“On-demand economy” is a term coined to describe an app-enabled marketplace that instantly matches those who need a product or service with those who can provide such products and services. The largest and most visible example of a real-time, on-demand marketplace is the ride-sharing company Uber. So many startup companies are modeled on Uber (for markets other than ride-sharing) that tech and finance pundits refer to them as “Uber for X” businesses. Other terms used to describe the on-demand economy, or facets of it, include the “sharing economy,” the “access economy,” the “gig economy,” the “1099 economy” and others.

Overview

Long before the iPhone was created, marketplaces existed to connect those who had a need for a product or service with providers of such services and products. How long before? It started in pre-historic times. The week after fire was discovered, someone got venture funding for a “fire delivery” service.

At its core, the concept of matching buyers with sellers is what the entire market economy is all about. Even in the web era—but before the age of the smartphone app—online talent marketplaces existed for anything from computer programing to voice-over narration.

How smartphone apps enabled online marketplaces to become the on-demand economy

With location-aware smartphone apps connected to the Internet, new types of marketplaces were possible: Soon came the introduction of real-time, any-place fulfillment platforms that could power marketplaces that met the the instant-gratification and instant-fulfillment expectations of the digital age.

So long temps and freelancers, hello gig economy and 1099 workers

One of the business model theories on which the on-demand economy has been established is that providers of services are not employees of the app creator, but are independent workers (sole proprietors, freelancers, etc.). Because the providers in these marketplaces are self-employed, the on-demand economy has also been dubbed the gig economy and the 1099 economy (for the Form 1099 used when filing self-employed tax returns).

Uber for X

The largest example of the kind of company that enables on-demand economic activity is the ride-sharing company Uber. The company’s technology matches those who need a ride with a driver who is willing to provide a ride. Using the technology provided by the Uber App, the driver and passenger are paired instantly and the driver follows a GPS map to pick up the passenger.

Uber’s success and astronomic growth (150,000+ drivers, $50 billion valuation) have inspired an explosion of startups that are trying to create similar marketplaces for apartment cleaning (Handy); the delivery of groceries (Instacart); having ones clothes washed (Washio); and flowers delivered (BloomThat); etc., etc.

Uber’s success has led to an entire industry of startups nicknamed “Uber for X” companies.

Uber and Uber for X companies are trying, in one way or another, to efficiently allocate human beings and their possessions, rather than information.

Reality vs. Perception

In March 2014, Wired magazine ran a long feature by one of its reporters who spent time working at several “gig-economy jobs.” Her experience did not match up with the levels of income the companies used in promoting to potential service providers.

On the other hand, SmallBusiness.com contributor Steve King has explored the potential for a “talent war” where higher and higher prices will be demanded by fewer and fewer service providers.

Legal issues

Another challenge on-demand startups are facing is on the legal front and related to the classification of workers by the IRS (employee or independent contractors). If the IRS rules that service providers participating in on-demand marketplaces are actually employees of companies like Uber, one of the foundations of the entire on-demand concept could dissolve, changing the economics of such startups dramatically. Many of the on-demand economy startups, including Uber, are involved in major lawsuits over this issue. Uber and other companies have already found it necessary to address these issues, as well as the liability issues related to protecting the lives and safety of passengers.