Demanding from On-Demand
This article was a writing submission from Enrique Miguel Bautista for the 2018 International Conference’s writing competition; it received 2nd place and was published in Business Today’s 50th Anniversary Magazine.
“Quick and easy delivery” is the tagline of the so called On-Demand economy. However, with the speed with which these start-ups deliver their service, failure might inevitably be the outcome. Companies such as Peppertap, Happy Home Company and Take Eat Easy, all lasted at most five years in operations. But who could blame them for trying to make it work in this industry? Nobody can resist the temptation to partake in a market that spans 22.4 million consumers and has the potential to generate revenue of up to $57.6 billion annually.
Defined as the business model of the future, the On-Demand economy was founded on technology companies’ promises to swiftly deliver goods and services. This is done through applications, which are easily accessible on smart devices. Through this platform, customers with multiple needs are easily connected to people willing to provide services. Capitalizing on this structure, Uber and AirBnb have built empires without even owning the most crucial part of their business: cars and houses. With success stories like these, what caused some other startups to tank?
The primary flaw is inaccurate pricing. One wrong pricing move spells the difference between gaining a considerable market share or going out of business. In a market such as the On-Demand economy, which constitutes approximately 280 companies in 16 industries, prices must be competitive to stay valid. While pricing too high obviously reduces demand for a product, pegging a price below market value bankrupts players and drives them out of the game. For example, Thumbplay, a subscription-based content service, sustained low prices, and are now losing more money than they can earn. In the On-Demand economy, companies have a greater need than ever to establish long-term price models. It becomes imperative that start-ups consider trade-off between price and volume for optimal returns and test customer perceptions and price sensitivity.
To further complicate pricing, in certain markets where demand may follow a certain trend or cyclicality, companies must study the increase or decrease in prices with respect to demand changes. For example, Uber uses the method of surge pricing, where prices in a particular zone are temporarily raised above the regular price in reaction to a forecasted increase in demand. Thus, during rush hour, your Uber will probably cost more than the average fare
Another obvious cause of problems is the lack of quality management. Though price may seem to be the main determinant for a customer’s preference for given markets, quality is what saves an empire from an impending foreclosure. The customer experience begins with the app that he or she interacts with. People would prefer an app that is visually appealing and easy to use. Consequently, updating and improving a memorable, easy to use and interactive interface is the next hurdle to jump.
It is the company’s responsibility to follow up on app quality with swift and reliable service. Homejoy, an on-demand home-cleaning service, failed to do so, and was shut down due to lawsuits against independent contractors from customers who were unhappy with the cleaning services provided. The best way to maintain quality in the fast-paced On-Demand economy is to offer yearly training modules or workshops to workers. Alternatively, to cut costs, companies can create a rating system for each worker, giving them an incentive to improve the quality of their work. Most successful On-Demand companies, including Uber and Airbnb, use rating systems such as these.
But possibly the most pressing problem that must be addressed is the issue of informal employment in the On-Demand Economy. As a new type of employee, On-Demand workers are not yet properly defined in laws and regulations. They are considered self-employed, and thus do not qualify for benefits such as health care, pensions, and social protection. Furthermore, they have to contend with little job security and no way to request higher pay. In extension, taxes do not apply to On-Demand companies, on grounds that they are merely a platform. However, more aggressive political bodies like the EU ruled that that Uber was a transportation business, not merely a digital platform, and therefore subject to licensing and other regulations that apply to taxi companies.
Looking forward, with the rapid growth of the On-Demand economy, which might constitute 540 million workers in 2025, there is a need for the world and government leaders to legislate strict implementation of wages, health benefits, and retirement plans to all workers. The concept of universal minimum wage and universal pension must be studied further with respect to different income brackets and employment statuses.
The On-Demand Economy may be flexible, innovative, and in many ways a model for the future, but a great number of factors demand serious consideration. Defining the many aspects of this industry and applying them to real life situations is anything but quick and easy. It is imperative that we put emphasis on the indomitable dignity of man on this new platform that many wish to tread on. Having at our disposal an abundant faculty of knowledge and awe-inspiring machines to uplift the environment, will the fear of failure stop us from pursuing this path, or will the spirit of grit and innovation usher in a new era?
Enrique Miguel Bautista is an Economics major in his country’s premier state university. He has interned with the Philippine Competition Commission. As a member of the University of the Philippines Economics Society, he is constantly part of organizing various events such as the National Economic Summit and National Youth Congress in the Philippines.