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The On-Demand Economy: How Big is it (and How do
we Accurately Measure its Size?)
PRESENTED TO:
SEPTEMBER 8, 2018
PRESENTED BY
Charles L. Colby, Rockbridge Associates, Inc.
A. Parasuraman, University of Miami
• The Problem
• Definition of the On-Demand Economy
• Issues in Estimation
• How we Estimate the Size of the Market
• Estimates of Size
• Learning
Agenda
• The market size and growth rate for cutting-edge services is a matter of
interest to a broad group of audiences, including investors, policy makers, and
affected industries.
• Examples from history: CB radios, personal computers, mobile telephones,
the internet, broadband internet, smartphones, ecommerce, social media,
HDTV, 3D TV
• Examples for the future: blockchain computing, crypto-currency, augmented
reality, service robotics
• When a new service category shows promise of being transformational, there
is a strong interest in estimating adoption, market size, and market growth
The Problem
• Primary Data Sources (Surveys)
• Measurement error – respondents lack familiarity with the service, and there is usually a
greater tendency in surveys to overstate rather than understate awareness and usage.
(Also a problem with brand and advertising recall).
• Interpretation bias – funders of research have a stake in overestimating market size
and/or fail to adjust for measurement error. (In some cases, a party may also have a
stake in underestimating a market).*
• Secondary Data Sources
• Privacy of sources – companies offering cutting-edge services are typically privately held
and do not fully disclose sales data.
• Group-think/Hype – media consensus emerges that discredits analysts who provide
smaller than expected estimates of size.
Challenges in sizing markets for cutting-
edge services
*https://www.bls.gov/careeroutlook/2016/article/what-is-the-gig-economy.htm
“Services or products from an “on-demand” platform that use a website or
app to connect consumers directly with the person who provides the
service or product.”
Transportation
Food & Grocery Delivery
Home Services
Valet Parking
Freelance
What is the on-demand economy?
Retail Delivery
Health & Beauty
Online Marketplaces
Housing
• This economy has a “demand side” (purchasers/sales) and a “supply side”
(providers/income). Estimates of sales vary considerably…
• In 2015, 22.3 million consumers and $58 billion in spending (HBR Blog by Colby
and Bell)
• In 2015, $22 billion in sales, projected to reach $57 billion by 2017 (BIA/Kelsey, Inc
Magazine)
• 2025, projected to be $335 Billion (PWC)
• 2018, 86.5 million adults (42%) have used at least one ODE service (Burson-
Marsteller)
• 72% of Americans have used on-demand services (Winnesota)
How big is the on-demand economy?
• Fraudulent or inattentive respondents
• Can result in inflating the incidence and the observed market size
• Solution: QC checks
• Guessing by respondents
• Assuming the answer is “yes” when the description is unclear or complicated
• Solution: “speed bumps” that force respondents to slow down and think
• Failure to understand the concept
• Sincere respondents may honestly think they purchased the service but mistook it for
something else (e.g., confusing Yellow Cab for Uber, Hilton for Airbnb)
• Solution: collect brand names and apply rules for correcting estimates
Challenges in estimating the market size of
a cutting-edge service using surveys
• National Technology Readiness Survey (NTRS). Authored by Rockbridge
Associates, Inc. and A. Parasuraman, the NTRS has tracked consumer
technology trends since 1999. The study is co-sponsored by the Center for
Excellence in Service, Robert H. Smith School of Business, University of
Maryland and Intuit.
• Sample source consists of reliable research panel (ResearchNow).
• The sample size was 1,032 in 2016 and 1,004 in 2017. The margin of error is
+/- 3 percentage points.
• Data are weighted by age, sex, education and race to match the U.S.
population of 215 million online adults.
How we measure the size of the on-demand
economy
ODE6.0. Some consumers may purchase services or products from an “on-
demand” platform that uses a website or app to connect them directly with the
person who provides the service or product. Have you heard of these?
1 Yes
2 No
3 Maybe
ODE6.1. The following are features of “on-demand” platforms. Please tell us
what you think of each.
1 Advantage
2 Disadvantage
3 Does not matter
A. They connect you directly with another person who provides the service as
opposed to a company
B. They allow you to find the service or product online using a website or app
C. They often include features that allow you to conveniently pay for and track
progress using a website or app
How we measure the size of the on-demand
economy - Questionnaire
These questions
are designed to
force respondents
to think carefully.
They also provide
valuable data.
How we measure the size of the on-demand
economy – Questionnaire (cont’d)
ODE6. In the last 12 months, have you used a web-based “on-demand” platform to locate a provider of services or
products? Examples include transportation, freelancing, ad hoc consulting, food or product deliveries, help with chores,
trading on eBay, and renting space. Please do NOT count placing online ads in places like Craigslist.
1 Yes
2 No
3 Not sure if what I used was an on-demand service
4 Not sure because it may have been more than 12 months ago
ASK IF ODE6=1 OR 3.
ODE6A. In the last 12 months, which online demand platforms did you use to locate a provider of services or products?
Examples include transportation, freelancing, ad hoc consulting, food or product deliveries, help with chores, trading on
eBay, and renting space. Please do NOT count placing online ads in places like Craigslist.
1 Company: _______________
2 Company:_______________
3 Company:_______________
4 Cannot remember name
5 None [SKIP TO NEXT ODE SECTION]
This question gauges
the respondent’s
level of certainty of
purchase
Coded as:
• Accurate
• Mixed
• Unclear (maybe)
• Inaccurate/garbage
How we measure the size of the on-demand
economy – Questionnaire (cont’d)
[ASK IF ODE6 = YES OR NOT SURE]
ODE7. In the last 12 months, have you obtained any of the following types of services
though an “on-demand” technology platform? Select all that apply. RANDOMIZE
1 Received transportation (e.g., Uber, Lyft)
2 Had food or groceries delivered (e.g., Instacart)
…
11 None
[ASK IF ODE7 NOT = 11]
ODE8. In a typical month, approximately how many times do you use this type of
service? (SHOW DROP DOWN FOR EACH SERVICE MENTIONED IN ODE7)
[ASK IF ODE7 NOT = 11]
ODE9. Approximately how much did you spend the last time you used the service?
(SHOW DROP DOWN FOR EACH SERVICE MENTIONED IN ODE7) Respondents have a second
chance to indicate they did not
purchase.
We capture
incidence by
category,
monthly
usage, and $
spent on last
transaction.
How we measure the size of the on-demand
economy – estimation model
Population
Weight
Category
Usage
Monthly
Transactions
$ spent on
most recentX X X
• Each respondent is assigned to a certainty tier based on their level of
confidence in their answers and their accuracy in the open-ended questions.
 Definitely
 Likely
 Possible
 Unlikely
Aggregate estimates are produced for each certainty tier. Our
baseline model is:
100% X $ in Definitely Category +
75% X $ in Likely Category +
50% x $ in Possible Category.
On-Demand Economy Consumer Spending (Billions) by Category, 2016-2017
48.0
18.6
6.8 5.0 3.9 4.6
9.1
75.7
29.3
14.2 10.6 8.2 5.5 8.0
Total Online
Marketplace
Transportation Housing Food Delivery Health/Beauty Other
2016
2017
• Most recent estimates, correcting for errors, reveals annual sales of $75.7 billion in
2017, a growth of 58%
• 41.5 million consumers in 2017, up from 24.9 million the previous year
How big is the on-demand economy?
Lower bound: $49.2
Upper bound: $106.3
INTRODUCTION
“Innovation distinguishes between a leader and a follower.” – Steve Jobs
Innovation Creates Leaders
Can a non-technology based company be
considered highly innovative?
INTRODUCTION
Apple
Amazon
Ikea
Toyota
Netflix
Airbnb
Southwest Airlines
Samsung
John Deere
Honda
01
02
03
04
05
06
07
08
09
10
10 Most Innovative Companies
WRAP UP
• For survey-based estimates, make sure to carefully present the
product concept
• Quality control checks are key
• Need to adjust for overestimating
• Growth can be tracked by monitoring the change in core metrics
• Useful to corroborate with industry players
Learning
FOR MORE INFORMATION, PLEASE CONTACT:
Charles Colby
Chief Methodologist and Founder
ccolby@rockresearch.com
+1 703 757 5213 ext. 12
THANK
YOU!

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The On-Demand Economy: How Big is it (and How do we Accurately Measure its Size?)

  • 1. The On-Demand Economy: How Big is it (and How do we Accurately Measure its Size?) PRESENTED TO: SEPTEMBER 8, 2018 PRESENTED BY Charles L. Colby, Rockbridge Associates, Inc. A. Parasuraman, University of Miami
  • 2. • The Problem • Definition of the On-Demand Economy • Issues in Estimation • How we Estimate the Size of the Market • Estimates of Size • Learning Agenda
  • 3. • The market size and growth rate for cutting-edge services is a matter of interest to a broad group of audiences, including investors, policy makers, and affected industries. • Examples from history: CB radios, personal computers, mobile telephones, the internet, broadband internet, smartphones, ecommerce, social media, HDTV, 3D TV • Examples for the future: blockchain computing, crypto-currency, augmented reality, service robotics • When a new service category shows promise of being transformational, there is a strong interest in estimating adoption, market size, and market growth The Problem
  • 4. • Primary Data Sources (Surveys) • Measurement error – respondents lack familiarity with the service, and there is usually a greater tendency in surveys to overstate rather than understate awareness and usage. (Also a problem with brand and advertising recall). • Interpretation bias – funders of research have a stake in overestimating market size and/or fail to adjust for measurement error. (In some cases, a party may also have a stake in underestimating a market).* • Secondary Data Sources • Privacy of sources – companies offering cutting-edge services are typically privately held and do not fully disclose sales data. • Group-think/Hype – media consensus emerges that discredits analysts who provide smaller than expected estimates of size. Challenges in sizing markets for cutting- edge services *https://www.bls.gov/careeroutlook/2016/article/what-is-the-gig-economy.htm
  • 5. “Services or products from an “on-demand” platform that use a website or app to connect consumers directly with the person who provides the service or product.” Transportation Food & Grocery Delivery Home Services Valet Parking Freelance What is the on-demand economy? Retail Delivery Health & Beauty Online Marketplaces Housing
  • 6. • This economy has a “demand side” (purchasers/sales) and a “supply side” (providers/income). Estimates of sales vary considerably… • In 2015, 22.3 million consumers and $58 billion in spending (HBR Blog by Colby and Bell) • In 2015, $22 billion in sales, projected to reach $57 billion by 2017 (BIA/Kelsey, Inc Magazine) • 2025, projected to be $335 Billion (PWC) • 2018, 86.5 million adults (42%) have used at least one ODE service (Burson- Marsteller) • 72% of Americans have used on-demand services (Winnesota) How big is the on-demand economy?
  • 7. • Fraudulent or inattentive respondents • Can result in inflating the incidence and the observed market size • Solution: QC checks • Guessing by respondents • Assuming the answer is “yes” when the description is unclear or complicated • Solution: “speed bumps” that force respondents to slow down and think • Failure to understand the concept • Sincere respondents may honestly think they purchased the service but mistook it for something else (e.g., confusing Yellow Cab for Uber, Hilton for Airbnb) • Solution: collect brand names and apply rules for correcting estimates Challenges in estimating the market size of a cutting-edge service using surveys
  • 8. • National Technology Readiness Survey (NTRS). Authored by Rockbridge Associates, Inc. and A. Parasuraman, the NTRS has tracked consumer technology trends since 1999. The study is co-sponsored by the Center for Excellence in Service, Robert H. Smith School of Business, University of Maryland and Intuit. • Sample source consists of reliable research panel (ResearchNow). • The sample size was 1,032 in 2016 and 1,004 in 2017. The margin of error is +/- 3 percentage points. • Data are weighted by age, sex, education and race to match the U.S. population of 215 million online adults. How we measure the size of the on-demand economy
  • 9. ODE6.0. Some consumers may purchase services or products from an “on- demand” platform that uses a website or app to connect them directly with the person who provides the service or product. Have you heard of these? 1 Yes 2 No 3 Maybe ODE6.1. The following are features of “on-demand” platforms. Please tell us what you think of each. 1 Advantage 2 Disadvantage 3 Does not matter A. They connect you directly with another person who provides the service as opposed to a company B. They allow you to find the service or product online using a website or app C. They often include features that allow you to conveniently pay for and track progress using a website or app How we measure the size of the on-demand economy - Questionnaire These questions are designed to force respondents to think carefully. They also provide valuable data.
  • 10. How we measure the size of the on-demand economy – Questionnaire (cont’d) ODE6. In the last 12 months, have you used a web-based “on-demand” platform to locate a provider of services or products? Examples include transportation, freelancing, ad hoc consulting, food or product deliveries, help with chores, trading on eBay, and renting space. Please do NOT count placing online ads in places like Craigslist. 1 Yes 2 No 3 Not sure if what I used was an on-demand service 4 Not sure because it may have been more than 12 months ago ASK IF ODE6=1 OR 3. ODE6A. In the last 12 months, which online demand platforms did you use to locate a provider of services or products? Examples include transportation, freelancing, ad hoc consulting, food or product deliveries, help with chores, trading on eBay, and renting space. Please do NOT count placing online ads in places like Craigslist. 1 Company: _______________ 2 Company:_______________ 3 Company:_______________ 4 Cannot remember name 5 None [SKIP TO NEXT ODE SECTION] This question gauges the respondent’s level of certainty of purchase Coded as: • Accurate • Mixed • Unclear (maybe) • Inaccurate/garbage
  • 11. How we measure the size of the on-demand economy – Questionnaire (cont’d) [ASK IF ODE6 = YES OR NOT SURE] ODE7. In the last 12 months, have you obtained any of the following types of services though an “on-demand” technology platform? Select all that apply. RANDOMIZE 1 Received transportation (e.g., Uber, Lyft) 2 Had food or groceries delivered (e.g., Instacart) … 11 None [ASK IF ODE7 NOT = 11] ODE8. In a typical month, approximately how many times do you use this type of service? (SHOW DROP DOWN FOR EACH SERVICE MENTIONED IN ODE7) [ASK IF ODE7 NOT = 11] ODE9. Approximately how much did you spend the last time you used the service? (SHOW DROP DOWN FOR EACH SERVICE MENTIONED IN ODE7) Respondents have a second chance to indicate they did not purchase. We capture incidence by category, monthly usage, and $ spent on last transaction.
  • 12. How we measure the size of the on-demand economy – estimation model Population Weight Category Usage Monthly Transactions $ spent on most recentX X X • Each respondent is assigned to a certainty tier based on their level of confidence in their answers and their accuracy in the open-ended questions.  Definitely  Likely  Possible  Unlikely Aggregate estimates are produced for each certainty tier. Our baseline model is: 100% X $ in Definitely Category + 75% X $ in Likely Category + 50% x $ in Possible Category.
  • 13. On-Demand Economy Consumer Spending (Billions) by Category, 2016-2017 48.0 18.6 6.8 5.0 3.9 4.6 9.1 75.7 29.3 14.2 10.6 8.2 5.5 8.0 Total Online Marketplace Transportation Housing Food Delivery Health/Beauty Other 2016 2017 • Most recent estimates, correcting for errors, reveals annual sales of $75.7 billion in 2017, a growth of 58% • 41.5 million consumers in 2017, up from 24.9 million the previous year How big is the on-demand economy? Lower bound: $49.2 Upper bound: $106.3
  • 14. INTRODUCTION “Innovation distinguishes between a leader and a follower.” – Steve Jobs Innovation Creates Leaders
  • 15. Can a non-technology based company be considered highly innovative? INTRODUCTION Apple Amazon Ikea Toyota Netflix Airbnb Southwest Airlines Samsung John Deere Honda 01 02 03 04 05 06 07 08 09 10 10 Most Innovative Companies
  • 16. WRAP UP • For survey-based estimates, make sure to carefully present the product concept • Quality control checks are key • Need to adjust for overestimating • Growth can be tracked by monitoring the change in core metrics • Useful to corroborate with industry players Learning
  • 17. FOR MORE INFORMATION, PLEASE CONTACT: Charles Colby Chief Methodologist and Founder ccolby@rockresearch.com +1 703 757 5213 ext. 12 THANK YOU!

Editor's Notes

  1. Interestingly, my blog post with Kelly Bell is among the most widely cited. We may have overestimated some by about 20% by not accounting for measurement error. If the average person spent $1000 to $2000 a year, the Burson-Marsteller study would map out to $87 to $173 Billion year (assuming 42% is a 12 month period, which many assume when quoting the source). The Winnesota statistic would project out to around $148 to nearly $300 billion using the same approach. A lot of this could be due to definitional issues.
  2. 2016 was fielded in early December; 2016 was fielded in late October 2017 The population of adults of 18+ is about 250M, and the incidence of internet access is 88% in the U.S.
  3. Examples: accurate are “Uber,” “Grubhub,” “Airbnb,” “Etsy”. Mixed: one answer that is accurate but another that is inaccurate or unclear Very few were actually unclear. Garbage was typically a nonsensical answer.
  4. For example, if someone gave erroneous answers, we would treat them as “Definitely.” If they gave mixed answers and were confident, we would consider them “Likely”. If they gave mixed answers and were not very confident (said “maybe” about usage), we would consider them “Possible”. Our experience shows that people often give confusing behavioral reports in a survey but are actually category users.
  5. The lower bound assumes more stringent criteria for handicapping by certainty tier, while the upper bound assumes 100% of Definitely, Likely and Possibly answers are actual spending.