$20 an hour. That’s the price of a HomeJoy housekeeping professional. How big can the market for these services reasonable grow? Will these on-demand companies grow without taking a major bite of the approximately $8.5 billion in revenue from the industries that provide housekeeping services today?

Using the methodology explained in our first Local On-Demand Economy market posting, which examined the market for unpaid household work that is currently performed by the householder, we estimate that the Housekeeping Services vertical represents $57.8 billion in addressable revenue in 2015. The growth of this market depends on increasing homeowners’ and renters’ ability to earn income from some of the labor they do to support their home while spending to have others do household work they want to avoid.

By lowering overhead using digital logistics to match housekeepers and clients, as well as to collect feedback about the customer and worker’s experience, HomeJoy hopes to prosper as less agile companies flounder in employee costs that the San Francisco-based LODE company eschews. This flexibility comes at a cost, as HomeJoy has much more limited control over individual cleaners that contract with it than a firm like Merry Maids, where uniforms and policies are enforced as part of the employment agreement. Regulatory changes at the municipal, state and federal levels will be necessary to resolve the ongoing questions about the legal status of a “1099 worker” with regard to their obligations to uphold corporate standards, but for the sake of this analysis we will simply point out that brand experience will turn on the on-demand company’s ability to engage laborers in delivering a consistent customer experience.

The Housekeeping Services Industry
Housekeeping services are lumped into a variety of labor categories, including janitorial services and traveler accommodations, by the Bureau of Labor Statistics. As of May 2014, more than 70 percent of “maids” worked in hotels, motels and medical facilities. Approximately 260,000 housekeepers work in the home services market and drive approximately $8.5 billion in revenue for themselves, their franchise or housekeeping company. The median hourly wage for a maid in the United States is $9.67 an hour, and the top 10 percent of earners bring in $15.74 an hour.

Existing housekeeping and services companies, such as ServiceMaster’s Merry Maids as well as the Molly Maids franchises, are long-established players who see an emerging fight for their lives as on-demand companies revise the economics of service delivery. The result will likely be the transition of all these companies to on-demand labor models over the next few years, as 86-year-old ServiceMaster has in Europe, where it has launched on-demand home cleaning. However, these on-demand services will compete with their existing franchisees, leading to potentially declining overall revenue. ServiceMaster reported declining revenue in 2014 in its Franchise Services Group, where Merry Maids revenue is reported, of $253 million, down 2.4 percent year-over-year. The trend continued in Q1 2015, when ServiceMaster reported an additional 1.9 percent year-over-year decline in quarterly revenue.

Existing home and commercial services businesses have combined far-flung service businesses to establish their profitable foundations. ServiceMaster, for example, provides home security and insect/pest control services through its American Home Shield and Terminix groups. We anticipate that each of these services can stand on their own in the on-demand market, if the provider masters the infrastructure, marketing and engagement challenges involved.

At $12 to $15 an hour, HomeJoy’s compensation is comparable to the employee-based model of the traditional housekeeping business and slightly higher than the median hourly wage for maids reported by PayScale, $10.73 an hour. These figures suggest HomeJoy runs a topline margin of about 40 percent, higher than the average on-demand company margins at, for example, Uber. This will enable HomeJoy to concentrate on quality experience, which is the keystone to building a competitive offering and growing its market.

Based on our model, the housekeeping industry has converted only 14.7 percent of the addressable market in 2015 — that is, the people who can access and afford on-demand housekeeping services. There is plenty of room for growth, but much of that growth is predicated on the exchange of on-demand labor among household laborers, not simply the existing housekeeping market.

Table stakes
HomeJoy, which has acquired one company, GetMaid, is purportedly in discussions about a merger with Handy. Both companies have anted up to play at the consolidation game, bringing strong logistical and demand-generation tools to potential business relationships. The enduring question for all LODE companies will be “How many services make a minimum viable offering?”

Based on the early M&A activity in the pure-play housekeeping business, which has attracted between $240 million and $290 million in venture investments, it is clear that the appropriate mix of services that will attract both sufficient labor interest and customer attention is still to be discovered. Thumbtack, which also offers cleaning and assistant-like services for the home, reaches far beyond the cleaning category, offering plumbing and yard services, among others may be better prepared to win the share of customer necessary to grow. A combination of HomeJoy and Handy, should it come to pass, would compete more directly with Thumbtack.

But then there is the specter of Amazon Home Services, which promises a wide variety of vetted in-home services and already delivers more goods to directly to American home than any other online source. The bet by Amazon is simple: They can transform consumer attention to products around the house into services revenue related to delivering and using those products, as well as services that were previously found through the paper and online directories. Amazon’s primary competition for labor will likely be the directories and marketing services companies seeking to aggregate services businesses, such as TalkLocal, ReachLocal, as well as individual businesses competing through tools such as BreezeWorks, FreshLime and the recently announced Prompt.ly.

We anticipate intense consolidation by home services companies seeking to find the ideal mix of services and market reach. With the transition to on-demand labor, which we view as a logical and inevitable consequence of network technology, automation and organizational change, existing home services companies will face tremendous margin pressure and a few will certainly die, but none is assured to die from the competition coming from LODE startups. There is ample upside available if the LODE scenario leads to higher incomes for household workers.

The post LODE in 2015: Housekeeping Services Vertical Worth Up to $57B appeared first on BIA/Kelsey - Local Media Watch.

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 all about the money.

Fortunately, lowered barriers is exactly the trend we’re seeing in payments, starting years ago with Paypal and extending to today with things like P2P transactions (Square Cash) and enterprise/ecommerce (Stripe). There’s also payment giants like MasterCard innovating for a LODE-centric world.

We held a webcast last week to discuss where this is all going. Led by BIA/Kelsey analyst Mitch Ratcliffe, the conversation included MasterCard and Flint Mobile. They both had lots to say about payments’ importance at the center of the LODE equation — not just the why, but also the how.

See the full webinar replay embedded below.

______

Flint will be speaking at BIA/Kelsey NOW: Rise of the Local On-Demand Economy next Friday in San Francisco. Register here (Inside tip: Save $100 by using the discount code “MB100″).

The post Payment Systems Will Be the Backbone of the On-Demand Economy (Video) appeared first on BIA/Kelsey - Local Media Watch.

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 add the ability to book an Uber ride.

When Foursquare members search for a location, Button’s tool passes location and contextual information, such as the name of a restaurant in addition to the address, to Uber. The data is used to generate a location- and customer-specific Uber car ordering button which is placed in the user’s Foursquare interface. It simplifies the user experience substantially and, BIA/Kelsey believes, represents how previously isolated applications on a mobile device can be combined to create new marketing opportunities. Uber, for example, will be providing Foursquare customers a special code for a discount on their ride. Although terms were not disclosed, the Button tool also provides Foursquare an opportunity to monetize its searches for transportation-related services.

“Within mobile, consumers are largely intolerant of ads and other elements that detract from a consumer’s journey,” Button co-founder and CEO Michael Jaconi told us. “You’re seeing an emergence [of] ‘buttons’ from all the titans of industry — seeking to match intent with its fulfillment — and many of these use cases must happen across app borders. That simplicity, that design, and the value that these app connections create is what we’ve set out build at Button.”

Mobile apps are typically “sandboxed” within the mobile operating system, preventing them from sharing any data with other apps. This adds complexity to the customer’s simplest tasks when moving between app screens. For example, iOS assigns completely separate protocols to each app running on an iPhone and all communication to and from the app must be routed through the app protocol. Button essentially scripts exchanges of data between apps, using either the local device’s internal connections or acting as an Internet intermediary between the device and multiple services to deliver integration in the user interface.

“Using Button simplified the process of integrating Uber into Foursquare. With a few lines of code we were able to create a seamless experience when requesting an Uber built directly into our app, saving us time and effort,” said Foursquare SVP of product management Noah Weiss in a release.

______

Button cofounder Chris Maddern will be speaking at BIA/Kelsey NOW: Rise of the Local On-Demand Economy next week in San Francisco. Join us and save $100 by using the discount code “MR100″ when registering.

The post Button Integrates Uber Into Third-party Apps appeared first on BIA/Kelsey - Local Media Watch.

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, 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.

The long process of recognizing the value of work that contributes to the whole economy has ignored the unpaid work performed in the home by household members, particularly mothers. During the child-raising years, women doing unpaid household work an average of 32.4 hours each week on food preparation, cleaning, laundry, household management, shopping and more than 10 hours caring directly for children or adults. Men, by contrast, average 17 hours of unpaid household work each week, 60 percent of which involves food preparation and lawn care. Many of the questions about the future of work in the face of automation and robotic replacements for human labor will revolve around how to recognize the value of human engagement. Suggestions about a “guaranteed income,” recently floated by author Martin Ford in Rise of the Robots, among others, reflect how contributions to raising productive and engaged citizens will become compensated in the future.

Our research suggests that creating markets can, if they provide genuine incentives for doing great work, catalyze organized work in a variety of niche markets that previously existed in the dark economy, the work and exchanges that are not currently accounted for in a corporate profit and loss statement. Making “1099 labor” a cost within an on-demand company’s books blesses and confirms its value in the market.

Building from the Census’ American Time Use Survey, which describes in detail the activities that Americans do to support their home’s daily needs, BIA/Kelsey estimated the total number of hours of work currently performed without pay in the following categories:

• Food & drink preparation
• Cleaning
• Laundry and sewing
• Household management
• Lawn and garden care
• Maintenance and repair
• Caring for and helping household members (including eldercare)
• Caring for and helping household children
• Grocery shopping
• Travel related to unpaid household work

All these categories contribute to the overall estimated value of the on-demand household market in 2015. In the next posting, we’ll dig into the home cleaning and laundry markets, providing total and addressable market sizes. You’ll be surprised how many billion-dollar companies could be supported, if on-demand labor is given its chance at prosperity, too.

We estimate that 18 percent of the U.S. population can conveniently access local on-demand services today, mostly in the central cores of major metropolitan areas. Based on an April 2015 report by PricewaterhouseCoopers, “The Sharing Economy,” which found that 19 percent of internet users have tried an on-demand service — which we believe overstates the share of the population that can access these services because poor and unemployed people endure much lower connectivity rates — we have high confidence that our 18 percent addressable market estimate is sound.

Additionally, we adjusted the resulting hours of addressable on-demand labor by subtracting the U6 unemployment rate, which includes underemployed and frustrated workers who are highly unlikely to purchase on-demand services, to arrive at the most conservative estimate of LODE hours worked and revenue. Interestingly, when unemployment exceeds 12 percent or wages fall below the exchange threshold at which a worker can trade one form of labor for another form of service, our model produces negative results.

Building on this model, we’ll be delivering the first of our Local On-Demand Economy Insight papers, detailing each of the categories of unpaid work that could be displaced by LODE, as well as sizing existing industries that are threatened by the on-demand approach, shortly after BIA/Kelsey NOW. Join us at the show.

The post LODE in 2015: An $18.5 Billion U.S.Market appeared first on BIA/Kelsey - Local Media Watch.

High unemployment has created a steady supply of service providers to fill the ranks of LODE’s workforce. Millennials in addition to being avid consumers of LODE services, also possess work habits that are conducive to the flexibility that LODE service providers enjoy. These factors will further accelerate as LODE services move up market to higher-end professions, such as professional, creative and technical fields… 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.

Specifically, Meeker presented data showing that Millennials now constitute 44 percent of the on-demand (“1099 economy) workforce. This was just one part of her robust presentation (see all 197 slides here).

This has a great deal to do with the attributes millennials seek in a shifting definition of “work.” They value flexibility greater than salary, and many of them see themselves in jobs that have the flexible hours that are characteristic of LODE employment (i.e. Uber driver).

This means a few different things, all of which are supportive of continued LODE growth. Given that Millennials are increasingly taking over the ranks of the adult working public, their affinity for LODE jobs is supportive of the ongoing health of the sector’s supply side.

But it’s also supportive of demand. We’ve argued that LODE is tailor made for millennials as consumers. Bringing it all together, Millennials’ escalating presence on both supply and demand sides of the LODE equation indicates a growing and balanced marketplace.

_______

This post, along with ongoing LODE coverage, builds up to BIA/Kelsey NOW, a one-day conference taking place June 12 in San Francisco. We hope to see you there. 

The post Mary Meeker: 44 Percent of On-Demand Workers are Millennials appeared first on BIA/Kelsey - Local Media Watch.

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.

This all results from a more direct linking of buyer and seller — and the systems in place to achieve that marketplace transparency in a more compressed way. With Uber, for example, instead of searching, viewing listings, reviews, calling… you simply press a button and a car shows up.

So the key to many LODE apps we’re seeing is to match buyer and seller more quickly and reliably than local search. That involves lots of performance and location tracking. Beyond technology chops, it’s all about building balanced two-sided marketplaces, and network effect.

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.

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.”

The post Local On-Demand Economy: Flipping Local Search as We Know It appeared first on BIA/Kelsey - Local Media Watch.

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.

So as mobile payments at the retail POS take longer to materialize, in-app LODE implementations are a path of lesser resistance. Apple Pay, for example, is a nice fit with LODE; its value driven by ease of use (TouchID), widespread compatibility (iTunes), and most of all, trust.

In that sense, Apple Pay’s biggest value to LODE is as an authentication layer. As usage grows and LODE apps become more fragmented, that authentication layer’s need grows with it. It will solve a real pain point in having a single, secure and trusted payment engine for several apps.

APIs
Though most of this report has examined LODE in the context of startups that launch standalone apps, a considerable part of ecosystem will involve APIs. This follows longstanding trend throughout the tech world to make app features and functionality more portable to other apps.

An API strategy — in general and as it applies to LODE — allows developers to get more distribution than they would from their app alone. App publisher partners conversely benefit from added functionality without the investment to build it. A revenue share is exchanged in return.

The way this will play out specifically within the LODE ecosystem is that we will soon see features to “hail an Uber” within several apps of related or complementary functionality. We already see this with a handful of Uber partners such as United Airlines, Hyatt and Starbucks.

API integration even happens in quirky ways such as the “Breathometer” app that lets imbibers beyond a certain blood-alcohol level summon an Uber within the app. They can also book a nearby hotel room, using the functionality from the HotelTonight API (Fellow LODE app).

We’ll see a great deal more of this API distribution, which will be a fundamental driver of the sector’s growth. It will also be a way to make the development and distribution of LODE apps — with already lowered barriers as examined above — easier to monetize.

The post Local On-Demand Economy: What’s Next? appeared first on BIA/Kelsey - Local Media Watch.

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.

So as mobile payments at the retail POS take longer to materialize, in-app LODE implementations are a path of lesser resistance. Apple Pay, for example, is a nice fit with LODE; its value driven by ease of use (TouchID), widespread compatibility (iTunes), and most of all, trust.

In that sense, Apple Pay’s biggest value to LODE is as an authentication layer. As usage grows and LODE apps become more fragmented, that authentication layer’s need grows with it. It will solve a real pain point in having a single, secure and trusted payment engine for several apps.

APIs
Though most of this report has examined LODE in the context of startups that launch standalone apps, a considerable part of ecosystem will involve APIs. This follows longstanding trend throughout the tech world to make app features and functionality more portable to other apps.

An API strategy — in general and as it applies to LODE — allows developers to get more distribution than they would from their app alone. App publisher partners conversely benefit from added functionality without the investment to build it. A revenue share is exchanged in return.

The way this will play out specifically within the LODE ecosystem is that we will soon see features to “hail an Uber” within several apps of related or complementary functionality. We already see this with a handful of Uber partners such as United Airlines, Hyatt and Starbucks.

API integration even happens in quirky ways such as the “Breathometer” app that lets imbibers beyond a certain blood-alcohol level summon an Uber within the app. They can also book a nearby hotel room, using the functionality from the HotelTonight API (Fellow LODE app).

We’ll see a great deal more of this API distribution, which will be a fundamental driver of the sector’s growth. It will also be a way to make the development and distribution of LODE apps — with already lowered barriers as examined above — easier to monetize.

The post Local On-Demand Economy: What's Next? appeared first on BIA/Kelsey - Local Media Watch.

The Local On-Demand Economy (LODE) is dominating tech headlines and VC funding, not to mention our own coverage. But what does it mean for existing local media companies and to BIA/Kelsey’s decades-long sphere of local influence?

It’s a key question considering that LODE could displace local marketing to some degree. But we see it as more opportunity than threat. As we’ve examined, LODE’s lowered barriers for SMBs and “micro-entrepreneurs” makes its addressable market considerably larger than the existing local ad market.

Is it therefore a greenfield area? And if so, are existing local media companies better positioned than LODE startups and pure-plays to capture it? So far the latter are winning, but the play for local media companies will be to bundle LODE offerings to diversify and find new sources of SMB spend.

Following a roundtable discussion on this financial outlook last week (video embedded after the jump), a related excerpt from our LODE white paper is below.

LODE: What Does it Mean for Local Media?

— Companies currently selling media or advertising to small businesses should gain an advanced knowledge of LODE — both its fundamentals and ongoing evolution.

— Best practices, current and evolving, will develop quickly and require a keen eye to learn winning strategies. This education by immersion is the first step towards devising and deploying LODE products.

— Given the possibility discussed in this report that LODE services could displace marketing in some situations, an early lead for local media companies could offset any potential losses to core products caused by new LODE entrants.

— If LODE is indeed a threat, media companies who embrace it can own their destiny, versus those who ignore it and are forced to realize too late that it is causing attrition to core revenue streams, such as SMB-oriented ad products.

— Similar lessons have been learned by industries facing disruption; and faced with the decision to embrace a new — albeit threatening and potentially cannibalistic — channels.

— Moreover, LODE should be viewed more as opportunity than threat. This can come about by embracing it and uncovering its potential sources of new business growth.

— For example, LODE’s customer acquisition efficiencies make it tenable for service providers who can’t afford traditional marketing. Therefore, its addressable market could exceed local advertising’s current boundaries to a larger SMB universe.

— LODE’s potential for new business growth is coupled with potentially increased average revenue per advertiser (ARPA) among existing SMB advertisers.

— It can also boost retention, given that many LODE services also fulfill SMB operational needs (demand aggregation, scheduling, payment processing, etc.). These have higher switching costs for businesses than advertising and marketing.

— In incorporating LODE into service bundles, local media companies have an advantage over LODE pure plays. This is due to existing sales channels, economies of scale, and compatibility with existing advertising and marketing offerings.

— There is also a one-stop-shop appeal in that SMBs and 1099 operators can save time with a single provider for both marketing and LODE-based customer acquisition tools.

— Early integration of LODE services by traditional media companies can establish familiarity and education. This will be required during LODE’s beginning stages when an early mover advantage can be gained in building knowledge, brand, and network effect.

— Media companies should carefully consider the pros and cons of building versus partnering. The former requires greater investment and reward. The latter, via API integration, can involve little risk and utilizes best or breed functionality in a given area. The cost for this fast-tracked functionality is a revenue share with the API’s owner.

— Based on the speed at which LODE is moving — a component of the speed and nimbleness of app development environments — any LODE strategies and product rollouts will need to happen much faster than is typically done by local media companies. The innovation cycle will be a function of weeks, not months.

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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? Concurrently, Uber is raising another round of cash, reportedly between $1.5 and $2 billion, that will value the company North of $50 billion.

Uber is beginning to build out its defensive position in the market, particularly in opposition to Google’s aspirations to provide local services. Nokia’s HERE maps are included in a variety of vehicles, from Jaguar and Land Rover to Honda and Mitsubishi. Those hundreds of thousands of vehicles are a nice-to-have benefit of owning a map business, however Uber’s defensive move is to own the data, metadata and APIs for accessing maps displayed in its applications for drivers and riders, as well as to support other services that may be tied into Uber. These include delivery services and local on-demand listings tied to an Uber-aware mapping capability, which places Uber at the center of the local delivery market.

Maps are the most natural visualization tool for local services, as mobile phone applications have proven. Mobile overtook desktop search in 2014. Both mobile and web mapping are the design starting points for local search, and Uber wants to control a mapping service that can provide alternatives to Google-groomed results, which may ignore or demote non-Google results.

HERE Maps, however, is not a profitable business. In Q1 2015, HERE reported a EUR 3 million loss despite a 25 percent year-over-year increase in revenue and 29 percent increase in the number of vehicles with embedded HERE map licenses. It’s not clear that Uber is in an advantaged position when negotiating with automakers, who may favor a map provider that does not offer an alternative to personal vehicles. Google or Apple Maps may simply appear to automakers as more benign vehicle mapping licensors. But the fight is also for all the non-driving listings that may be tied to a particular mapping service, too, and it is there that Uber’s independence from Google may be a selling point for on-demand providers seeking to leverage mapping advantages over Google-listed services.

But ultimately, service providers will write applications that talk to all mapping services, so the HERE business, if acquired by Uber, could become a permanent loss-leader offered to the on-demand market in order to keep Uber driving and delivery services at the forefront of location-based search results.

While the new Uber fund-raising would cover the cost of acquiring HERE Maps, the business once acquired will become a capital-intensive operation within Uber. As Nokia points out, the maps are living documents being updated millions of times a day. This requires coders to build and enhance, people to own and operate the product, and compute capacity. It does not fit cleanly into the Uber model, in which on-demand workers fulfill demand and are off-the-books when not producing revenue. HERE Maps will represent a constant cost center as well as a revenue center that is not Uber-centric (because of the licensing and services revenue HERE Maps represent going forward), consequently, the business will put pressure on Uber’s margins.

The acquisition, if Uber wins the bidding for HERE Maps, represents a new phase in Uber’s development, and a step toward a more ordinary software-as-a-service model that also provides a pivot opportunity to move to an on-demand market services model. Perhaps Uber has decided vehicles were just one of the many commodities they can deliver on-demand.

Join us at BIA/Kelsey NOW: Rise of the Local On-Demand Economy to discuss this and many more LODE strategies.

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