The On Demand Economy Is Growing, But Not Just For the Young and Wealthy

This can continue as long as the service to costs ratios are managed. The longer term question is whether, like the Walmart effect, the low pay and brutal hours create a demographic ceiling above which the industry cannot grow for want of customers able to afford the service. JL

Charles Colby and Kelly Bell report in Harvard Business Review:

Almost half (49%) of on-demand consumers are millennials (age 18-34), but 30% are between 35 and 54, and 22% are age 55 or older. However, the majority of on-demand consumers are still white (63%), followed by African American (17%), Asian (12%), and Hispanic (9%) consumers.
The on-demand economy is large, and getting larger. Economic activities centered around online platforms, where independent sellers can offer goods or services to customers, are attracting significant consumer attention and spending, according to new data from the National Technology Readiness Survey* (NTRS), which has tracked technology behaviors and beliefs in the U.S. since 1999. The most recent study, conducted in October 2015, surveyed 933 U.S. adults sampled at random from a consumer research panel.
To estimate on-demand spending, respondents were queried about whether they purchased on-demand products and services in a monthly period, the categories of the purchases, and the amount spent. Results were projected to the U.S. adult population (18 years and older) with internet access in the home, based on data from the U.S. Census Bureau’s American Community Survey. The on-demand economy is attracting more than 22.4 million consumers annually and $57.6 billion in spending. The largest category of on-demand spending is online marketplaces (e.g. Ebay, Etsy), with 16.3 million consumers each month spending almost $36 billion annually. Transportation (e.g. Uber, Lyft) comes in second with 7.3 million monthly consumers and $5.6 billion in annual spending, followed by food/grocery delivery (e.g. Instacart) at 5.5 million monthly consumers and $4.6 billion annual spending. Other on-demand services including home services (e.g. TaskRabbit), freelancer services (e.g. Elance), and health and beauty services (e.g. StyleSeat) account for $8.1 billion in spending each year, and all other on-demand activity comes in at $3.8 billion.

What’s more, the on-demand economy is beginning to attract a diverse group of consumers. The NTRS data shows that while men are still the most prevalent consumers of the on-demand economy (55%), 45% are women. Unsurprisingly, almost half (49%) of on-demand consumers are millennials (age 18-34), but 30% are between 35 and 54, and 22% are age 55 or older. However, the majority of on-demand consumers are still white (63%), followed by African American (17%), Asian (12%), and Hispanic (9%) consumers.

The data shows that the on-demand economy isn’t just for the wealthy, though; 46% of on-demand consumers have an annual household income of less than $50,000, and only 22% have an annual household income of $100,000 or more. It’s also reaching a diverse geographic spread in the U.S., with 39% of on-demand consumers living in rural areas or small towns, 30% in outer suburbs, and 31% in close-in suburbs and cities.
NTRS also groups consumers into segments based on their technology readiness. “Explorers” are the most innovative and optimistic about technology and are early adopters; they make up 41% of on-demand consumers. “Pioneers” have a love/hate relationship with technology and make up 29% of on-demand consumers “Hesitators” are optimistic about technology but are a little uncomfortable and scared; they represent 16% of on-demand consumers. “Skeptics” lack passion about technology and make up 11% of on-demand consumers. “Avoiders” are true laggards who see no benefit to technology; they – not surprisingly – make up just 4% of on-demand economy consumers, which is much lower than the 18% incidence of “Avoiders” found the in the U.S. Population at large.

We can tell by contrasting the incidence of on-demand consumers in each segment with the incidence in which these segments occur in the overall U.S. population that on-demand services tend to be innovative and are still in their early stages of adoption — and therefore have plenty of growth potential.
To illustrate, on-demand consumers are nearly twice as likely to be highly innovative “Explorers” compared to consumers in the population at large (41% compared to 24%). At the same time, the on-demand economy is meeting the needs of segments with inherent discomfort and insecurity with technology services, implying the platforms are doing a good job making their services more accessible and avoiding pitfalls that traditionally slow the growth of other innovative products and services. For instance, the on-demand market claims more than its fair share of “Pioneers” – 29% compared to 23% in the general population – even though this segment requires a degree of assurance and ease-of-use before they will embrace a service innovation. Similarly, the on-demand market includes nearly the same incidence of “Hesitators” as in the general population, which can only occur if the platforms are accessible. There is a segment of consumers – the technology “Skeptics” – who may adopt in the future, but not until the benefits of these apps are more clearly understood. This segment is underrepresented in the on-demand economy, but experience with other innovative technologies shows that these consumers will come along as the benefits of on-demand platforms become better known.
The size and rapid growth of the on-demand economy clearly shows that consumers are attracted by the user experience, added convenience and other benefits it provides. The NTRS data also shows on-demand services have already moved beyond early adopters and are gaining traction among mainstream consumers who require that platforms be user-friendly and safe.
The on-demand economy is rapidly expanding across the global economy. According to Crowd Companies, a firm that tracks on-demand platform businesses, more than 280 companies provide on-demand goods and services across 16 industries today. This is up from only 76 companies operating in just 6 industries 2 years ago.
Tech startups like Uber and Airbnb comprise the majority of on-demand firms. But major corporations are starting to enter on-demand markets. GM’s investment and partnership with Lyft, and hotel giant Accor’s recent acquisition of Airbnb competitor Onefinestay are recent examples.
These firms recognize that the on-demand economy is becoming too big an opportunity to miss. They also see that it’s too risky to ignore. Like all major disruptions, on-demand economy startups are challenging industry incumbents with new business models and new ways of engaging customers. Existing companies will need to embrace the on-demand economy and transform their service and delivery systems to meet consumer demand, or find themselves disrupted by those who do embrace this shift. This requires incumbents to transform service delivery systems to ensure they are accessible, secure, and mobile-friendly, while leveraging the potential pool of providers who would like to participate in the on-demand economy.