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Gig Economy: Industries Embracing Mobile-Enabled Business Models

Technology has always been a crucial component of industry development and efficiency. While innovations in alternative energy and automation have improved processes in manufacturing and utilities industries, the rise of the internet and mobile technology has transformed dynamics within the retail, wholesale and service sectors. Developments in mobile commerce have allowed manufacturers, wholesalers and retailers to connect to consumers at the click of a button and add efficiency to the supply chain. For service industries, the steady adoption of mobile technology has not only connected more consumers to service providers, but has fostered the creation of new types of business models. Over the past five years, the “gig economy,” “sharing economy,” “collaborative economy” and “on-demand economy” have emerged as new ways to connect consumers with traditional and nontraditional service providers. Although these models operate differently, they have collectively affected the services sector by adding a virtual intermediary between the service provider and consumer. The growing dominance of technology in service-providing industries has also created more intense price competition and issues surrounding regulation.  The following is a list of industries that have been influenced by the implementation of these mobile-enabled business models.

Ride-sharing Services

The Taxi and Limousine Services industry has arguably been at the forefront of the shifting mobile
service economy. Early in the five years to 2017, e-hailing services such as Uber and Lyft surged in ridership and have ultimately changed the size and scope of the industry. While revenue from traditional taxis has increased substantially during the five-year period, most of the $19.1 billion industry’s 6.3% annualized growth has been a result of the explosive popularity of these mobile apps. Prior to the inception of these apps, the majority of industry operators were highly regulated, unionized and operated with a registered medallion. As more transactions have been brokered through e-hailing apps, fewer drivers have set hours, medallions or
formalized industry registration, which has led to a less regulated industry. For a cut of the fare, e-hailing apps connect virtually any aspiring driver with an approved car and clean driving record to ride-seeking consumers. Although the convenience and economy of these apps have elevated industry revenue and connected more drivers with riders, the lack of regulation has presented a number of issues. With no formal governing body, ride-sharing apps have been able to price their services with less restrictions. Most major ride-sharing apps use “surge pricing,” which boosts the price of rides during times of high demand. On the other hand, because e-hailing services are relatively new and unregulated, predatory pricing and promotions have also become a common way for companies to gain market share. These pricing strategies have impacted both the competitive nature of the industry and the level of compensation. Over the five years to 2017, the number of industry operators has increased at an annualized rate of 11.2%, while wages have increased at a slower annualized rate of 8.2%. This has led to a lower average wage, even with drivers working typically longer hours. Barring stricter regulations and more standardized pricing policies, this trend is expected to continue over the next five years.

Room-sharing services 

The adoption of technology has also changed the landscape of accommodation services. Although most operators in the $3.0 billion Bed and Breakfasts industry have online booking systems, room-sharing apps like Airbnb and price-comparison applications have added a higher level of competition to the industry over the past five years. Like ride-hailing apps, room-sharing companies act as a broker between accommodation seekers and everyday consumers looking to rent out their home or apartment. The popularity of subletting a spare room to short-term tourists and travelers has allowed those unwilling to comply with the regulatory hurdles of a certified bed and breakfast establishment to offer their spare rooms to the public. While the industry is not highly regulated overall, traditional operators have to conform to general local and state planning (including fire safety) laws, general public health (including food safety and handling) laws, occupational health and safety regulations and liquor licensing laws (if licensed), while peer-to-peer hosts comply with policies outlined by the company brokering the transaction. The lax regulatory environment has brought over 173,000 peer-to-peer hosts into the market between 2010 and 2016, compared with a sluggish 0.1% annualized growth of traditional bed and breakfasts over the five years to 2017. The influx of competing room-sharing transactions has also added to the competitive landscape of the $173.3 billion Hotels and Motels industry. Traditionally, hotels and motels have not been direct competitors, due to the variability between service and location. Especially in urban areas, peer-to-peer accommodation services have somewhat bridged the gap between hotels and bed and breakfasts, which has led to a higher level of price competition and service offering.

Food services

Low unemployment levels and rising incomes have enabled more consumers to order meals outside the home, causing restaurant operators to flourish over the five years to 2017. The steady adoption of mobile-based technology has also changed dynamics within the food services industry. Conventionally associated with Chinese restaurants and the Pizza Restaurants industry, delivery services have grown in size and scope in line with the shifting mobile “on-demand” economy. Mobile food delivery apps from providers such as GrubHub, Postmates and Doordash have enabled more restaurants to reach a wider range of hungry consumers through pick-up and delivery services. For the $183.5 billion Single Location Full Service Restaurants industry, the rise in demand from such delivery services has helped many small operators maintain business in the highly competitive market. Even so, the rise in sales generated from these third-party services comes at a price. In addition to the commission allotted to the service provider, restaurants often have to compete based on price due to the ease of price and menu comparison these apps provide consumers. While food delivery services have allowed restaurants to boost sales through online orders, mobile apps have also connected food-service providers to consumers in a variety of other ways. Although not a direct service broker, reservation booking apps like OpenTable and crowd-sourcing review sites such as Yelp have connected hungry patrons with restaurants at the click of a button. These services allow consumers to find, compare and book tables based on price range, location and overall service and menu rating. In previous decades, restaurants relied heavily on word-of-mouth marketing as well as a variety of third-party rating publications like the Zagat guide and newspaper print reviews to draw in new customers. As more consumers use these services, many small operators have had to invest more time and resources into maintaining positive reviews and visibility on these mobile platforms. As a result, competition has increased, while continued investment in marketing has kept average industry profit low.

Other Services

From baby sitting and lawn mowing to wedding singing and personal training, the “gig economy” has been a crucial component of the service sector and the daily lives of consumers. The economy is based on demand from households and individuals who require assistance with short-term tasks or jobs. Industries that generate a large portion of revenue from gigs (i.e. nonemployers) include Online Tutoring, Dog Walking, Maids, Nannies and Gardeners, Personal Trainers, Graphic Designers, Party and Event Planners and Photographers. Although many gig performing employees operate as registered businesses, many transactions are completed “under the table” by using cash and verbal agreements rather than formal contracts, payroll and taxes. Just as with e-hailing, room-sharing and online food delivery services, industries primarily dominated by gigs have been influenced by the rapid adoption and use of mobile technology. Traditionally, gigs have been booked through personal referrals, agencies and newspaper and internet listings. However, more gig-specific apps and websites have been created in recent years, enabling consumers to quickly and easily find and book the desired service, while comparing prices and consulting reviews from previous clientele.  Sites like Care.com and Urbansitter have connected millions of families and individuals with care providers while enabling them to screen potential candidates and compare hourly rates. Similarly, apps like TaskRabbit and Amazon Flex allow everyday individuals to complete everyday tasks, such as home cleaning services and small repairs, at a set price. Not only have these apps connected more service providers with consumers, but they have altered the transaction process. Mobile booking and billing capabilities have created more formal and traceable exchanges previously handled through “under the table” transactions without payroll tax. While the regulatory environment of industries such as taxis and bed and breakfasts have become murkier due peer-to-peer transactions, the use of mobile apps and payment has made previously “under the table” transactions typical of the gig economy more formalized and traceable.

Gig Economy: Industries Embracing Mobile-Enabled Business Models

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