How the On-Demand Economy Is Reshaping the Travel Experience

by James O'Brien + Skift Team - Aug 2015

Skift Research Take

The on-demand economy is on the rise, but what does on-demand mean, exactly? In this report, a look at the nature of a technology-driven sea change in consumer behavior and the business models emerging to meet it in the travel industry.

Report Overview

Executive summary

The on-demand economy is populated by an emerging set of businesses sharing similar models: Inventory and selection are available to the consumer on an anywhere-anytime basis with the process facilitated by digital devices — from desktops to smartphones. On-demand delivery also occurs in a short timeframe, from less than an hour to no longer than day-of-order.

It is a rising economy, but it is one still faced with the challenge of amplifying consumer awareness — only giant players such as Uber enjoy more than 50% awareness rate among mobile users. But investors are pouring billions into the companies that represent the on-demand model, and the market for on-demand services promises significant returns.

Within the travel industry, airline apps and third-party apps are driving pre-departure on-demand options for passengers. In the airplane cabin, on-demand entertainment is becoming increasingly the norm, and the advent of on-board streaming content is providing on-demand hungry consumers with movies, music, and TV while opening much sought-after bandwidth to other Wi-Fi users.

Hotels are exploring on-demand apps and functionality as a way to bring their guests better experiences. In-room services, food and amenities are available to travelers at a quickening pace, and third parties are giving guests within mobile-savvy, marketing-resistant demographics access to in-the-month local hotel bookings with deep discounts based on proximity and other factors.

Dining out while in-trip is becoming a more egalitarian landscape, thanks to on-demand. Apps allow for last-minute reservations at the most coveted spots, which food-delivery enters a newly sophisticated on-demand space in terms of options and potential partnerships with external on-demand delivery services.

On the ground, Uber is the model that appears to be a locus for both on-demand as a growth industry, and also one that will be tested by stakeholders in legacy models of the travel business. Within that context, however, the future of on-demand is marked by new approaches, new technologies, and the emergent concept of a parallel partnership economy. The implications are vast across all travel verticals.

Executive summary

The on-demand economy is populated by an emerging set of businesses sharing similar models: Inventory and selection are available to the consumer on an anywhere-anytime basis with the process facilitated by digital devices — from desktops to smartphones. On-demand delivery also occurs in a short timeframe, from less than an hour to no longer than day-of-order.

It is a rising economy, but it is one still faced with the challenge of amplifying consumer awareness — only giant players such as Uber enjoy more than 50% awareness rate among mobile users. But investors are pouring billions into the companies that represent the on-demand model, and the market for on-demand services promises significant returns.

Within the travel industry, airline apps and third-party apps are driving pre-departure on-demand options for passengers. In the airplane cabin, on-demand entertainment is becoming increasingly the norm, and the advent of on-board streaming content is providing on-demand hungry consumers with movies, music, and TV while opening much sought-after bandwidth to other Wi-Fi users.

Hotels are exploring on-demand apps and functionality as a way to bring their guests better experiences. In-room services, food and amenities are available to travelers at a quickening pace, and third parties are giving guests within mobile-savvy, marketing-resistant demographics access to in-the-month local hotel bookings with deep discounts based on proximity and other factors.

Dining out while in-trip is becoming a more egalitarian landscape, thanks to on-demand. Apps allow for last-minute reservations at the most coveted spots, which food-delivery enters a newly sophisticated on-demand space in terms of options and potential partnerships with external on-demand delivery services.

On the ground, Uber is the model that appears to be a locus for both on-demand as a growth industry, and also one that will be tested by stakeholders in legacy models of the travel business. Within that context, however, the future of on-demand is marked by new approaches, new technologies, and the emergent concept of a parallel partnership economy. The implications are vast across all travel verticals.

Introduction: Defining on-demand as a ‘rising’ model

The on-demand economy is growing at a pace the travel industry can’t ignore. Investors are pouring resources into a market that, in the United States alone, represents billions of dollars of opportunity.

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Travel companies are poised to take advantage of the on-demand economy, but, to do so, industry leaders will need to first define what it is that on-demand services bring to consumers — and how what we define as on-demand intersects with travel brands and services … that is, how travel consumers can access on-demand offerings in ways that complement existing travel offerings.

“The problem with the term ‘on-demand’ is that it’s used as a catch-all for a lot of things,” Semil Shah, told Skift. Shah is an investor with Haystack Fund who often speaks and writes about the on-demand space. He helps fund on-demand startups as well.

“But very few things are truly on-demand,” he says. “Transportation and food are on-demand, and we need them to be on demand, and they’ve largely captured the category. But a lot of things that we call ‘on-demand’ are actually ‘scheduled’. It’s just that they feel as if they’re on-demand because it’s so easy to get them on a smartphone.”

When we talk about on-demand products and services we are referring to companies that reach consumers at a primarily local level, with the product or service in question delivered to customers at an increasingly immediate pace.

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To start with, however, consider that the brick-and-mortar store is almost always an on-demand space. The car rental counter, the hotel’s front desk, and the airline’s ticket counter — these are in almost every case, part of the on-demand economy, strictly speaking. There are additional older-model examples of delivery networks established along lines that on-demand economies now echo — a telephone call to the local pizza shop being the most obvious, perhaps, with the shop then supplying pies to customers’ doorsteps as a result of the call. Bike messengers are another longstanding on-demand business. So are taxis and grocery deliveries.

To define exactly what we are talking about when we say on-demand in 2015, then, we will focus on a more recent iteration of the model — one that technology drives. On-demand services can be ordered remotely via consumers’ electronic devices. Furthermore, the modern on-demand economy is characterized by a kind of digital overlay, a “mesh” that allows on-demand companies to provide services that leverage transportation and delivery resources within a city, town, or other geography so that a physical visit to the retailer is not necessary. 1

Sharing Economy vs. On-Demand

A key difference between the on-demand economy and the sharing economy is in the sourcing and advance-scheduling of inventory. Airbnb, for example is a sharing economy model: the inventory is sourced to a private peer owner — a homeowner or a tenant — who turns the inventory over to the new renter on a scheduled basis. In the case of Airbnb, consumers often have to wait, sometimes for days, until a traveler-to-owner interview and approval process is complete. Another example of a schedule-in-advance service that features sharing-economy characteristics is the peer-to-peer car-rental service Relay Rides. Also notable, in both examples, is that if the inventory were to become unavailable during the deadly deal — the Airbnb owner refused entry or the Relay Rides owner never appeared with the car — unlike an on-demand app such as Uber, the user could almost certainly not immediately order and receive an immediate replacement.

Under this model, services range from livery to food delivery, from errand fulfillment to even background screenings and record-checking. Commonly recognized on-demand companies within this definition include Uber, GrubHub, HotelTonight, and Instacart.

Some companies that are more accurately defined as sharing-economy services are at time miscategorized as on-demand companies (see sidebar). Apart from sharing-economy services, other companies that are more basically on-line and/or mobile commerce sites also get lumped into the on-demand discussion. While an app such as Instacart is built around the proposition of grocery delivery on the same day, an online company like Fresh Direct is built around a next-day-or-later service.

With these distinctions in mind, we can better define on-demand as follows.

  • Inventory and selection are available to the consumer on an anywhere-anytime basis. The process is facilitated by digital devices — from desktops to tablets to smartphones.
  • The on-demand delivery occurs in a short timeframe, from under an hour to no longer than day-of-order.
  • On-demand companies are not subscription companies. The model in question is that of near-instant access, near-instant delivery — based on an in-the-moment order model, not a predictable recurring basis of delivery.

The consumer is a participant and driving component of the on-demand model. They are seeking short-turnaround, in-hand services that differ from, say, booking a hotel room in July for August — even though consumers may also book in that way on a mobile device (and do it quickly). The on-demand equivalent of that instance, under the conditions of our definition, would be an immediately, or near-immediately, available hotel room via an app such as HotelTonight. Even though a direct booking with a hotel could result in an instantly available room, the underlying business model of the traditional booking process is broader and more varied than the focused timeframe that is the value proposition of the on-demand business.

All of this is not to suggest that on-demand services can’t also allow for planning ahead — some services make it possible to schedule a delivery for another day (Instacart and Minibar, for example, or even seven days out with HotelTonight) — but they are primarily same-day-or-shorter providers.

Given these parameters, in this report we will look at companies that offer on-demand services that intersect in significant or promising ways with the travel industry. We will consider how these on-demand companies are changing the travel industry’s approach to doing business with passengers and guests. Where there are challenges to traditional travel business models and where there are opportunities to leverage on-demand functionality to improve customer relations, drive revenue and reduce costs, this report will consider those as well.

Flights, rooms, rides, and dinner: on-demand and the new ‘now’ in travel

Among key factors to consider about on-demand services, one is that even if consumers are eager to use on-demand options, this is counterbalanced by the challenge on-demand enterprises face when it comes to ensuring consumer awareness of their services.

In the following chart, other than Uber and GrubHub, what could be characterized as some of the key on-demand contenders come in well below the radar — some three-fourths of respondents have yet to hear of the companies in question.

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A second factor, however, could help solve for the first. Investors are paying a great deal of attention to the on-demand marketplace, and this is evidenced by an influx of resources.

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Within the context of investment and potential, there is also opportunity to dominate particular verticals within the on-demand economy. Companies that can successfully push for growth in the sector stand to win a consumer-base that has not necessarily — as of 2015 — assigned firm and fast loyalties to any one service.

On-Demand: International Influence

The on-demand economy is significantly fueled by Chinese and Indian investments.
From 2012–15, the two countries have led international funding of on-demand services with 86 equity financings combined (44 and 42, respectively). 2 By comparison, the financing of on-demand by investors in Germany, Brazil, the United Kingdom, and France, combined, totaled 45 deals.

It is reasonable to assert that investors commit money to market sectors when they see potential for growth and returns. Given that precept, the potential of on-demand as a returns-rich space is already measurable.

Along these lines, within the travel industry, the concept of new players — companies offering anything from bookings to food delivery — means companies entering a legacy ecosystem. Airlines, hotels, and other root-level suppliers have historically provided most, if not all, services to passengers and guests. The opportunity to change this scenario is part of a wide-ranging and technology-driven shift.

“I think of the travel industry as an example of what is happening in the on-demand economy in general,” Andrey Fradkin, a data scientist working with Airbnb and a post-doctoral researcher studying the economics of digitization at the National Bureau of Economic Research [NBER], told Skift.

“The transactions costs are going down,” Fradkin says, regarding the influx of on-demand and older models of service. “Historically … the transaction costs of interacting with the outside world were very high. So, you tended to bundle everything together to ensure a certain type of experience. But now, with on-demand apps, external options are able to provide a good enough service, and they’re easy enough to interact with. Just hailing an Uber, for example, you know it’s always going to be there and it’s very reliable.

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“For a hotel, where the core competency might not be laundry or food,” continues Fradkin. “It might certainly make sense [for consumers] to use the external services. They’re very well priced.”

The links between the travel industry, travelers and on-demand companies may well be forming and solidifying, but they’re not doing so in the same way across all verticals. To comprehend better what is happening, at present, we turn to examples of where the on-demand economy is manifest within the travel economy.

Airlines and on-demand: in-cabin, between gates, partnerships

Where on-demand services stand to intersect with airline passengers differs according to the kind of trips those travelers take. And the value of on-demand services to airlines is deeply connected to the concept of partnerships and ancillary-sale opportunities.

“A lot of our focus tends to be on what are the on-demand needs that customers have on the day of travel,” says LeighAnn Davis, senior director of Digital and Loyalty for Southwest.

For an airline, on-demand needs can mean more than just services. Davis makes a point that information qualifies as an on-demand element of travelers’ pre-trip experiences. “What does traffic look like on the way to the airport? Is there anything the customer needs to know about getting there? It’s about enhancing our customer experience, really knowing where they are — in the moment — throughout the journey, to provide on-demand services that are relevant to them.”

Information as an on-demand service falls a bit outside the definition given in this paper, but the argument for it is well taken from the supplier’s point of view. Among other elements of on-demand functionality, airline apps and third-party businesses offer a growing range of options.

  • Passengers, in an on-demand capacity, can view seat inventory in-app, and then make changes and upgrades via their smartphone or tablet.
  • Third-party apps such as Flight Tonight seek to connect travelers with reasonably priced seats on planes departing within 24 hours. 3
  • In the airport as well, some airline apps, like United’s, offer information about business lounge locations — where free beverages, Wi-Fi, and work stations await — and allow travelers to buy entrance, in the moment, for a flat rate.
  • On-demand is also manifest in airports that have installed tablets throughout the gate area. Waiting passengers can order food from nearby on-site restaurants, which then deliver to the passenger at the point of order.

Meanwhile, in the cabin, on-demand entertainment is seeking a foothold. From movies to streaming live events, travel consumers are increasingly accessing personalized experiences from their seats via smartphones and tablets.

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“I absolutely do think that’s where things are moving,” Davis says. “People do not like to miss their Super Bowl because they’re on an aircraft … and letting people use their devices to access that, to listen to music, to access data, is something we are very focused on.”

Southwest is not alone. Other airlines are also pushing for more on-demand content.

  • Gogo Vision partnered with Alaska Airlines, starting in 2014, to pilot its stand-alone in-flight entertainment service. Passengers no longer need to use the company’s connectivity antennae to access movies and TV shows, they can see Gogo’s offerings as streamed from on-board hardware. “The content is stored on a server on the plane and served to passengers through an in-cabin Wi-Fi system,” says Steve Nolan, director of communications at Gogo, in a recent Skift interview. 4 The upshot, more bandwidth for online users seeking Wi-Fi for other activities.
  • In 2015, American Airlines partnered with Gogo to stream movies to on-board mobile users. 5
  • JetBlue partnered with Amazon Prime, in 2015, allowing in-cabin travelers to stream content to their personal devices at no charge. 6

In an effort similar to the preceding examples, Global Eagle Entertainment — which works with Southwest — is seeking to expand on-demand in-flight entertainment to a worldwide market. It is also working to increase international-flight buy-in — given that leaders of airlines such as RyanAir and easyJet have cited equipment costs as an obstacle to IFE of the kind JetBlue, American, Southwest and others are incorporating.

The response, from GEE, is to offer airlines revenue potential, “including target advertising based on device, [operating system], origin and destination,” says Robin Cole, vice president of marketing and global business development for the company, in a recent Skift interview. 7

Skift Take: Gogo’s Bandwidth Gamble

Sufficient Internet bandwidth is key to providing airline passengers with a satisfying on-demand experience via their mobile devices. Gogo’s recent introduction of Vision, which stores streamable movies on servers located inside the aircraft — and its exclusion of external streaming services such as Netflix from its consumer-facing package — is a gamble. If a company-curated supply of streaming entertainment proves acceptable to movie- and TV-audiences, the benefit becomes more bandwidth for all passengers. 8 Adding new infrastructure, such as the 2Ku satellite/antennae upgrade, to the Gogo system is also part of the push for more megabytes in the sky. 9

Such cases represent a problem-solving reality for other airlines, domestic as well.

“Are there technical challenges?” says Davis. “There are technical challenges to everything you do at 30,000 feet. But we are using it today, and we are going to use it more.”

More than giving passengers a chance to ask for access movies and music in-flight, however, Davis forecasts the future of partnerships within the airline vertical.

For example, from your seat in an aircraft cabin, she suggested, “when you land wouldn’t it be nice if, between your two gates — and we know you’re a Starbucks consumer and you’ll be walking by a Starbucks — you could place your order so you can just pick it up on your way to that next gate?”

The same scenario could unfold with an airline and a ground-transportation company such as Uber, Davis says. The technology to effect that kind of on-demand convenience is in place; it’s now about airlines prioritizing investments and partnership opportunities to make it happen.

Hotel bookings: getting closer to in-the-moment mobile functionality

Regardless of technology, hotel guests can still book rooms in a roughly on-demand way by simply walking up to a property’s reservation desk, calling into the hotel or using a website offered by either the hotel or a third-party online ticketing agency or the like.

App developers are creating another option, however. The on-demand advantage? Last-minute room-booking.

The ‘Silent Traveler’ and On-Demand

On-demand services are particularly well-suited to a model of a mobile-first, tech-savvy traveler that Skift proposed in a recent pair of studies. The Silent Traveler (meaning, primarily, silent when it comes to marketers’ attempts to identify their wants and needs) — a model often skewing toward the Millennial demographic and to some degree affluent — is significantly more inclined to seek personally meaningful experiences, both alone and in like-minded groups. Apps and online resources replace concierges and service counters, in many cases. “Absolutely,” says Sam Shank, co-founder and CEO of HotelTonight, regarding Silent Travelers and on-demand services. “That really defines what the expectations and drivers of this group are.”

Sources: Skift (2014–15): http://skift.com/2014/01/22/skift-global-trend-for-2014-rise-of-the-silent-traveler/ & http://skift.com/2015/05/12/new-trends-report-mobile-first-and-the-silent-traveler-in-2015/

In one example, targeting young and often affluent travelers — the core demographic being 25–39 years old — HotelTonight’s traveler is technologically savvy and not often inclined to book days, weeks, and months in advance.

“In terms of the mindset, we are reaching people who will get benefits out of their trip, or their stay, by planning less and then booking in the moment,” says Sam Shank, co-founder and CEO of HotelTonight, told Skift. “They’re expecting to get what they want, when they want it, at the push of a button. That’s a group that we appeal to, and that’s a group preferring experiences over things. On-demand services allow them to have those experiences without having to plan them. They can have them serendipitously.”

Conceptually, the last-minute nature of its inventory and price breaks allows travelers to respond to changes in their trip as they happen. A business traveler might find her meetings moved downtown, or an end-of-deal dinner could take her farther afield than planned. If a layover leaves a traveler in a city for half a day, the chance to nap and shower in a last-minute hotel room is a Hotel-Tonight kind of scenario.

While other developers, with apps such as Roomlia and Hitlist, are looking for a stake in the on-demand territory, Shank asserts that the same-day focus that is HotelTonight’s specialty — along with the attendant discount structure the company provides — put it at the head of the pack.

Recent analysis suggests there’s substance to that assertion: the app’s ability to pull in what HotelTonight calls “bonus rates” and “price drops”, as travelers’ locations put them close to hotels looking to unload extra inventory, is an advantage that competitors, even well-resourced ones such as Expedia, aren’t yet leveraging. 10

Shank’s vision extends beyond business travel. Weekend getaways and spontaneous trip segments are on his mind as well.

Location, Travelers, and Outreach

Location and beacon-based technology can play a role in on-demand, as evinced by HotelTonight’s bonus rates and proximity based discounts. The approach, according to experts, is likely to expand. “While portals like Kayak, Orbitz, Expedia, and other travel apps do access a user’s digital location, they mainly use it to speed their services based on where someone is at the moment,” says David Kaplan, managing editor at GeoMarketing, in an interview. “Google Flight search is similar, but at the moment, not related to on-demand. But it probably will be, much in the same Apple has offered special placement on its Apple Watch to apps from American Airlines, Starwood Hotels, and Uber.”

“Does Friday night in a location end up going later than they expected?” Shank says. “Did they get invited to a party? What’s the weather like? If Napa is rainy, it would be a bummer to be locked into a weekend getaway. To be able to make these decisions in real time really provides the benefit to the leisure travel and consumer.”

Even in the less in-the-moment scenario, however, on-demand functionality stands to change the way bookings work for the consumer. Analysts envision a near-future when the inventory becomes more visible to app-savvy travelers, allowing to have an experience “more like choosing a seat on Ticketmaster,” says Ezra Galston, senior associate at Chicago Ventures (investors in a number of on-demand companies), told Skift.

“They can go in, choose a room, and it’s equivalent to [on-demand apps allowing them to] choose a seat on a plane,” he says. “It seems definite to me that travel has been an industry that has been traditionally commoditized — within different levels of luxury — but has not been very transparent.”

The on-demand economy, in Galston’s evaluation, stands to make the guest’s experience of booking, thanks to technology, less opaque as the future unfolds.

Hotel experiences: how hospitality accommodates on-demand

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On-demand concierge-type services are increasingly common in the hotel space. Consumers’ hunger for these options is increasingly measurable.

  • International Hotels Group is looking to bring its own virtual concierge into a multi-screen space, one in which guests could ask for fresh linens with the push of a button on their smartphone. Nearby staff would be notified via their own mobile devices; the request would then be met. 11
  • Since January, when Virgin Hotels launched Lucy, its mobile concierge and check-in app, the company has seen more than 80% of its guests use the option. 12
  • In the white-glove hospitality space, Four Seasons Hotels recently launched its own in-house on-demand services app. Guests can request everything from sleep masks to valeted vehicle services from their smartphones, laptops, and tablets. 13
  • Third-party providers such as Alice are also offering the infrastructure that allows hotels to introduce in-house on-demand without having to build the technology solution themselves. On the consumer’s end of the equation, Alice brings on-demand mobile-app turnaround to guest requests such as room service, housekeeping, tickets, dinner reservations, even booking a private jet. 14 On the hotel’s end of the system, management can monitor all requests and services in a 360-degree fashion.

“Now, it’s finally a turning point, where large-income businesses are recognizing this massive change in consumer behavior and consumer expectations,” says Tanner Hackett, co-founder of Button and The On-Demand Economy (a network of executives dedicated to advancing the kinds of businesses that fall under the economy’s definition), in an interview.

“If I’m a hotel and I’m trying to provide the best-possible service, it makes sense for me to partner with the best services available,” he says.

To that end, Hackett says Button “builds these relationships between best-in-class services. We are figuring out how on-demand can function within the existing framework, within the existing brand and consumption channels to create concierge-like services.”

Deep-Linking and On-Demand Platforms

Button places deep-link buttons within a given app — a car-ordering option within a map app, for instance — that syncs the service with the related intent and activity of the consumer. One potential, given co-founder Tanner Hackett’s way of looking at on-demand and hospitality, would be to have a service such as Glamsquad (a Button partner that provides on-demand in-home beauty services) featured as an embedded option in the spa-service section of a hotel’s app.

A key challenge inherent to partnership is that of trust — and it is one that involves a property’s, company’s, or brand’s willingness to replace legacy services that it may well perceive have ongoing value to its reputation and to its guests.

So, while analysts such as Fradkin, in his work with Uber and NBER, might see opportunities for hospitality to take advantage of lower costs-of-transaction by unbundling some services — food and laundry, for example — to on-demand suppliers, there is still the impetus among legacy brands to preserve some measure of proprietary service.

“For some hotels, especially at the higher end, having a Michelin-starred restaurant is a sign of luxury, and I don’t know if that will go away,” says Fradkin. “But for a typical hotel, the reason they put in the food is that it’s convenient for the customer — they’re going to be hungry and they’re a captive audience. But in cities where you can now get food easily, and you know which food is good and which is bad, I presume that people are not going to choose the hotel option … it may not be as good or appropriate to what you want to eat at the moment.”

To put a finer point on the argument — replacing a hotel kitchen by partnering with an on-demand supplier (provided the hotel dining experience isn’t a destination in and of itself) stands to eliminate costs and create a percentage-based revenue stream without the ancillary business responsibilities of running an on-property venue.

Beyond guests: on-demand links hospitality to ancillary opportunities

The hotel sector is additionally poised to alter the way it works within the on-demand space. The on-demand economy means that properties can expand their reach beyond the guest and into the larger consumer space — further amplifying their ancillary revenue.

Take for example, the business meeting and the potential for hotel management to maximize unused space on a given day.

  • W Hotel in New York has partnered with Desks Near Me, to offer app-bookable, on-demand workspaces to guests and non-guests alike. Westin Hotels & Resorts is offering an in-house created system along similar lines.
  • Marriott recently linked its properties’ available spaces with LiquidSpace — a company that provides users with app-based on-demand office and conference options at more than 30 major hotel chains.

“About two years ago, we had a big aha moment,” says Jackie McAllister, a senior marketing director at Marriott, in a recent Skift interview. 15

“We realized that the way people work had changed dramatically but the way we catered to them was still the same,” McAllister says. “Meeting-planners said they really wanted things simpler, especially for smaller groups. And we realized that people want to work outside of their homes or offices. A lot are working at coffee shops. We thought, ‘Wait, we have all these spaces in our hotels — lobbies, meeting rooms — that would be ideal for these mobile workers.’”

Eating differently: travelers and dining in the app ecosystem

On-demand apps and services as they pertain to the traveler’s dining experience face the same challenges that diners have always encountered. That is, making a reservation has always worked along on-demand lines, but inventory at desirable restaurants is seldom, if ever, guaranteed. In other words, all the Open Table functionality in the world can’t ensure a corner table. A well-connected hotel concierge might be able to do just that, however. A fifty-dollar bill to a restaurant host can sometimes work wonders as well. Both are on-demand in nature, neither are technology driven.

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Still, the on-demand economy does offer workarounds to traditional ways of getting well-crafted meals while in-trip. One avenue of pursuit is to solve for the availability of inventory. Enter the secondary market for reservations. Apps such as Shout suggest a self-reliant problem-solving mechanism that can fit the bill for an in-the-moment dining experience.

  • In a peer-to-peer system, Shout users find diners who already have a hard-to-get reservation, but who are willing to sell it for, say, $35–$70. (16) The buyer pays the seller, in-app, and the transfer of the table is handled by Shout.
  • Other players in the on-demand space for hard-to-get reservations include Zurvu, Killer Rezzy, and Resy (co-launched by Gary Vaynerchuk, an early investor in Uber.) 17

In yet another approach to looking at how travelers dine, on-demand companies can change the way consumers navigate the relationship between food and location. Especially for travelers — think business, short-notice, and tightly scheduled consumers — who do not necessarily need or want the restaurant to be a destination-oriented experience during their trip. Traditional models of hotel room service and on-site eating stands to be overshadowed by apps such as GrubHub — but, as we will consider shortly, perhaps the solution lies in GrubHub (and similar companies ) partnering with other services.

“Restaurants are social meeting places,” says Hackett, at Button and The On-Demand Economy. “Otherwise, if you just want the food, you can have that wherever you are.”

Holding that assertion to be applicable to many diners — minus the obvious exceptions of the restaurants in which a particular chef’s menu is presented in an acutely presentation-based way — how does a restaurant or brand get its menu in front of any given hotel guest or lunch-seeking tourist? How does it get its food to them in an effective and reliable way?

“I think there’s some rationale behind having a brand-specific [on-demand] app and being able to provide on-demand services owned by the brand,” Hackett says. “But the logistics component? It’s not [many restaurants’] domain. It’s not their expertise. They need somebody to deliver it.”

When a restaurant delivers, it is the restaurant running that component of the operation, over and above all the other elements of its daily/nightly business. And that leaves the restaurant open to compromise. One lazy or lost delivery representative, and the traveler on a schedule may well decide that the hotel cafe is a better option after all.

Hackett suggests that intermediary on-demand companies are poised to strengthen that soft spot.

“Who does delivery best?” says Hackett. “It’s these services like Postmates that are building the infrastructure to support them. Even if they sell this on an interface [e.g. GrubHub, et.al] at the engagement level, there’s this huge gap they need to fill.”

The on-demand economy may well turn out to be a partnership economy. The services that will lead, in travel or any industry, could be the ones that take what they do best and cooperate with companies that offer the strongest links in the service chain apart from that one thing that the partnering business does very well. It could also be that these become multi-partner models — a hotel partnering with a number of local eateries to source inventory (and get itself out of the on-site restaurant licensing/management business). And the eatery, or the hotel, that then partners with an on-demand delivery specialist to ensure that ordered meals get to the right rooms quickly and with a level of customer service that fosters confidence and, ultimately, loyalty to all parties involved.

“We’re seeing this already,” Hackett says, speaking about services across industries, including Whole Foods and Starbucks, which recently partnered with Instacart and Postmates, respectively, for delivery services.“These are some of the biggest companies, and they are the best in their verticals, and they’ve already figured this out.”

The Uber factor (Lyft, et.al.): impacts and implications

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Data and analysts tells us one thing that is certain about the hierarchy of on-demand companies, in 2015, Uber is the king.

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“It is, by far and away,” Hackett says, regarding whether Uber, along with its estimated $50 billion in valuation, is at the head of the on-demand pack. “Awareness rates for Uber? Eighty-five percent of smartphone owners in New York; Los Angeles; San Francisco; Washington, D.C.; Miami; and Boston are aware of Uber.”

In another way of looking at it, if a significant measurement of a rising business model is to identify companies that are executing services at significant scale, then Uber does represent a flagship within the on-demand ecosystem.

“If you want to be technical about it, there are very, very few things that are truly on-demand at scale,” says Shah, in his capacity with the Haystack Fund. “If you took Uber out of the question, the rest of the companies — even though I’m invested in a lot of them and I believe in them long-term — it would be laughable.”

In other words, our very ability to discuss on-demand as a maturing economy or industry is (arguably) reliant upon this one company maturing at a pace much faster than any of the other businesses within the space.

Uber is not alone in the ground-transportation segment of the on-demand spectrum, however. Other enterprises — some new, some newer — are also seeking riders who no longer turn first to taxis and rental cars, in-destination.

  • Lyft is pushing to carve out space comparable to Uber’s some 300 markets. The 3-year-old company has partnered with Starbucks so that customers of both Lyft and Starbucks can earn loyalty points toward service and products within the pair’s respective programs. It is, as analysts note, part of Lyft’s effort to catch up with the kind of high-profile partnerships that Uber already enjoys (Capital One, Starwood Hotels, et al.) 18
  • Sidecar saw major growth after introducing its carpooling feature — Shared Rides. The company reported a 60% increase overall, with city-focused examples along the lines of a 10X increase in Chicago upon the program’s introduction in November 2014. 19
  • Internationally, startups such as Cabify are seeking to supply riders with alternatives to Uber in countries such as Spain, Chile, Peru and Mexico. The company recently won $3.5 million in venture funding, bringing its investment total to $18.5 million. (20

To some extent, all of this development has had some impact on the rental-car industry. But perhaps not as much as one would initially think. The following data helps illustrate how on-demand riders operate, as compared with car-rental customers.

chart_7

For the traveler taking the kind of car-rental trips suggested in the above information, it’s clear that Uber, Lyft and other on-demand services exist apart from multi-day, many-mile journeys. Data additionally shows that care rentals are not exactly listing in the wake of on-demand.

chart_8

“Avis reported a [trailing twelve months] revenue figure of $7.425 billion in March 2013, that grew to $8.109 billion in March 2014, and $8.473 billion in March 2015,” writes Daniel Jennings, blogger at Market Madhouse. (21) “If Uber was really taking Avis-Budget’s customers away, one would expect its revenues to shrink, but they’re growing instead. In fact, Avis’s revenue increased by $1.048 billion over the past two years in the face of the Uber competition.”

But for travelers entering a destination with a shorter-distance set of trips in mind — staying within a metropolitan area, for example — the rental-car industry, as well as the point-to-point car sharing sector (think Car2Go and Zipcar, as examples) would be wise to note recent surveys. In these cases, on-demand services such as Uber are on consumers’ radar.

The limousine sector has also felt some impact indicated in the above charts. As companies such as Uber enter geographies — and Uber is often free of many of the government regulations and heavy fees older-model industries still endure — leaders have reported losses.

“The transportation industry was hit very hard,” says Ashfaq Shah, president of Global Express Limousine, of Maryland, speaking to The Washington Post. Shah said sales fell by half during the recession. 22 “When Uber and Lyft came in, business got slashed another 25%.”

There are other on-the-ground implications as well.

chart_9

“I think the deeper impact will be on fixed-rail transit,” says Semil Shah, considering the scenario. “In the San Francisco Bay area, for example, fixed-rail transit is old and outdated, slow, and crowded. People are opting out of it. They want to get from Point A to Point B, and they’re willing to pay the price. Uber is going to really liberate cities and regions when it comes to fixed-rail travel.”

Future Roads: Autonomous Uber

With experts predicting that autonomous, self-driving automobiles will be commonplace by 2025, the implications for companies such as Uber are already on the company’s agenda. Travis Kalanick, Uber’s CEO, recently said the company will eventually consist of only autonomous vehicles. 23

Even as Uber has become one of the most well-known and well-funded brands within the on-demand economy, it’s also emerged as what looks to be the most publicly tested company among new iterations of transportation, delivery, and other on-demand businesses.

  • France ruled the UberPop app — a lower-cost option for users — illegal in 2014. The company suspended operations in the country, in 2015, facing organized cab drivers and, at times, violent protests. 24
  • Spain ruled UberPop illegal in 2014, ordering national telecommunications to cease supporting the company. 25 In response, Uber suspended operations in the country.
  • The state of California, where Uber launched (in San Francisco) is seeking to reclassify Uber drivers as employees, not freelancers, and officials want Uber to regularly turn over ride data or face fines. 26
  • With some 12,000 cars on New York City streets in the four years it’s operated there, Uber continues to face struggles with the mayor and other officials and agencies. For the moment, in July 2015, the company and the city have reached a detente. 27

The conversation around Uber, however, eventually comes to the notion of endgame. As the on-demand economy grows, its development ultimately suggests a future in which the technological “mesh” that overlays a geography — a key point in the definition this report proposes — is primary.

Or, as Travis Kalanick, Uber’s CEO told Vanity Fair, “If we can get you a car in five minutes, we can get you anything in five minutes.” 28 For travelers, companies that can deliver on that promise when it comes to tickets, rooms, meals — and everything else, as Kalanick suggests — it becomes an event horizon at which the on-demand economy graduates from “rising” to ascendant and, potentially, a dominating force across all travel verticals.

5 key insights

  • ‘On-demand’ is not ‘sharing’, but sharing can be a part of on-demand. On-demand is a consumer purchase of a discreet and near-immediate service that is not reliant upon any element of peer-to-peer owner-consumer sharing. Uber is an on-demand service. Airbnb is a sharing service. But companies such as Uber, Lyft and Sidecar can offer sharing-type features: their carpooling options allow consumers to cut the cost of a trip by a factor of multiple riders absorbing a portion of a given route’s price.
  • Most on-demand companies need to drive consumer awareness. Fewer than a handful of on-demand companies enjoy significant brand awareness. Growth in the on-demand economy will be reliant upon companies penetrating markets with sticky and effective marketing campaigns.
  • The on-demand chain of service is vulnerable to any weak link. For companies and brands seeking to reach travelers in the on-demand space, one key goal is to better identify the most important strengths and weaknesses of a given service chain. A restaurant looking to sell extraordinary on-demand food to guests and tourists must ensure that its door-to-door component is as powerful as the items on its menu. Partnering with delivery specialists in the on-demand space is one way to accomplish that goal.
  • Reputation systems will have a role to play in the on-demand economy. If hotels unbundle in-room and other services, how guests review experiences will become a more dynamic — and potentially more complicated — environment. Analysts such as Andrey Fradkin say the brand might become less important across some aspects of a stay. However, if properties, companies, and brands fail to make it clear to users that there is a distinction (and a difference) between legacy room service and on-demand dining, blowback from a bad experience could negatively impact a business model no longer directly responsible for customer satisfaction.
  • Upmarket is still an on-demand challenge. In recent on-demand history, companies such as BlackJet tried to scale luxury services such as on-demand private-jet services. Analysts such as Ezra Galston saw the model fall apart because of challenges around reaching liquidity. “It’s hard to have liquidity until the price-point becomes even more accessible to an average consumer,” he says, referring the thousands it could cost to fly in a private airplane.

End notes and further reading

  1. Jaconi, Mike, “The ‘On-Demand Economy’ Is Revolutionizing Consumer Behavior — Here’s How,” Business Insider (July 13, 2014). Retrieved at http://www.businessinsider.com/the-on-demand-economy-2014-7#ixzz3fKGiGbGw
  2. Wong, Matt. “Rise of the On-Demand Economy,” CB Insights (June 30, 2015). Retrieved at https://www.cbinsights.com/reports/Rise-of-On-Demand-Economy-webinar.pdf?utm_source=On+Demand+Webinar&utm_campaign=cca8285caf-ondemand_webinar&utm_medium=email&utm_term=0_6bd36182de-cca8285caf-86844285
  3. Harris, Rachel Lee. “An App for Last-Minute Flights,” The New York Times (September 3, 2014). Retrieved at http://intransit.blogs.nytimes.com/2014/09/03/an-app-for-last-minute-flights/
  4. Shankman, Samantha. “Gogo’s Plan to Bring In-Flight Entertainment to Flyers’ Own Devices,” Skift.com (August 12, 2014). Retrieved at http://skift.com/2014/08/12/gogos-plan-to-bring-in-flight-entertainment-to-flyers-own-devices/
  5. Martin, Grant. “Skift Business Traveler: In-Flight Entertainment Takes a Turn for the Awesome.” Skift.com (May 7, 2015). Retrieved at http://skift.com/2015/05/07/skift-business-traveler-in-flight-entertainment-takes-a-turn-for-the-awesome/
  6. Ibid.
  7. Garcia, Marisa. “More Content, More Games, and More Advertising Coming to In-Flight Entertainment,” Skift.com (July 6, 2015). Retrieved at http://skift.com/2015/07/06/more-content-more-games-and-more-advertising-coming-to-in-flight-entertainment/
  8. Martin, Grant. “Skift Global Forum 2015: Gogo’s CEO on the Future of In-Flight Connectivity,” Skift.com (July 23, 2015). Retrieved at http://skift.com/2015/07/23/skift-global-forum-2015-gogos-ceo-on-the-future-of-in-flight-connectivity/?utm_campaign=Daily+Newsletter&utm_source=hs_email&utm_medium=email&utm_content=20786721&_hsenc=p2ANqtz–Y82rtvTeDdasJOAWNXr2HFcRK0e0NR3MT0572Vdz5hBG1TZKtbOlGD_xIVYT8vy_2TgCm7Wa2RxAk8przupJOn8tw-g&_hsmi=20786721
  9. Clampet, Jason. “Gogo Introduces Faster In-Flight Wi-Fi, Boosting Top Speed to 70mbs,” Skift.com (April 8, 2014). Retrieved at http://skift.com/2014/04/08/gogo-introduces-faster-in-flight-wi-fi-boosting-top-speed-to-70mbs/
  10. DeAmicis, Carmel. “Here’s why new competitors can’t do what HotelTonight does,” Gigaom (January 27, 2015). Retrieved at https://gigaom.com/2015/01/27/heres-why-new-competitors-cant-do-what-hotel-tonight-does/
  11. “Travel Brands in a Multi-Screen World,” Skift (April, 8, 2015). Retrieved at http://skift.com/2015/04/08/free-skift-trend-report-travel-brands-in-a-multi-screen-world/
  12. Higgins, Stacey. “The State of Hotel In-Room Technology,” Skift (March 2015). Retrieved at http://products.skift.com/trend/the-state-of-hotel-in-room-technology/#trend-report-header%5D
  13. “ON DEMAND SERVICE: THE NEW FOUR SEASONS APP,” Cadence (June 8, 2015). Retrieved at http://www.cadencetravel.com/travel-blog/2015/6/8/on-demand-service-the-new-four-seasons-app
  14. Shieber, Jonathan. “ALICE Raises $3 Million For Its Hotel Management And Guest Services App,” Tech Crunch (February 9, 2015). Retrieved at http://techcrunch.com/2015/02/09/alice-raises-3-million-for-its-hotel-management-and-guest-services-app/
  15. Clampet, Jason, “How Hotel Chains Innovate With On-Demand Work Spaces,” Skift.com (July 6, 2014). Retrieved at http://skift.com/2014/07/06/how-hotel-chains-innovate-with-on-demand-work-spaces/
  16. O’Brien, James. “Using Mobile to Connect With the New Silent Traveler,” Skift.com (September 3, 2014). Retrieved at http://skift.com/2014/09/03/using-mobile-to-connect-with-the-new-silent-traveler/
  17. Schuster, Dana. “5 apps to help you score a coveted restaurant reservation,” New York Post (January 17, 2015). Retrieved at http://nypost.com/2015/01/17/5-apps-to-help-you-score-a-coveted-restaurant-reservation/
  18. Isaac, Mike. “Starbucks Joins With Lyft on Loyalty Program,” The New York Times (July 22, 2015). Retrieved at http://bits.blogs.nytimes.com/2015/07/22/starbucks-pairs-up-with-lyft-on-loyalty-program/?ref=technology&_r=2
  19. DeAmicis, Carmel. “Here’s how Sidecar took the lead in the carpool race,” Gigaom (December 19, 2014). Retrieved at https://gigaom.com/2014/12/19/heres-how-sidecar-took-the-lead-in-the-carpool-race/
  20. Peltier, Dan. “This Week in Travel Startup Funding: Cabify, Guidebook and More,” Skift.com (July 23, 2015). Retrieved at http://skift.com/2015/07/23/this-week-in-travel-startup-funding-cabify-guidebook-and-more/?utm_campaign=Daily+Newsletter&utm_source=hs_email&utm_medium=email&utm_content=20786721&_hsenc=p2ANqtz–1FLDjtlZC6E2uwmuOCgDnt1dymy2MQUXgvcRKDBBl_ppizxviMh4iVIXR1G0OuIUV8DFZLZBE57dvs_inqxqDSpB-2w&_hsmi=20786721
  21. Jennings, Daniel. “Uber Is Not a Threat to Car Rental Companies,” Market Madhouse (May 8, 2015). Retrieved at http://marketmadhouse.com/uber-is-not-a-threat-to-car-rental-companies/
  22. Bhattarai, Abha. “Uber put a big dent in the limo industry. Here’s how companies are fighting back,” The Washington Post (January 30, 2015). Retrieved at http://www.washingtonpost.com/business/capitalbusiness/uber-put-a-big-dent-in-the-limo-industry-heres-how-companies-are-fighting-back/2015/01/29/4ad791a0-9ce7-11e4-a7ee-526210d665b4_story.html
  23. Newton, Casey. “Uber will eventually replace all its drivers with self-driving cars,” The Verge (May 28, 2014). Retrieved at http://www.theverge.com/2014/5/28/5758734/uber-will-eventually-replace-all-its-drivers-with-self-driving-cars
  24. Kottasova, Ivana. “Uber suspends ride-sharing service in France,” CNN Money (July 3, 2015). Retrieved at http://money.cnn.com/2015/07/03/technology/uber-france-suspended/
  25. Scott, Mark. “Uber Suspends Operations in Spain,” The New York Times (December 31, 2014). Retrieved at http://bits.blogs.nytimes.com/2014/12/31/uber-suspends-operations-in-spain/
  26. Kirkham, Chris, and Tracey Lien. “Facing regulatory roadblocks, Uber ramps up its lobbying in California,” Los Angeles Times (July 26, 2015). Retrieved at http://www.latimes.com/business/la-fi-uber-california-20150726-story.html#page=1
  27. Bellafante, Ginia. “Uber Makes Its Pain New Yorkers’ Problem,” The New York Times (July 24, 2015). Retrieved at http://www.nytimes.com/2015/07/26/nyregion/uber-makes-its-pain-new-yorkers-problem.html
  28. Swisher, Kara. “Man and Uber Man,” Vanity Fair (December 2014). Retrieved at http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-controversy