As apps for on-demand services proliferate, investors are cracking open their wallets

Mobile applications that offer on-demand access to services such as grocery shoppers, housekeepers and dry cleaners are quickly gaining customers in a world where people’s daily lives are increasingly managed via smartphone.

Investors have taken note.

Last week, District-based Revolution led a $30 million investment in Handybook, a company that connects homeowners with maids, painters, electricians and others who help keep the house in order.

Instacart, a company that delivers groceries to your door in as little as an hour, is set to announce a $44 million deal today anchored by Silicon Valley heavyweight Andreessen Horowitz, the financial backers behind Airbnb, Facebook, Foursquare and Groupon.

The recent venture capital deals lend added legitimacy to this burgeoning class of apps, which give individuals the efficiency and instant gratification that comes with outsourcing tedious chores with just a few swipes on a smartphone.


The Instacart app. (Courtesy of Instacart)

“People’s behavior is changing, and more and more people want the convenience of ordering from their smartphone and having things delivered to their door as soon as possible,” Instacart chief executive Apoorva Mehta said.

They also don’t want to pay a lot for it. Most apps charge a delivery fee based on the size of an order and how quickly the customer needs it, but the prices are significantly less than what one might pay for a personal assistant or full-time housekeeper.

Revolution co-founder Donn Davis sees these apps as the newest incarnation of the sharing economy, a concept by which consumers use communal resources, such as cars, rather than having their own.

“The marketplaces that enable on-demand services is a natural evolution of this whole sharing economy. You really connect providers with people who need the service directly. Sometimes it’s around cars, sometimes it’s around [the] home, sometimes it’s around cleaning,” Davis said.

Reaching profitability for these companies requires that existing customers come back to the app on a regular basis and that a continuous stream of new customers sign up. That often means conquering new cities before competitors make it there first.

Instacart debuted in the Washington region in February and now accepts orders for most major supermarkets in the area. Mehta said the company operates in 10 cities to date, but plans to add another seven before year’s end.

“There definitely is a land grab aspect to this, but the fact is once you understand the economics, there’s no reason why you wouldn’t want to expand,” Mehta said.

The economics and logistics of on-demand apps are perhaps the most complicated aspect of the business. Each app requires a fleet of drivers or couriers, most of whom work as independent contractors, capable of delivering the goods in a timely manner.

In the District alone, a handful of applications have launched in just the past six months.

Postmates, for example, promises to deliver food, books, office supplies or any other item from local outlets to your home or office in under an hour. Washio debuted shortly thereafter to collect dirty laundry and dry cleaning from your house, and return it washed, dried and pressed at a scheduled time.

Mehta at Instacart doesn’t foresee a time when an on-demand app will exist for all of life’s tasks. There are enough people who find grocery shopping, laundry and cleaning bothersome enough that they will summon outside help. That’s not the case with every activity.

“You really can’t force on-demand [services]. There needs to be a requirement by the customer,” Mehta said. “Grocery shopping is really a painful chore and removing that pain point for customers is an important problem. That’s what we’re solving.”

This genre of applications traces its origin to the infamous car service app Uber. Reviled by cabbies and adored by users, Uber allows smartphone-havers to plug in their location and request a driver who appears at the curb within minutes.

“I don’t think we can dismiss transactions on Web and on mobile as a fad. I don’t agree with the Uber for everything analogy that people talk about, but what’s very real is we’re seeing more transactions for services on Web and on mobile,” Handybook chief executive Oisin Hanrahan said.

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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