Sizing the Local On-Demand Economy: 2016 — 2017

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Uber, Lyft, HomeAdvisor, and hundreds more companies have emerged in the local on-demand economy, reshaping local services and employment structures. The latest, receiving an undisclosed amount in Series A funding today, is Grab A Gardener. More than $16 billion in venture investment has flowed into on-demand to date, but the industry has yet to deliver reliable profits. This year will be an important inflection point, based on the rising tide of digital transformation in business and the wild, woolly political climate.

How big was the on-demand economy in 2016 and where is it headed? Let’s look at the numbers.

BIA/Kelsey has tracked this industry since late 2014. In 2015, we estimate the total U.S. on-demand transaction value — the fees paid by consumers — was $22 billion, $3.5 billion more than the $18.5 billion we originally projected. In 2016, we estimate the total market value for the local on-demand industry was worth $34 billion in the United States, or 5.1 percent of the addressable market of $660 billion in household services.

It’s about the fees, and a lot more

A caveat to remember: When we talk about revenue in on-demand, we’re discussing the marketplace’s share of revenue from work delivered by its on-demand contractors. These service marketplaces, however, transfer 3.5 to 5.5 times the revenue they capture from customers to service providers, typically keeping more than a fifth of every transaction. Uber and Lyft take between 20 percent and 30 percent of the trip revenue they generate. HomeAdvisor’s fees are more complex, because their providers can price services freely, but tend to be in the 20 percent range, as well.

Uber ($5.5 billion), Lyft ($700 million) and HomeAdvisor (approximately $505 million), a division of IAC Corp., collectively accounted for about $6.7 billion in revenue last year, yet they processed between $23.5 billion in transactions in 2016.

HomeAdvisor is the only profitable group among these Big Three on-demand markets, earning $35.9 million in the first nine months of 2016, and apparently on track to come close to, or exceed, $50 million in profit for the year, according to IAC’s Securities & Exchange Commission filings. The private company leaders, Uber and Lyft, collectively lost about than $6.4 billion last year despite year-over-year revenue growth of 175 percent and 98 percent, respectively.

After these leaders, the remainder of the on-demand market accounted for $10.5 billion across more than 1,600 companies operating primarily in the United States. European, Asian and Middle Eastern on-demand services are growing at the same pace, but we do not include them in our estimates.

Faster than eCommerce

Local on-demand services reached 5.1 percent penetration of the addressable market in the U.S. last year, and we expect it to rise to near 7.3 percent in 2017 as more companies embrace on-demand delivery, services and support. By comparison, eCommerce has only reached 8.4 percent of total U.S. retail sales, according to the U.S. Department of Commerce as of Q3 2016, more than 20 years after its introduction.

BIA/Kelsey estimates that in 2017, the addressable market for on-demand services will reach $785 billion. This represents the value of consumer transactions that could be sold by on-demand marketplaces and services to U.S. households. If current trends hold, U.S. on-demand spending could reach $57 billion in 2017.

Watch for our upcoming research report, On-Demand Services: Economic Powerhouse for Localism. If you would like to discuss BIA/Kelsey’s on-demand advisory services, please contact Mitch Ratcliffe.

 Correction: An earlier version of this article reported that Uber and Lyft collectively lost $3.4 billion in 2016. The correct estimate is $6.4 billion.

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