Competition Runs Rampant in the On-Demand Economy

Business Features On-Demand Economy
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Competition Runs Rampant in the On-Demand Economy

The on-demand economy is a buzzword that is quickly losing its buzziness due to the massive scaling which has taken place over the past few years. What was once a term used to describe apps like Uber now can now be extrapolated to a litany of examples across nearly every industry. One glance at the companies listed on demonstrates the massive growth in this business model that is far more complex than just “Uber for [X].”

ParkWhiz helps you pre-book parking, Boatyard handles the maintenance of your boat, Soothe will deliver a massage artist to your door in an hour, Washo will pick up your laundry, clean it and return it, and DogVacay will connect pet boarders with families willing to babysit while they are away. This is all in addition to the seemingly infinite number of apps which aim to serve the more common on-demand businesses like ride-sharing, food delivery, and reservations for any number of restaurants or events. In short, our economy is slowly being scaled down to fit on our phones.

This growth isn’t limited to young people either, as the stereotype of millennials being voracious sharers and middling owners of products does not completely translate to the on-demand economy—which makes sense considering that a recent study found that parents of children aged eight to 18 found that on average the parents spend roughly eight hours a day looking at screens for their personal use. Another study conducted by the National Technology Readiness Survey found that while 49% of consumers in this industry are between the ages of 18 and 34, 30% were between 35 and 54, while 21% of on-demand consumers were 55 years or older. History has proven time and time again that as technology spreads to a wider swath of people, its benefits become more widespread.

46% of consumers in this $57.6 billion industry make $50,000 or less per year. According to the Social Security Administration, 71% of American workers make less than $50,000 per year, so there is still plenty of room for growth in this budding, yet already massive industry. The largest players are those that are so established, they precede the buzzword “on-demand.” These are companies like eBay or Etsy—as online marketplaces account for the largest segment of this industry—clocking in at $36 billion (62.5%). Second and third on the list are a virtual tie between transportation companies like Uber and Lyft ($5.6 billion—9.7%), and food/grocery delivery services like Postmates and Blue Apron, which account for $5.5 billion (9.5% of the market). While Uber and Lyft have seemingly created a competition for third place with their utter dominance of their segment of the market, the food/grocery delivery segment is wide open, as the established players aren’t very established.

In some locales like New York City, Postmates seems like it has become nearly ubiquitous, but it has raised $271 million out of its total of $278 million in the last three years. They collaborate with a variety of companies ranging from Starbucks to Chipotle to Apple to deliver quite literally anything their drivers can pick up. Instacart is another example of this model, but with a specific focus on same-day grocery delivery, and they have raised $664 million of their $674.8 million in the last three years. Drizzly, aptly based out of one of the drinking capitals of the world in Boston, Massachusetts (as this writer who lived there for nearly a decade can attest), focuses their version of this model on getting alcohol to people’s doorsteps. Their 2015 Series A and 2017 Series B rounds comprise 85.7% of their total venture capital financing.

goPuff is another new player in this space, and they raised $8.25 million from their Series A round in June of 2016. They are an on-demand convenience store that delivers over 3,000 items ranging from snacks, toiletries and even alcohol in some markets. While it is difficult to separate oneself from a seemingly endless sea of apps all promising delivery of similar items, goPuff believes that by focusing on speed and efficiency, they can elevate themselves from the noise, and they have attracted customers who range from college students to Snoop Dogg.

Rafael Ilishayev and Yakir Gola co-founded the company as undergrads at Drexel University in 2013, and were recently named to “Forbes 30 Under 30” in the retail and e-commerce category.

While at Drexel, the two lived together with four other roommates and Yakir—the only one with a car—always found himself running errands and late night runs for his roommates, and thus the concept for the business was born. Paste spoke with goPuff about how they aim to differentiate themselves in this very crowded space and what they see for the future of this market.

This interview has been edited for clarity and length.

Paste: How is goPuff trying to scale its business in this fractured, on-demand market?

goPuff: goPuff is expanding to markets based on customer trends and what markets we feel would be a good fit. Between college students, young professionals and families, we have been able to gain a great following in all the markets we open in because of all of our advantages we have over our competitors.

Paste: What advantages are those?

goPuff: goPuff is different from other delivery services in many ways. We strive to deliver the daily necessities and impulse items that are inconvenient to go out and purchase at a store. Because of this, it is crucial that our delivery speed is top-notch. We deliver in under 30 minutes across all markets, and in certain markets, even achieve average delivery times of 15 minutes or less. Our competitors are not able to compete with this delivery speed and are thus not as convenient. Waiting an hour for ice cream or toilet paper is not ideal for anyone, which is why our model makes us more convenient and reliable than other competitors.

In addition, we are able to keep our prices down by warehousing all of our items in centralized locations in each of our markets. This makes goPuff a true “one-stop shop” compared to other services that pick up goods from a partner business before delivering them. We only charge $1.95 for delivery, and this fee is waived after a purchase of over $49. Our competitors average a $5+ delivery fee with additional variable charges based on volume and time of day. We feel that on-demand delivery should be a convenience, not a luxury that only few can afford.

Paste: How do goPuff’s local warehouses affect the user experience versus competitors who use middlemen to pick up and then deliver goods?

goPuff: Having our own warehouses and keeping our own inventory does a few important things for our customers’ experience. First, we are able to coordinate for faster deliveries by operating out of a central location instead of dispatching couriers and picking up from local stores. We are able to cut delivery times in half by simply cutting out the middle man and bringing the items right from our warehouse to the customer’s door seamlessly. Second, since we are holding our inventory, we do not have to rely on delivery fees to make money and thus can provide our service for a very small cost of just $1.95. Our competitors that operate as couriers make the majority of their revenue from fees and therefore are a lot more expensive. Finally, operating our own warehouses allows us to stay open 24/7 since we do not have to depend on other stores’ hours. This allows us to be there when and where the customer needs us.

Paste: Since founding goPuff, how has the market evolved, and where do you see the future of the on-demand delivery economy going?

goPuff: There is no doubt that the delivery space has gotten more competitive—especially over the past 3 years. It is clear that people are embracing the on-demand market and will continue to depend on delivery to improve everyday life. Moving forward, we feel that the competition will allow customers to be more cost conscious when it comes to using these services and the ones that are able to provide a valuable service at a lower cost will get more customers to order more often, while the more expensive services will have a tough time maintaining customers.

Jacob Weindling is Paste’s business and media editor, as well as a staff writer for politics. Follow him on Twitter at @Jakeweindling.