5 Business Models for On-Demand Delivery
This post is the latest in our “Driving Local” series. It’s our editorial focus for the month of August, including topics like autonomous vehicles and the car as the ultimate “local” mobile device. See the rest of the series here.
Business is booming in the on-demand economy. Name a product or a service, and there’s a good chance there’s an app that will deliver it to your doorstep.
In the on-demand food delivery vertical alone, revenue is expected to reach $94 billion this year. Other verticals, like beauty, parking, health, shipping, and marijuana, are seeing significant gains as well. Although the space is maturing, investors are still seeing great growth opportunities. Any number of on-demand delivery startups has the potential to take over the space if it continues to grow as its current pace.
To understand where that growth might occur, we need to take a step back and examine which business models are proving most successful in the on-demand delivery space and how startups are implementing those business models for financial gain.
5 Business Models for On-Demand Delivery
1. Peer-to-Peer Model
Peer-to-peer delivery is the most straightforward business model, however this model can be difficult to efficiently monetize. In a peer-to-peer model, the person doing the delivery exchanges products or services directly with the customer. Think about eBay or BlaBla Car, a carpooling app that’s popular in Europe. In both of these cases, the platform connects two users. The actual handling of the task or the delivery is left up to the people involved in the transaction. When startups adopt the peer-to-peer model, they lose some control over how drivers complete their tasks. In a peer-to-peer model, on-demand startups usually generate revenue by charging their “sellers” (drivers or delivery people) a percentage of each transaction, along with a fee for using the platform.
2. Business-to-Consumer Model
One popular business model in the on-demand delivery space is the business-to-consumer model, or B2C. Although upstarts like Instacart and Door Dash generate plenty of publicity, it’s actually the B2C apps that are generating the bulk of on-demand revenue right now. A classic example of a company using the B2C model is Starbucks. In the Starbucks mobile app, customers can order ahead and skip the line, they can pay for their in-person orders, and they can have their coffee orders delivered to their homes or offices by an on-demand delivery driver. Starbucks has partnered with Uber Eats for its delivery services, but Uber Eats operates under a slightly different model, which we’ll get more into later in this article.
3. Three-Sided Marketplace Model
On-demand delivery services like Uber Eats operate on a three-sided business model. Many customers come to Uber Eats via business-to-consumer apps, like the Starbucks app or the McDonalds app. In these cases, the on-demand delivery service connects the driver, the restaurant, and the customer with its technology platform. Revenue comes from restaurants, which usually pay a commission on the orders, and customers, who are often required to pay a small delivery charge or cancellation fee when they use the service.
4. Subscription Model
A growing number of on-demand delivery services are adopting a subscription model to boost revenue growth. With the subscription model, on-demand delivery companies will offer to make an unlimited number of deliveries for a fixed monthly price. Whether this model is effective for long-term growth depends on how frequently subscribers are using the service once they sign up for unlimited deliveries, as well as the number of customers who are willing to subscribe. The on-demand delivery services Instacart and Postmates are both great examples of companies using the subscription model. Instacart and Postmates now offer unlimited grocery delivery for a set monthly fee.
5. Business-to-Business Model
Business-to-business companies cater to businesses rather than individuals. In the on-demand space, we’re talking about apps like Cargomatic (on-demand access to trucks and shippers), Spiffy (on-demand car washes for employees in office buildings), and ezCater (on-demand catering for offices). Unlike business-to-consumer startups, business-to-business startups sell in bulk, so they don’t need the same volume of customers to remain profitable. That means they can generate revenue faster, and they’re often better positioned to scale quickly.
Stephanie Miles is a senior editor at Street Fight.