On-Demand Transport and the Rise of the On-Demand Economy
The on-demand economy is a digital marketplace providing immediate access to goods and services. In the transport industry, the on-demand paradigm is fulfilled by backend mobility technologies such as matching and route optimization, digital mapping for updating real-time road conditions, and dynamic pricing algorithms that adjust prices according to demand and supply.
On-demand services are designed for instant gratification, and endeavor to give consumers what they want, when they want it. If a customer needs a ride, right this moment, from their downtown office to a meeting on the other side of the city, an on-demand platform will locate the closest available ride, connect the vehicle and customer digitally and offline, and optimize the route in real-time for fast arrival to the desired destination. On-demand services mediate between all relevant parties in a fast and efficient manner.
A study by McKinsey suggests that by 2030, urbanization will increase by 50%, following a migration of 60% percent of the world’s population to cities. Road congestion is already a major issue in most cities, as people continue to buy cars. By 2030, the number of privately owned cars could reach 2.2 billion. Factoring in the rising demand for delivery vehicles for the ever-expanding e-commerce market, traffic in 2030 could turn into a nightmare.
On-demand modes of transportation aim to solve this problem by offering commuters convenient modes of transportation. Commuters can now open an app and find a variety of green transport options such as electric bicycles and scooters, or ride-hailing platforms that connect car owners with commuters in need of a ride. According to McKinsey’s survey, American millennials, especially, show their willingness to adopt new mobility forms, with 23% citing that they have no interest in owning a car. As the demand for an improved commuting experience rises, the on-demand economy will continue to disrupt the transport industry with innovative mobility solutions.
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The on-demand economy is powered and fueled by digital marketplaces that provide instant access to goods and services. On-demand service businesses connect an existing workforce, like private car owners, with customers in need of their service via an online platform.
The on-demand model can be traced back to the 1990s, and like wine, it gets better with time. As technology advances, better frameworks turn the on-demand economy into a disruptive force.
New ride hailing platforms revolutionized the transportation industry by capitalizing on the ready-made workforce of private car owners and connecting them to passengers in need of an immediate pickup. In the food industry, Postmates and GrubHub help hungry customers gain speedy access to surrounding restaurants. In the eCommerce industry, platforms like Etsy, Amazon and eBay enables artists reach customers worldwide.
The on-demand economy is rooted in instant gratification. Its aim is to provide an immediate answer to consumers’ needs by connecting all the parties in the chain of supply and demand. On-demand service providers build a complete infrastructure around the cycle of consumption.
The Internet has changed consumer behavior, and convenience now ranks as the number one factor influencing an individual’s purchase decision. Using on-demand platforms, consumers can search for a service online to discover new providers, book or schedule a service, track and message, then pay and review.
Companies like Amazon are constantly innovating with their e-commerce delivery options. For example, Amazon Prime subscriptions boast two-day and same-day shipping; Kindle Unlimited gives readers access to books anytime, anywhere, while helping authors expand their reader base.
On-demand digital marketplaces create a seamless customer experience for consumers and service providers alike by making the purchase journey fast, easy, and efficient.
How Consumers and Providers Use On-Demand Applications
On-Demand Application Consumer
On-Demand Application Service Provider
Transfers payment via the app
Accepts payment via the app
After each transaction, both consumer and service provider are asked to provide feedback on the platform and services rendered. Every review is taken into account to improve the technology and quality of service.
As business models change and industries shift focus to digitization, on-demand apps stand as economical docks, anchoring suppliers and customers alike to one user-friendly platform. Here are several benefits of the on-demand economy for consumers and service providers:
- Cost-effective: Most on-demand platforms request a fee per transaction or a monthly fee. Some offer free use of their applications. Many service providers prefer on-demand payment methods because they lower overhead costs.
- Separation of concerns: A service provider controls the daily operations of the business while the app provider takes care of all technological aspects.
- Fast and easy to use: On-demand platform providers work hard to make their platform simple and easy to use for all parties involved. A fast and simple user experience raises the chances of user retention.
- Scalable: Many service providers opt to join on-demand platforms rather than investing in private digital infrastructure. This way they can dip their toes in an existing pool, enjoy a wide network of support and customers, and scale according to their needs.
- Cybersecurity: While most consumers today embrace digital payments, many prefer not to provide their credit card information to just any company. Handling money requires security. On-demand applications take care of all aspects of cybersecurity, taking this cost and risk off the service provider’s plate.
Consumers who embrace digital platforms demand prompt service. Why wait for a cab when you can order one online? You can even schedule it for the moment you’ll be at a specific location. Why wait for a quote and availability from a car rental agency when you can find the nearest car and rent it in a moment? On-demand transport apps can process payments instantly and give you access to a car through your smartphone.
While digitalization is a blessing for many businesses, those who eschew technology may end up regretting it. As new mobile apps take over the transportation business, many existing taxi companies launch their own platforms to join the highly competitive on-demand transportation industry.
On-Demand Transportation Modes
With the proliferation of mobile device and applications, adoption of on-demand transportation is rising globally. Services such as ride-hailing, car sharing, car rental, and bike sharing are offering a productive space for the transport industry to thrive.
The following are key transportation modes based on the on-demand model:
- Ride-Hailing: Also known as e-hailing, an online platform connecting passengers in need of a ride with nearby drivers heading the same way. The service is booked via an app. Drivers aren’t necessarily professional cab drivers, often they are regular people using their private vehicles.
- Car Sharing: An on-demand service disrupting the car rental field by helping private car owners, rather than agencies, rent their car to other people. This rental model provides a solution for residents of crowded urban areas, where parking is in high demand but visitors are in high supply. Through the app, any visitor or car-less resident can book a car for a few hours.
- Ridesharing: People who are seeking one-way rides can find unoccupied seats offered by drivers going in the same direction. Popular online platforms provide ride-matching software that connects car owners with passengers. Sharing rides reduces the use of private vehicles, which helps decrease traffic congestion. While some drivers charge money for the ride, some offer free seats.
- Carpooling: Similar to ride-sharing, except that all parties involved contribute and take turns to drive. Generally, drivers and passengers do not exchange money because rides are exchanged between family and friends.
Some popular on-demand transportation apps include:
- Turo: A car rental application that connects private car owners and people in need of a temporary ride. The cars are available for a few hours or a few days. The owner has full control over the availability of the car for rent.
- Gett: a global on-demand transport and delivery platform. Customers can order a taxi or currier via the website or a mobile app. Each customer request prompts an almost immediate response by the nearest service providers.
- Car2Go: An on-demand car-sharing app. Cars parked at key locations are available for rent via the app. Smartphones activate the car rental, and once done the car can be left at any location within a specified district. Best of all? The payment is per minute for the duration of the journey, and there are no parking or fuel charges.
On-demand platforms rely on advanced mobility technology to continuously provide the 360 degrees travel experience consumers demand. Nowadays, on-demand transport providers can add specific technology modules to their platforms, such as smart tracking and route optimization, opt for a ready-made solution that fits their needs, or build their system from scratch. The backend capabilities of the solution will influence the frontend functionalities the platform provides.
The Backend Engine Behind On-Demand Platforms
In order to provide consumers with convenient, flexible, and efficient travel experience, on-demand platforms utilize a variety of technologies:
- Route optimization: Waypoints sequencing algorithms provide drivers with real-time locations and traffic conditions, helping to optimize driving route for multiple pickups or deliveries.
- Matching demand and supply: Transport platforms can help match customers with service providers. First, the GPS pinpoints the location of the customer. The system then adds the customer request, and searches for nearby and available suppliers who qualify for the job.
- Digital mapping: Global Positioning System (GPS) technology enables users and system administrators to continuously improve maps by providing real-time updates.
- Sensor awareness: Provide vehicles with the ability to be aware of their surroundings. Vision sensors provide a perception of the vehicle’s surroundings through cameras, road sensors orient the vehicle to its position on the road, and traffic sensors can let the vehicles know what other vehicles are around.
- Data collection: Intelligent Transportation Systems (ITS) collect, distribute, analyze, and store data from sensors and systems. An ITS often serves as a centralized digital hub that provides transport information for administrators and system users.
- Transportation forecasting: Involves the analysis of current traffic data, in correlation with predictable information about the population, employment, trip costs and rates. This analysis is used for the development of a predictive traffic demand model that sheds light on the current situation.
- Dynamic pricing algorithms: collect real-time data on the behavior of users, road conditions, fuel time, holidays, and any variable that might influence the demand for the transport service. The algorithm analyzes data and provides suggestions for price modifications. Some algorithms can adjust the price automatically while others send alerts to administrators.
The Functionalities of On-Demand Mobile Applications
On-demand marketplaces mediate customer and service provider interaction. All transactions take place via a mobile application. Users pay a nominal fee for fast, easy, and convenient ways to map, order, share and pay for the transit route that suits them most.
The following are key modules in a typical on-demand mobile app:
- Customer location: Location is an important factor in a transport transaction. A service provider relies on the app’s ability to chart a fast route to the consumer’s coordinates.
- User-centric functionality: Customers value a wide range of functionality. On-demand transport apps provide features like scheduling, payment processing, personalization and customization.
- Flexibility: Unlike traditional transport services, on-demand services require no commitment. App users can make an order as needed.
- On-demand delivery: Also known as ‘last-mile’ delivery. With on-demand delivery, consumers can schedule or book the delivery to a specific time and place. A noteworthy example is Amazon Prime’s paid membership which provides two-day and same-day shipping for some items.
While on-demand apps digitize a specific transport ordering process, Mobility as a Service (MaaS) platforms digitize the transport experience. A MaaS platform provides a variety of transport functionalities such as ordering, tracking, travel, and payment, for a variety of transport modes such as buses, taxis, and trains. To provide users with optimal transport, MaaS platforms factor in situational data from cities and roads.
The MaaS market has been on the rise since 2013, and it’s expected to reach $253.16 billion by 2023. The key success factor that we all should be eyeing is their ability to incorporate a variety of transportation modes and suppliers into a unified platform. This level of integration will open up new optimization possibilities such as commute load balancing so cities can prevent traffic jams before the happen. Yet convincing major on-demand transportation solutions to join MaaS solutions is not necessarily in their best interests as MaaS is inherently against transportation monopolies. It remains to be seen which on-demand transportation solutions will attempt to transform into MaaS solutions, which will join other MaaS solutions and which will oppose it outright.