The On-Demand Business Model

With so many different business models in the vast pool of options, it can be quite confusing. Whether you’re trying to pick one to model your own business on, or you are just reading about it for your own enrichment it’s good to know about this popular model. In this blog, we will go over what the model is and some stats behind it and we will talk about current successful companies that employ this model. The Grubhubs and Doordashes of the space. With that let’s dig into it!

What’s The On-Demand Model?

In the aftermath of the worldwide pandemic, we saw a lot of industries go digital. We went from going to our local shop in order to pick up supplies to using Instacart and having it done for us. Calling the pizza place is now tapping and adding toppings and having a Dasher drop it off at your door. These are a few examples of successful companies that have seen the potential of the model in the market and have taken action on it.

Since then there have been many competitors that grew as well, Doordash Vs Grubhub, Lyft vs Uber, and so on and so forth. But why? Is there so much success behind this? Matter of fact there is, according to Popupbuilder.com it attracts 22.4 million customers annually. That’s a lot of users and money generation!

That’s not all, if it keeps growing as rapidly as it is currently it’s expected based on the data that income will increase from $14 billion in 2014 to $335 billion in 2025. Sourced from PwC analysis and code-brew labs.com.

With all this in mind, it’s clear that this model is here to stay and even dominate if this technology keeps growing. It’s also easy to say that customers shifted their preference to online shopping which keeps everything going. Just the on-demand food business changed the playing field drastically. There are a lot of reasons this is all successful such as:

• Ease of access to everything.
• A bunch of options to choose from.
• Get offers quickly and sales daily from different businesses.
• Provides comparative benefits.

But other than the customer benefits there are good benefits this model provides to the companies which reside under its umbrella.

• Larger business reach. Tap into more growth.
• More Profit
• Strong network.

The Future Is On Demand

The future is very interesting indeed. Though this model is more beneficial in a lot of ways than negative. It is clear we are moving towards a future of on-demand products. And I would feel off without leaving a slight word of warning, food for thought as some say. Though all of this is convenient, we should walk carefully. We do not want to find ourselves in the Wall-E situation. Though the likelihood of that is small, it is still there.

Examples of The Model In Action:

Now that we have a baseline it’s good to speak about the businesses that saw massive growth upon utilizing this model. There are quite a few with how much the pool diversified over the years. But let’s keep it simple and look at the big hitters of on-demand.

1. DoorDash

DoorDash came a far way from the small start-up it was in 2013. Their growth was so quick if you blinked you could have missed it. During their time with Y Combinator, it is said they grew at a rate of 20% every week. And received 2.4 million in funding around that same time. They had 70 restaurants in the Bay area under the service and grew aggressively. DoorDash became the leader in the US market and overtook even GrubHub and Uber Eats. Amazingly by 2020, they were responsible for 45% of all food delivery orders. That’s staggering! Lastly, DoorDash recently went public, in 2021 to be exact, and walked out with a $72 billion valuation. Now their revenue is $4.88 billion and has over 25 million users. How could they hit numbers like that?

For one their AI systems. It was built for speed maximization. Picking out the most capable drives and the best routes and so on. Also the outsourcing of the workforce. Pretty much anyone can sign up to drive for DoorDash and become a driver. And Dashers get to be their own boss, relatively. Which many people like the Gen Z population love and highly value, its a popular trend. Which we take note of in another blog! Timing could also come into consideration as COVID set up DoorDash and many other on-demand businesses in a perfect position.

2. Lyft

Another story of quick growth over the course of a few years. Just like DoorDash Lyft has come a long way from its humble beginnings. Starting as a long-distance ride-sharing solution between campuses, Lyft now operates in many different cities internationally. In their series B, Lyft raised $15 million in funding and at the same time expanded into L.A. And in 2019 Lyft went public with a IPO and had a valuation of $23 billion. Though it was a long process to get to this point.

Lyft saw its fair share of struggles. Early on in its life, Uber launched attacks against Lyft like Project Hell. Which was the process of sending undercover Uber “ambassadors” to call up rides on Lyft and attempting to convert Lyft drivers over to Uber. All of this was ongoing when Lyft grew to 60 new cities and continued to expand.

Lyft found its modern-day success with its app and tech similar to DoorDash. But also the number of deals and partnering Lyft underwent. From GM to partners in Asia, Starbucks, Disney, and even the famous activist investor Carl Icahn who dropped 100 million into Lyft. The corners they touched were wide and spread far. And still as of August 5th 2022 Lyft is worth $7.07 billion.

Lyft dominates the ridesharing business and its clear its not going anywhere. Their use of the on-demand model was strong and well applied. Like DoorDash with its supremacy in the food-delivery business.

3. Instacart

Lastly, we have Instacart. A little different from the rest but still uses the same on-demand business model. Instacart has a less dramatic upbringing story than Lyft but still has a noble mission. Co-Founder Apoorva Mehta developed the concept out of his personal dislike of grocery shopping. And like many founders, had to be one of the first “professional shoppers” making deliveries. And had to personally train others to meet the demand for a time. This is similar to how DoorDash requires all its employees from CEO to engineer to work as a Dasher once a month.  Though growth and success soon found its way to the start up.

By its sixth round of founding Instacart raised about $275 million. Shortly after they raised another $220 million and where suspected to be valued at $2 billion. Operating in 19 cities and only based within the US their overall valuation was $14.7 billion. Like the above examples, a high valuation! This could be from the many retail partners like Whole Foods and Costco among others. As well as the market in which they operate. It was pretty empty with not many competitors in the space other then the in house services some retail locations like to do. But they don’t have the same staying power as Instacart. Also Instacart’s partners have seen large growth in online sales after paring up with them.

Overall Instacart is a powerhouse in grocery delivery like DoorDash is for food and Lyft for ridesharing.

Conclusion

The on-demand business model is one of a rich history. Many have used it to great success like the companies talked about here. Though it could be argued that COVID is one reason this model took off so well. Since we were all stuck at home, what’s more convenient to sweep in and save us all other than DoorDash or Instacart? But I do not think that’s the case per say. The technology and mission were there and most if not all of these businesses had noble causes in mind. With Instacart wanting to help those who can’t shop or those with high anxiety, and DoorDash keeping our eating out needs in check. This model paired with a solid mission and tech I think, was the secret recipe.

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