What is the On-Demand Economy?
The On-Demand Economy can be defined as the marketplace created by technology companies that connect people with each other to more immediately position and provide goods and services. In other words, the on-demand economy is composed of people-to-people transactions facilitated by technology companies (aka smartphone apps), in which people order goods or services and other people deliver/provide that good/service. The 'on-demand' portion highlights how quickly this exchange can occur when consumers or those with demand are able to connect directly with suppliers (or agents of supply, eg delivery people who are not actually making food but delivering it).
What companies make up the On-Demand Economy?
The On-Demand Economy is formed by technology companies that allow people to instantly connect with each other to contract the purchase of goods and services. Primary examples include Uber, Airbnb, and food services like OrderUp, Uber Eats, and Postmates.
Uber - Uber connects people in demand for quick, cheap rides/transportation with people who have vehicles willing to supply those rides. The #1 ridesharing app contributes to the On-Demand Economy by allowing people to immediately hire riders for transportation. In doing so, Uber effectively allows consumers to connect with non-transportation industry people -- and allows non-transportation industry people to enter the exchange. This highlights a key feature of the On-Demand Economy -- it allows suppliers who would otherwise have no access to an industry (eg. normal people with cars without taxis/taxi licenses) to enter that industry and create new supply... in Uber's case, they allow non-taxi drivers to enter the industry and generate new supply of rides to drive prices down. In this exchange, riders (eg consumers) benefit from the new suppliers (eg the Uber drivers) through higher quality rides (a Lexus is much nicer than a traditional yellow cab) and cheaper fares.
Airbnb - Airbnb connects people in demand for apartments/temporary lodging with people who have extra rooms or empty apartment/home space for vacation rental. Again, Airbnb connects consumers to a population of suppliers who otherwise would not be in the marketplace... A house is not a hotel obviously, so property owners would traditionally have no access to revenue from renters. With Airbnb, however, these same property owners can make money by renting their space. Property owners benefit from the revenue from renting their unused rooms and houses. Vacationers benefit from having the ability to spend their vacation in a real apartment or home instead of a hotel. Moreover, the cost of these spaces is often cheaper or the same price as a hotel room of comparable location/size.
Food Services - Within the broader category of on-demand food ordering services are several leaders: Uber Eats, Postmates, OrderUp, and others. At their core, these services allow consumers to order food from their favorite local restaurants that normally lack native delivery services. Chipotle, for example, serves delicious food popular on college campuses (a population that is arguably the least mobile in the city from many students not having cars). However, Chipotle doesn't have a delivery service. This is where on-demand food apps step in, allowing drivers to log on to the app and fulfill order requests. In this way, non-delivery person people can pick up your Chipotle order for you and deliver it to you at your dorm for a small fee beyond the cost of the food. In this way, food delivery apps connect a new supply of drivers -- people with other jobs who aren't actually delivery drivers -- to businesses, allowing restaurants like Chipotle to benefit from remote delivery orders without having to cover the cost of their own fleet of drivers. Everyone benefits as part of this transactions -- delivery drivers get supplemental income opportunity using the car they already own after their normal job lets out; restaurants benefit from additional revenue from remote orders; consumers benefit from having order-in access to foods that they'd normally have to buy in person.
What are the implications of these technology apps and the On-Demand Economy?
Chances are, if you are reading this article, you have probably already used one of the apps mentioned in this article, or another service not mentioned. These technologies have become widespread and quite popular by virtue of their simplicity and scalability. In the time a Dominoes Pizza franchise hires and trains a fleet of 5 pizza delivery drivers, Uber Eats could potentially mobilize hundreds of delivery drivers throughout a city.
On-Demand Economy apps have many positive implications for society:
- For one, they allow supplemental income opportunities to people who already have full-time jobs. Many of my Uber drivers have had full-time jobs or were retired but in need of extra income. Uber drivers, renters on Airbnb, delivery drivers for OrderUp, etc. are all considered "independent contractors", so taking on those jobs doesn't impact drivers' standing in their full-time jobs (although the extra income is obviously taxable).
- Also, suppliers get to craft their schedule. Uber drivers can choose to only drive at night or on weekends... suppliers feel empowered through the control they have over when they work to make money. Similarly, Airbnb renters choose exactly when in the year they want their spaces rented. By virtue of this capacity, a renter could feel empowered to rent their space without feeling like they cannot use themselves for the duration of a long, traditional rental agreement.
- Additionally, these technology apps have made more 'things' available for purchase to consumers, more immediately. To this point, before Uber, the only way to get around without owning your own car was public transportation or a taxi (or riding a bike xD)... now, Uber has created a third and highly attractive option. As I have said already, Airbnb makes beautiful apartments and homes available for rent to vacationers all over the world. Food service apps make more food options available from your home or office.
- Finally, these services make these transactions extremely rapid. For example, I was in at the opera a few weeks ago in downtown Nashville with some friends. After the show, we needed to get back to campus. We briefly considered the option of a taxi (2/5 of the group did not have Uber, to which I say WHY WHY WHY WHY.... but we will not dwell on this), however, in addition to the taxi service's exorbitant prices, it would have taken 15 minutes to arrive, while by contrast, and Uber showed up within 5 minutes (and took us back for a cheaper fare).
The On-Demand Economy has also come with negative externalities to society:
- On-Demand tech apps that involve driving (Uber, food service apps, etc), have disrupted cities by generating traffic and parking confusion. I have had several extremely sketchy Uber pickups that I have not particularly minded, but that were probably illegal as far as traffic laws are concerned. Just last night, for example, my Uber driver stopped on a pretty major downtown Nashville street in order to let me get in. Food service app drivers complain of the difficulty of having to park their car (and sometimes even pay for parking!) while completing these apps' "last-mile delivery" models whereby drivers need to physical hand the food to their customers. Such drivers are getting parking tickets and experiencing frustration -- while also generating frustration on the road by their actions. You can't blame the drivers, however, because they are simply trying to complete their delivery/ride routes as quickly as possible to still make money given already low fares.
- Finally, probably the most significant effect of the growing On-Demand sector has been lost jobs through automation of services. Back in the day, there were paid taxi operators to coordinate drivers. Taxis had an administrative process associated with their regulation, operation, etc. Uber strips all of that away. Taxi drivers all over the world have complained about lost jobs and revenues in the face of competition from Uber. Moreover, as a self-driving Uber fleet becomes an ever-increasing possibility, even more jobs will be lost to automation. On to the food industry side, eventually, I don't think it is an exaggeration to say that the "delivery driver" position will become obsolete, as popular restaurants will just partner with on-demand food service apps to avoid paying a dedicated delivery fleet. I am all for increased progress and efficiency, however, we still must consider the impact that the On-Demand Economy is having on people -- both good and bad.
Hope this article has given you some new info on these new, exciting, and controversial technology companies!
Patrizio Murdocca is Chief Web Architect at Drover Rideshare, a student at Vanderbilt University, and President of Interfaced Ministries.