compressing the supply chain. In other words, it eliminates steps of the traditional process of using a search engine to find local services.
The mobile local search process currently goes something like this:
1. Tap (or speak) words into a search box.
2. See results.
3. Click the most attractive one — sometimes leading to directories with additional navigation.
4. Read reviews or other decision criteria.
5. Choose a business that appears to be the most reliable, proficient or inexpensive.
6. Contact that business to inquire about or retain its service.
7. Schedule service.
8. Fulfill and transact.LODE’s comparison is:
1. Launch a LODE app for a designated service.
2. Push a button to indicate an immediate need.
3. Service provider comes to or contacts you (paid automatically once approved).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.
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.
The success of companies in the local on-demand economy (LODE) hinges on creating network effect and balance in two sided marketplaces (supply and demand). These must grow together in unison, and in a step function that usually leads with adequate supply (i.e., enough Uber drivers).
Last week we examined demand, so now it’s time to zero in on these supply-side dynamics. There are many factors including economic (unemployment rates), geographic (urbanization) and generational (millennial work habits). These are all colliding to form the “1099 economy” at the heart of LODE.
A related excerpt from our LODE white paper is below. Consider it a primer for the discussion we’ll have on stage at BIA/Kelsey NOW. Let me know if you’d like to participate (mbolandATbiakelsey.com) and stay tuned for lots more coverage.
Next week’s excerpt: LODE’s Impact on Local Media.
Supply Side: The 1099 Economy
The two-sided marketplaces that define LODE mean that user and service provider growth must happen in approximate balance. There are unique market factors that create that balance and drive growth on each side of the supply/demand equation. The demand drivers were just covered.
For the supply side, LODE is keeping pace as its financial and lifestyle benefits are made known to service providers. This is important because the step function that defines LODE’s supply/demand balance usually starts with the supply side (i.e. enough Uber drivers).
This has been driven (excuse the pun) partly by high unemployment rates that create a larger eligible pool of service providers. For example, Uber had 160,000 drivers at the end of 2014. 40,000 signed up in December alone, and its cumulative total is doubling every six months.
Adequate supply is also driven by larger trends such as the percentage of the population that is concentrated in urban areas. This creates a larger eligible pool of suppliers. It also concentrates demand within a defined area, which provides ROI incentive for suppliers to operate.
Drilling down to more direct and tangible motives, there are often economic benefits for service providers. As mentioned above, reduction in marketing and operational costs enable individuals to sidestep traditional barriers to entrepreneurship. And some LODE services offer quick revenue.
A study by Princeton economist Alan B. Krueger reports that Uber drivers earn $19 per hour on average, and a majority are very satisfied. Drivers were also proven to work fewer hours and earn more than taxi drivers (though they must handle some expenses that taxi drivers don’t).
The Kreuger report also shows that driver growth isn’t receding even as some factors — such as high unemployment — abate. And as Uber lowers rates to the initial detriment of drivers, it argues that increased demand counteracts potential losses (per second order effect outlined earlier).
Punch Out
There is also the matter of flexibility. LODE is causing a cultural shift in the way people think about work. It’s chipping away at a centuries-long societal construct and mindset about working for companies. Ask any Uber driver how much he likes being able to create his own hours.
Though corporations absorb risk and create community — a benefit established as 20th century industrialization and urbanization created the welfare state we now know they also require sizable and sometimes inconvenient commitments from their employees.
And so a key constituency of the emerging 1099 economy has become individuals that require this flexibility out of necessity: students, contract employees, parents, people with multiple jobs. The ability to define one’s hours has been one of the biggest boons for LODE service providers.
For example, most Uber drivers work less than 15 hours per week, according to the Krueger study. According to a driver survey in the report, most are already employed full or part time. Earning additional income was stated as the primary benefit of being an Uber driver.
This flexibility is also perfect for a demographic group examined above in a different context: Millennials. The characteristic flexible hours that several LODE services offer could be form-fitted for a generation that doesn’t want to be told when to come to work.
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.
The success of companies in the local on-demand economy (LODE) hinges on creating network effect and balance in two sided marketplaces (supply and demand). These must grow together in unison, and in a step function that usually leads with adequate supply (i.e., enough Uber drivers).
Last week we examined demand, so now it’s time to zero in on these supply-side dynamics. There are many factors including economic (unemployment rates), geographic (urbanization) and generational (millennial work habits). These are all colliding to form the “1099 economy” at the heart of LODE.
A related excerpt from our LODE white paper is below. Consider it a primer for the discussion we’ll have on stage at BIA/Kelsey NOW. Let me know if you’d like to participate (mbolandATbiakelsey.com) and stay tuned for lots more coverage.
Next week’s excerpt: LODE’s Impact on Local Media.
Supply Side: The 1099 Economy
The two-sided marketplaces that define LODE mean that user and service provider growth must happen in approximate balance. There are unique market factors that create that balance and drive growth on each side of the supply/demand equation. The demand drivers were just covered.
For the supply side, LODE is keeping pace as its financial and lifestyle benefits are made known to service providers. This is important because the step function that defines LODE’s supply/demand balance usually starts with the supply side (i.e. enough Uber drivers).
This has been driven (excuse the pun) partly by high unemployment rates that create a larger eligible pool of service providers. For example, Uber had 160,000 drivers at the end of 2014. 40,000 signed up in December alone, and its cumulative total is doubling every six months.
Adequate supply is also driven by larger trends such as the percentage of the population that is concentrated in urban areas. This creates a larger eligible pool of suppliers. It also concentrates demand within a defined area, which provides ROI incentive for suppliers to operate.
Drilling down to more direct and tangible motives, there are often economic benefits for service providers. As mentioned above, reduction in marketing and operational costs enable individuals to sidestep traditional barriers to entrepreneurship. And some LODE services offer quick revenue.
A study by Princeton economist Alan B. Krueger reports that Uber drivers earn $19 per hour on average, and a majority are very satisfied. Drivers were also proven to work fewer hours and earn more than taxi drivers (though they must handle some expenses that taxi drivers don’t).
The Kreuger report also shows that driver growth isn’t receding even as some factors — such as high unemployment — abate. And as Uber lowers rates to the initial detriment of drivers, it argues that increased demand counteracts potential losses (per second order effect outlined earlier).
Punch Out
There is also the matter of flexibility. LODE is causing a cultural shift in the way people think about work. It’s chipping away at a centuries-long societal construct and mindset about working for companies. Ask any Uber driver how much he likes being able to create his own hours.
Though corporations absorb risk and create community — a benefit established as 20th century industrialization and urbanization created the welfare state we now know they also require sizable and sometimes inconvenient commitments from their employees.
And so a key constituency of the emerging 1099 economy has become individuals that require this flexibility out of necessity: students, contract employees, parents, people with multiple jobs. The ability to define one’s hours has been one of the biggest boons for LODE service providers.
For example, most Uber drivers work less than 15 hours per week, according to the Krueger study. According to a driver survey in the report, most are already employed full or part time. Earning additional income was stated as the primary benefit of being an Uber driver.
This flexibility is also perfect for a demographic group examined above in a different context: Millennials. The characteristic flexible hours that several LODE services offer could be form-fitted for a generation that doesn’t want to be told when to come to work.
The local on-demand economy (LODE) was the largest recipient of VC funding in 2014. And you can't throw a stone in the tech blogosphere these days without hitting scores of daily posts about milestones or new funding rounds for LODE…
More than 75 companies are now providing scheduling solutions, resulting in a super fragmented marketplace where no single company has even five percent of the existing market. One by-product of the glut: the need for a one stop, API-driven product…
More than 75 companies are now providing scheduling solutions, resulting in a super fragmented marketplace where no single company has even five percent of the existing market. One by-product of the glut: the need for a one stop, API-driven product…
What does Amazon Home Services mean for local? Is Groupon divesting its SMB platform assets? And what are the biggest drivers of the local on-demand economy? These are a few topics we tackled over the last week, curated and aggregated…
TaskRabbit, HomeJoy, HomeAdvisor, Handy, ClubLocal, Pro.com, Amazon Home Services and, most recently, Google, to name just a few, have entered the exploding home services market to provide in-home labor and professional workers fast access to their local market. According to a recent The New York Times article, the market is valued between $400 billion and $800 billion annually by the companies chasing this newly accessible revenue.
With that massive revenue target in mind, BIA/Kelsey is in the process of segmenting and understanding the keys to the home services, research we’ll be introducing at our upcoming NOW: The Rise of the Local On-Demand Economy Conference on June 12th in San Francisco. In this posting, we’ll discuss who the primary customer targets for these services may be. In upcoming installments, we’ll look at when potential buyers will be most ready to pay for work that has traditionally been “free.”
Of course, in economics, nothing is free, but many factors are often very poorly measured or simply ignored when talking about the value of labor in the home. With the arrival of logistics systems that aggregate supplies of labor for the home, many new costs and expenses can be included in the economic decision-making of the household. That expansion of measured labor will certainly change the perception of the work that homemakers and home repair enthusiasts have previously treated as “free labor.”
Building a paradise or hell?
Logistics and information technology has dramatically improved productivity in large enterprises. They can transform local services, too, if entrepreneurs take the time to assess their customer’s needs and ability to pay in relation to the value of work that traditionally has been treated as contributions to the family.
What’s the real opportunity, to provide services to wealthy homes or to make home services affordable for many more people than today? Home services are often dismissed as a San Francisco-bred phenomenon brewed from a mix of overpaid Millennials and under-employed local workers who will take the lowest possible wage, because they have no other options. In reality, the emerging home services market is the product of enhanced coordination and logistics made possible by technology.
The arrival of data-driven coordination and management could result in an inhumane system of exploitation in which workers fight for scraps or it can lift more people into work that serves their neighbors, their own goals and those the community values. Only the latter approach can result in a robust local economy.
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. In…
