, 23 Apr 2015

This post is the latest in a weekly series of excerpts from BIA/Kelsey’s recent report on the Local On-Demand Economy (LODE). The series will lead up to BIA/Kelsey NOW, a conference on LODE that will take place June 12 in San Francisco.

The success of companies in the local on-demand economy (LODE) hinges on creating network effect and balance in two sided marketplaces (supply and demand). These must grow together in unison, and in a step function that usually leads with adequate supply (i.e., enough Uber drivers).

Last week we examined demand, so now it’s time to zero in on these supply-side dynamics. There are many factors including economic (unemployment rates), geographic (urbanization) and generational (millennial work habits). These are all colliding to form the “1099 economy” at the heart of LODE.

A related excerpt from our LODE white paper is below. Consider it a primer for the discussion we’ll have on stage at BIA/Kelsey NOW. Let me know if you’d like to participate (mbolandATbiakelsey.com) and stay tuned for lots more coverage.

Next week’s excerpt: LODE’s Impact on Local Media.

Supply Side: The 1099 Economy

The two-sided marketplaces that define LODE mean that user and service provider growth must happen in approximate balance. There are unique market factors that create that balance and drive growth on each side of the supply/demand equation. The demand drivers were just covered.

For the supply side, LODE is keeping pace as its financial and lifestyle benefits are made known to service providers. This is important because the step function that defines LODE’s supply/demand balance usually starts with the supply side (i.e. enough Uber drivers).

This has been driven (excuse the pun) partly by high unemployment rates that create a larger eligible pool of service providers. For example, Uber had 160,000 drivers at the end of 2014. 40,000 signed up in December alone, and its cumulative total is doubling every six months.

Adequate supply is also driven by larger trends such as the percentage of the population that is concentrated in urban areas. This creates a larger eligible pool of suppliers. It also concentrates demand within a defined area, which provides ROI incentive for suppliers to operate.

Drilling down to more direct and tangible motives, there are often economic benefits for service providers. As mentioned above, reduction in marketing and operational costs enable individuals to sidestep traditional barriers to entrepreneurship. And some LODE services offer quick revenue.

A study by Princeton economist Alan B. Krueger reports that Uber drivers earn $19 per hour on average, and a majority are very satisfied.¯ Drivers were also proven to work fewer hours and earn more than taxi drivers (though they must handle some expenses that taxi drivers don’t).

The Kreuger report also shows that driver growth isn’t receding even as some factors — such as high unemployment — abate. And as Uber lowers rates to the initial detriment of drivers, it argues that increased demand counteracts potential losses (per second order effect outlined earlier).

Punch Out

There is also the matter of flexibility. LODE is causing a cultural shift in the way people think about work. It’s chipping away at a centuries-long societal construct and mindset about working for companies. Ask any Uber driver how much he likes being able to create his own hours.

Though corporations absorb risk and create community — a benefit established as 20th century industrialization and urbanization created the welfare state we now know they also require sizable and sometimes inconvenient commitments from their employees.

And so a key constituency of the emerging 1099 economy has become individuals that require this flexibility out of necessity: students, contract employees, parents, people with multiple jobs. The ability to define one’s hours has been one of the biggest boons for LODE service providers.

For example, most Uber drivers work less than 15 hours per week, according to the Krueger study. According to a driver survey in the report, most are already employed full or part time. Earning additional income was stated as the primary benefit of being an Uber driver.

This flexibility is also perfect for a demographic group examined above in a different context: Millennials. The characteristic flexible hours that several LODE services offer could be form-fitted for a generation that doesn’t want to be told when to come to work.


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, 23 Apr 2015

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Local ad spending reached $137.9 billion in 2014, and will see a slight boost to $139.4 billion in 2015. We talked with BIA/Kelsey Chief Economist and SVP Mark Fratrik about the new research (interview below).

Every year, BIA/Kelsey issues a five-year forecast on local spending in the fall, and then updates it in the following spring based on full year reporting, current trends and anticipated events.

This year’s update shows more spending than originally forecast in 2014, and modest increases in our 2015 given several factors, including a rapid rise in mobile spending.

BIA/Kelsey: We’re seeing a slight uptick from our original forecasts for 2014-2015. What’s driving that?

Mark Fratrik: Local TV spending was stronger in 2014 than we predicted, primarily due to political advertising from many Senate, House and gubernatorial races. And television still drives local political spending, even though its overall growth rates are much lower than online. Television growth rates average 3-4 percent. Online growth is always in double digits, but starts at a much smaller base. To be sure, we aren’t downplaying the shift from traditional advertising to more digital/online/mobile outlets. These new media provide a more focused and efficient advertising vehicle for national and local advertisers to reach their audiences. The shift is especially felt in traditional print outlets, such as newspapers.

BIA/Kelsey: Hundreds of millions of dollars, if not billions, are being raised for the next presidential election. Won’t that drive spending with local television outlets?

Mark Fratrik: We should see an amazing amount of spending coming up in late 2015 into early 2016-15. With a tightly competitive Presidential race on the Republican side, it won’t just be in the early stats of Iowa, New Hampshire, Nevada and South Carolina. And we want to make the point again about online and digital. While political campaigns are increasingly using digital outlets, local TV and cable still see a much larger part of that spending. They’re an important part of that message building.

BIA/Kelsey: The big new local channel is mobile. We see how the Internet pure plays like Google, Facebook and Yahoo are reporting that mobile revenues are moving towards parity with other digital advertising.

Mark Fratrik: Mobile is driving most of the change in the digital space, gaining traction with advertisers, and jumping to an 11.5 percent share of the media pie by 2019 from 3.1 percent a year ago. We are constantly updating and increasing our estimates for mobile spending . By 2019, it will be the fourth highest channel for local media spending in terms of share. Mobile is also driving our increased forecast for social media spending, which will grow by almost 1/3, or 31 percent.

BIA/Kelsey: We’re seeing a lot of activity for digital audio services like Pandora, I Heart Radio and Spotify. How much will they impact local spending, and especially, traditional radio?

Mark Fratrik: Radio is a good illustration of the gap between digital and traditional media revenues. Take Pandora. It will generate nearly $153 million in 2014 in local advertising revenue, which represents really healthy growth. But that is just $153 million of $139 billion in local media spending. And it is only in the Top 50 markets. Conversely, Radio stations continuously to basically hold its own with $14.4 billion in over-the-air advertising spending in 2015, or 10.3 percent.

Chief Economist and SVP Mark Fratrik

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, 22 Apr 2015

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What are the latest trends driving call monetization? Call volume from mobile search continues to ratchet up, and marketers continue to develop sophistication in driving and analyzing those calls. We unpacked this topic earlier today on a webinar hosted by the Direct Marketing Association ( video below).

Marchex also spoke on the webcast to detail its findings from a recent study on call monetization in the financial services vertical (see our writeup). This joins our ongoing coverage of the call monetization opportunity. The video chapter links are below for easy navigation, followed by the full video.

Webcast chapter links

BIA/Kelsey Opening Data & Insights
Marchex: Drilling Down on Phone Leads for Financial Services
Panelist Discussion & Audience Q&A

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, 22 Apr 2015

FiveStars, the well-funded SMB loyalty company that competes against Belly, SpotOn and others, is projecting it will grow its merchant base to 8,000-9,000 businesses by year-end, up from its current base of 6,000 customers. Customers who subscribe to FiveStars premium service pay as much as $200 a month. The San Francisco-based company has received over $45 million in funding.

Growth Manager Brian Lee, in a Webinar discussion with Radius Product Manager John Hurley, said the company is now positioned for rapid growth. Radius’ big data analytics helps it better understand its sales prospects and vertical segments, and manage its sales team.

Specifically, the company has grown increasingly confident in growing its sales team, which consists of 35 inside reps and 50 outside reps. “We had been stuck in neutral” with 15-20 reps for a long time,” notes Lee, who likes to call himself a “revenue hacker.” “But we asked ourselves: ‘Where can we grow as a team?’ Half the battle has been figuring out the addressable market,” he adds — something that Radius has helped with. “We are now ready to grow and talk to customers.”

Lee adds that it hasn’t been a matter of simply adding 20 sales people. “This isn’t a product you can (sell by reading) from a script. Every rep we bring on represents ‘X’ percentage of revenue. It is a very refined model that takes in both the performance of reps and the performance of leads. We look at what leads (the reps) are getting. And how are verticals performing.”

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, 22 Apr 2015

The local on-demand economy (LODE) was the largest recipient of VC funding in 2014. And you can’t throw a stone in the tech blogosphere these days without hitting scores of daily posts about milestones or new funding rounds for LODE startups. We’re even doing a full conference on the topic.

As explored in our LODE white paper, its unit economics, supply chain compression and other advantages are growing into every vertical imaginable. This “uberfication” as its known is taking over everything from drug delivery to doggie day care. See our “LODE verticals” conference session.

But in addition to moving laterally across local service verticals, it’s also making an interesting move up the ladder. In other words, it’s not just for driving and dry cleaning, but it’s beginning to apply to higher-end professional services like designers, doctors and lawyers.

Lawyer Up

The latter is where Avvo lives. For a flat $39 you get 15 minutes with a lawyer to ask them anything. So I decided to try it. After choosing my legal category, I got a confirmation that a lawyer would be calling. Within 2 minutes my phone rang… bonus points for speediness at 5:45 pm on a Friday.

I can’t legally discuss the content of the call, but I can say that it was a good substitution for typical legal consultations that are more costly and time consuming. Though limiting, 15 minutes allows you to ask questions to determine if and what type of legal firepower you might need longer term.

Sometimes the answer is none, or very little and this is a cheap way to find that out. The 15 minutes can also be spent going deeper if the caller is inclined. Bottom line, it’s a good first step in any legal matter and the price is right considering that an hour with a lawyer is usually $300 – $400.

What Avvo has essentially done is brought the LODE model of monetizing remnant inventory to legal. Lawyers have pockets of unmonetized time throughout their day, but it’s not worth their while to schedule those smaller chunks, due to the fixed costs of their time, scheduling and overhead.

But a low-friction tool that lets them deploy that time easily has resonated with Avvo’s extensive network. And because Avvo takes care of the customer acquisition, scheduling and billing, lawyers are willing to charge much less than their standard rates. It’s textbook LODE.

Anything for Hire

Panning back, this shift to higher-end professionals will not only expand LODE from a user perspective but from a provider perspective. As is the case with any two sided marketplace, both need to grow in-step. And it usually starts with the supply side (i.e. enough Uber drivers).

Professional services will be no different. There will need to be adequate supply to reach network effect — a challenge heightened by the fragmentation in areas of specialty (maritime law anyone?). Aggregating supply and creating liquidity will be the name of the game for Avvo and others.

Meanwhile the shift to higher-end professions is underway, which will have wider reaching societal impact in what’s become known as the “1099 economy.” LODE’s overall opportunity grows as the model expands both vertically and horizontally. As we examined in our recent white paper:

High unemployment has created a steady supply of service providers to fill the ranks of LODE’s workforce. Millennials — in addition to being avid consumers of LODE services — also possess work habits that are conducive to the flexibility that LODE service providers enjoy. These factors will further accelerate as LODE services move up market to higher-end professions, such as professional, creative and technical fields.

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