Report: Marketplace for On-Demand Apps Set to Grow | Street Fight

Report: Marketplace for On-Demand Apps Set to Grow

Report: Marketplace for On-Demand Apps Set to Grow

man uses his mobile phone

Local on-demand services are all the rage right now, as a new class of startups, inspired by Uber, race to connect consumers to what they want, precisely when they want it. And so it’s not surprising that there is already an organization called The On-Demand Economy that is dedicated to charting the industry’s progress.

The group, which was founded as an offshoot of deep-linking startup Button, last week released the results of its 2015 Mobile Consumer Survey, which asked 1,348 mobile users in seven major metropolitan areas about their smartphone behaviors.

The report reached the perhaps unsurprising conclusion that there is a “massive” market opportunity for on-demand mobile apps. With online penetration rates as low as 5 percent for already-successful apps like Uber, and 54 percent of smartphone owners still not having made a purchase through mobile apps, it found that the nascent marketplace has a great deal of room to grow.

Tanner Hackett, co-founder of The On-Demand Economy, maintained that the fact that 54 percent of consumers haven’t made purchases through a mobile app is a testament to both the high adoption rate of on-demand apps and their potential to flourish. In just over five years, apps’ efficiency has skyrocketed and millions of consumers have developed habits of buying on their interfaces, Hackett said, adding that future engineering innovation and consumer acclimation to the mobile platform will precipitate greater and greater success.

In fact, the market potential of mobile apps lies not only in the millions of consumers they have yet to reach, but also in the very nature of the markets they are changing. Hackett pointed to a 1.1 trillion dollar market size for Uber as an example, saying the app has prompted a “total reclassification of the automotive industry” that could lead to fewer people buying cars and more business for on-demand transportation services.

The report’s implications for the local economy are clear. Several of the verticals in which consumers most often make mobile purchases — such as food delivery, ground transportation, and grocery delivery — are fundamentally local. The report found that 56 percent of those who have made mobile purchases have done so in food delivery, compared to 52 percent for ground transportation and only 23 for grocery delivery.

“The really unique property about mobile is that it’s with you all the time,” said Hackett. So massive adoption rates have materialized in verticals “where there’s the most utility” on a daily basis. Transportation and food delivery thus stand to gain a great deal from the rise of mobile, and as the report’s figures reflect, much of the market remains to be conquered.

Local and mobile also intersect to create market opportunity because mobile devices provide data on consumers’ location, purchase behavior, and social behavior — information that can be “leveraged — specifically in retail — to help guide a consumer to the product they really want based on what their friends like and what they’re near,” Hackett said.

Retail proved to be the most popular vertical for consumers who had purchased something on a mobile app, drawing transactions from 79 percent of survey respondents.

The report also touched on future business dynamics in the industry. For one, the report notes that “consolidation will accelerate as competition grows.” In other words, as more companies emerge in a given vertical and attempt to do what is essentially the same service — deliver food from restaurants to homes in the most efficient way possible or transport consumers from point A to point B in record time — dominant players will emerge in a given market, and other companies providing the same service will need to find a “specific target market,” fail, or merge with larger competitors.

Still, Hackett said opportunities for startups in the on-demand economy abound. In addition, not all corporate partnerships or acquisitions are bad for the smaller company. While the report notes that “legacy providers will attempt to ‘partner with’ or ‘acquire’ more innovative on-demand companies” in coming years, this may signal more innovative strategies for consumers.

Button, which Hackett co-founded, organizes such productive partnerships, most notably engineering an agreement between Foursquare and Uber. If Foursquare users find a place they want to go but lack a car to get there, they can now utilize Button’s deep linking mechanism to request an Uber from within the Foursquare app. In other words, a process that would once have taken a number of steps including navigation back to the homescreen can be settled in a click of one or two buttons. Hackett said the relationship between Starbucks and Postmates also exemplifies this trend, as Starbucks has leveraged the Postmates API to have its products delivered to consumers who cannot wait in line in stores.

The possibilities inherent in these partnerships are numerous as mobile apps proliferate and more and more Fortune 500 companies start to recognize the opportunities those apps present, Hackett said.

Joe Zappa is an intern at Street Fight.

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