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Vertical Is on the Horizon of the On-Demand Economy

Vertical Is on the Horizon of the On-Demand Economy
Image credit: Shutterstock | Uber | Enhanced by Entrepreneur

The on-demand economy is big and getting bigger. Uber and Airbnb still dominate the U.S. sharing scene right now, but the number of companies launching in this industry grows by the day. The trend has even gone global -- by 2020, the sharing economy will make up 10 percent of China’s gross domestic product, according to that nation's government estimates.

Related: 4 Essentials for Growing an On-Demand Company

In the United States, investments in on-demand companies jumped 514 percent from 2013 to 2014, hitting $4.12 billion, signalling a shift from horizontal business models to vertical marketplaces.

Horizontal marketplaces such as eBay and Craigslist are jack-of-all-trades forums, offering a wide range of goods and services to large audiences. Vertical marketplaces, in contrast, target highly specific problems and customer segments. And in the past, such marketplaces lacked the volume of buyers and sellers to compete with horizontal sites.

But then came eBay and Craigslist, which familiarized millions of consumers with the concept of buying goods from total strangers on the internet. They paved the way for companies such as professional-services marketplace Thumbtack and luxury-brand consignment site The RealReal -- and ultimately for the vertical disruption currently under way. 

Now that people are accustomed to buying online, they want instant access to goods and services. And, here, vertical marketplaces are better suited than horizontal ones to meet the demand. Vertical marketplaces work well in niche fields and therefore offer faster, more efficient matching algorithms.

They also provide more detailed product information and deliver better options to consumers and higher-quality conversion rates to companies.

Here’s what lies ahead in the "age of vertical":

1. Vertical companies will borrow from horizontal strategies. 

Some of the most successful marketplaces begin as vertical solutions and then branch into horizontal services to increase their markets. Uber launched as an on-demand car app, but it’s now moving into food delivery and courier services, with UberEATS and UberRUSH. Companies will increasingly look for opportunities to lock down their verticals and then expand horizontally.

Related: Related: Why On-demand Services Startups Are The Next Big Thing

2. More companies will leverage on-demand marketplaces. 

Restaurants already use delivery services such as Postmates and the ChowNow-UberRUSH partnership instead of keeping on-staff drivers. Retail brands will follow suit by partnering with delivery companies or using the drone marketplace to fulfill seasonal and ad hoc demands. Research indicates that same-day delivery market in the United States will be a nearly $1 billion industry by 2019, so on-demand will soon become the norm.

In the future, companies may use mobile apps to place inventory orders with nearby distributors and watch the delivery vehicle restock the product in real time via smartphone. On-demand staffing will likely become more popular as well.

3. Accessibility will be paramount. 

Intuitive, painless customer experiences can make or break vertical marketplaces. The best-performing platforms, such as Etsy, enable sellers to list items with a few clicks and allow customers to find desired services without needing to input lots of information. Low friction is key to vertical success.

4. Thought leadership will matter more than ever. 

Consumers want to buy on sites that are more than transactional marketplaces. Companies will need to prove that they’re thought leaders when it comes to discovering new talent or products, promoting inspirational work and publishing quality content.

5. Vertical marketplaces will cater to high-frequency, commoditized items. 

People value convenience, low costs and reliable quality. To meet these demands, vertical platforms will focus on straightforward products and services that people need on a daily or weekly basis. They’ll avoid customized offers and stick to goods and services that can easily be reproduced by a large pool of professionals. This model ensures that these marketplaces can always meet customer demand.

Related: 4 Essentials for Growing an On-Demand Company

As marketplaces become more vertically oriented, they’ll also become more efficient. Industries that have been disorganized historically will move toward more streamlined systems, leading to increased revenue for brands and better shopping experiences for consumers. Vertical marketplaces will bring needed disruption and drive the future of ecommerce.