Rise of the Local On-Demand Economy: An Insight Paper Preview
The Local On-Demand Economy seems to be taking over tech headlines, not to mention VC dollars. We’ve been covering this “Uberfication of Local” for the past couple years and more formally in the past few months.
We’ve been calling it On Demand Local Services (ODLS), but with a new white paper to further plant our stake in the ground, we’re extending its boundaries with the term “Local On Demand Economy” (LODE).
Regardless of what it’s called, it will be a key area to watch in the coming months. This goes for anyone working in local media or selling services to SMBs. Like many disruptive areas, LODE is both opportunity and threat.
The area is rich for analysis, including it’s current state, background and where it’s going next. These will be key discussion points in forming strategies around LODE and extending local media’s addressable opportunity.
The report’s executive summary is below and the full version will be published in the next few weeks. We’ll be covering this closely here, in our newsletter, and in other forums.
More to come on all of the above and in the meantime, here’s the summary:
You’ve probably seen it throughout tech news coverage: “Uber for XYZ has launched.” It’s a business model first popularized through hailing a ride somewhere, but is now taking over a wide range of local service verticals — everything from house cleaning to car repair to dog walking.
We’re talking about the local on demand economy (LODE). It is defined as services that are summoned on-demand through mobile apps, then promptly fulfilled offline. For users, it brings immediate needs to their fingertips (literally). For providers, it aggregates demand.
This creates marketplace transparency that brings together buyer and seller more efficiently. Individual service providers are afforded customer acquisition capabilities previously reserved for larger companies. Many LODE apps also handle operations like payments and scheduling.
In micro terms, these lowered overhead costs create favorable unit economics that are passed on to consumers — further fueling demand. In macro terms, the rise of LODE could transform the traditional local service models we’ve known for centuries. It’s the new “1099 economy.”
This happens by flipping the traditional local advertising model that requires marketing in advance. Instead, demand is captured and revealed for service providers to react in real time to a marketplace made transparent. Put another way: marketing is replaced with a commerce engine.
This is a fundamental shift in that local service providers don’t have to make their availability known through various forms of marketing in order to generate demand. Demand comes first as consumers make their need known. Supply (local service providers) then adjusts accordingly.
This creates more efficient customer acquisition — a critical factor for local service providers with small or non-existent budget for upfront marketing. Therefore, the addressable market for LODE services could exceed the boundaries of local advertising, and therefore a growth opportunity.
These and other attributes have caused LODE to be the largest area of VC funding of the past year. According to CB Insights, LODE companies raised $2.6 billion in 2014. This happened at a rate of roughly 20 deals per quarter and a series A average of $7.83 million.
Uber — LODE’s most emblematic startup — is one of the most successful companies of the last decade in terms of revenue growth and valuation. It has alone received $2.7 billion in total funding, is now valued at approximately $40 billion and operates in several countries.
That success has compelled several startups that extend this framework to new verticals and feature sets. Other examples are Lyft for ride sharing; Airbnb for hospitality; Homejoy for house cleaning; TaskRabbit for “odd jobs,” and Urgent.ly for roadside assistance.
Meanwhile, the sector’s growth continues to be fueled by several macro factors. These include technology (smartphone penetration and app innovation); culture (acclimation to app based local discovery); the economy (unemployment rates and provider availability); and generational shifts.
This Insight Paper defines LODE, examines its drivers, spotlights best practices and maps its trajectory. It will characterize the next phase of local commerce.