On-demand: the new model economy

The on-demand economy is now transforming companies and the job market - and disrupting traditional players across multiple sectors

The term on-demand economy – popularised by the meteoric rise of young Silicon Valley tech companies spearheaded by Uber and Airbnb – refers to the trend towards businesses using the new information and communication technologies to provide goods and services to customers at the drop of a hat. This term is now on everyone’s lips and this area of the economy has been posting dazzling growth. Barely seven years since it was set up, Uber is valued at over $60 billion. Some 42% of the total adult population in the United States has already used the services of at least one on-demand startup, and it seems unlikely that this trend will be reversed.

In addition to the best-known services, which enable you to summon a car plus driver, order a meal or get in touch fast with a doctor or a lawyer, the on-demand economy, aka the access economy, today seems able to meet the consumer’s every wish, including the most outlandish whims. Booster provides a mobile on-demand fuel service to fill your car tank whenever you wish; Techy will despatch a computer specialist to repair your laptop; FriendsTonight arranges company for its users on any kind of outing – cinema, early evening drinks, nightclubs, etc; Pamper will send a manicurist to do your nails; Soothe will arrange a home visit by a masseur; Trumaker will come over to measure you for a tailor-made shirt; Washio picks up and delivers laundry and dry cleaning; and Wag! will (what else?) walk your dog for you. Not forgetting of course Scooterino Amen, a service designed for Rome residents who feel a sudden urge to be absolved of their sins: a priest will speed over on a scooter to hear their confession.

In ‘Gorgias’, one of Plato’s best-known Socratic dialogues, Socrates opposes the hedonistic view of existence put forward by the Cyrenian sophist Callicles, who insists that leading a good life means satisfying all one’s desires, not repressing one’s passions but on the contrary making strenuous efforts to fulfil them as quickly as possible. Socrates argues that Callicles’ ideal seems to be a shore plover’s life, the example being that of a bird which excretes as fast as it eats. Socrates took the applause in this 4th century BC verbal joust, but modern consumerism seems to be lining up on the side of Callicles, as the economy moves ever further towards instantly satisfying our every whim.

Whither capitalism?

The advent of the on-demand economy is evidence of a sociological revolution, marking our entry into a new phase of capitalism. At the beginning of the 20th century, the introduction of fast-moving assembly lines enabled Henry Ford to mass-produce his Model T at relatively low cost, heralding the start of widespread car ownership. Similarly today, the on-demand economy enables the general public to access services which in the past were the exclusive privilege of the well-off.
This revolution has been made possible by the combination of several phenomena. First and foremost the boom in new technologies, starting with powerful laptop computers available at an affordable price, which allow people to carry out a wide range of tasks from home on their own. Widespread use of smartphones enables the workforce to be independent, mobile and responsive. Meanwhile, more complex tasks, such as programming and drawing up legal documents, can be subcontracted to professionals working remotely via the Internet.

In short, the new technologies are making customer-supplier relationships less rigid.  More flexible providers are taking business away from large hierarchical firms with costly bricks-and-mortar premises and a permanent workforce. The new model is for a small team of decision-makers, who sometimes do not even have an office, to manage the business, while a constantly varying group of sub-contractors work flexible hours to suit customer demand.

The lingering economic crisis has also helped to boost the surge in the on-demand economy, as a young, flexible and tech-savvy workforce, unable to find permanent employment, becomes available for on-demand work. According to ‘Freelancing In America: 2015′, an independent study commissioned by US non-profit organisation Freelancers Union  and freelancers’ online platform Upwork, 34% of working people in the US have done freelance work in the past year. Last but not least, the on-demand economy stems from a change in the balance of power within society: the world is increasingly being divided between people who have money but no time and people who have time but no money. The on-demand economy provides a way for these two groups to trade with each other. People with time supply services to those who do not have the time to, for example, run their own errands, in return for remuneration.

Time is money

This new capitalist paradigm looks set to bring about profound changes within society, for both companies and individuals. As with all radical change, it has its advantages and disadvantages. The debates over these are now becoming sharper, as illustrated by the growing number of court cases and demonstrations against Uber and the (abortive) attempt to put in place measures limiting the expansion of Airbnb in San Francisco. Critics of the on-demand economy see in it elements of social regression, risking a return to the unfettered, free-for-all capitalism of the 19th century, when long queues of workers waited every morning in the hope of being offered a day’s work.

By contrast, the proponents of the new model highlight the advantages of people being able to work flexibly, when and where they wish to, while at the same time consumers can avail themselves of a wide range of on-demand services at affordable prices. Those who support the on-demand economy also claim that it promotes better overall allocation of society’s resources. Airbnb for instance enables people to let out to tourists rooms in their houses that would otherwise stay empty, while Uber enables several passengers to share the same vehicle.

However, while the benefits to consumers of this new type of economy seem undisputable, the advantages for those doing the work are rather less clear. Workers who place a higher value on flexibility than job security – including students who wish to earn some money in their spare time, people who are allergic to rigid office hours, young parents who want to spend quality time with their children but are available to work part time, and older people approaching retirement age who would prefer to work fewer hours – will tend to praise the new model. Meanwhile, those who favour job security over flexibility, such as parents with a mortgage and their children’s studies to pay for, risk losing out. 

So it will be up to governments to adapt their regulatory and social security systems to bring them into line with modern needs associated with the boom in the on-demand economy. The US model, where health cover is generally paid for by employers, may need serious reform if workers are to continue to enjoy the protections afforded by modern states.

Adapt or perish

The on-demand economy is now leading to a reshuffling of the cards in many markets. Companies offering on-demand services tend to launch on to already existing markets, where they compete fiercely with the incumbents, the most obvious example being Uber competing with the traditional taxi firms. At the same time, the heavyweights of the on-demand economy, which tend to enjoy a high public profile, a strong capital base and state-of-the-art technology, have proved adept at swallowing up sectors outside their initial core business.

Here again, Uber provides a compelling example. Quickly realising that although its drivers were very busy in the morning and evening, business was relatively quiet during the middle of the day, the company launched complementary services to try to cash in on the slacker periods: first a food delivery service, UberEat, then a straightforward fast delivery service, UberRush. Thus Uber has gradually morphed from being a leading-edge technology-based taxi service to an across-the-board general car service platform with a flexible workforce available to meet a broad range of customer needs.

So, in addition to taxi firms, food delivery startups such as US-based Caviar and Munchery and traditional parcel delivery services players including FedEx and UPS are also coming into the line of fire. Uber’s fast-growing reputation and its proven software infrastructure enable the firm to compete with incumbents in areas that were not originally part of its core business. These traditional firms are now being forced to respond by ‘uberising’ – or at least by adapting their services in line with the new requirements of the on-demand economy. UPS’s venture-capital arm has just led a $28 million investment round for California-based same-day delivery startup Deliv. Fast food chain Taco Bell has set up its own food delivery service, and taxis are starting to fight back by using smartphone apps along similar lines to Uber. Little by little, those threatened with destruction by the on-demand economy are being won over by its evangelical message.