Push button, get groceries: The tech trends behind the on-demand economy

Owen Amsler, an Instacart shift captain, displays the grocery list of a customer in the Whole Foods Market in Boston's South End.
Owen Amsler, an Instacart shift captain, displays the grocery list of a customer in the Whole Foods Market in Boston's South End.

Wayne Chang became a millionaire many times over when Twitter acquired his Cambridge software startup two years ago. Today, at a moment’s notice, he can summon people to drive him to work, do his shopping, or prepare his meals.

But instead of an army of servants, the 31-year-old relies on a smartphone. It’s his connection to a growing number of technology companies that have created what is known as the “on-demand economy.”

And, of course, you don’t have to be rich to get the same treatment. Most on-demand services are aiming for the mass market, making it possible for an average consumer to summon a ride home, order a chef-prepared dinner, and pick a hand-delivered bottle of wine while they shut down their laptop at the end of the workday and head for the exits.

This has been made possible by a combination of advancements that have made technology cheap, accessible, and ubiquitous, allowing relatively small companies to greatly simplify a long list of previously complicated logistics. On-demand companies make it possible by combining their own specialized software with a long list of applications provided by other tech companies: mapping and navigation for drivers, payment processing for buyers and sellers, and text messages or phone calls to keep customers updated.

The roots of the on-demand economy reach back to earlier generations of tech companies, such as online retailer Amazon and video service Netflix, which have continued to speed up their offerings. Amazon now advertises same-day deliveries in 14 cities, while Netflix offers high-quality media streaming with immediate access to entire seasons of TV shows.

Despite the explosion of on-demand companies, it’s far from clear how many will mature into long-lasting, profitable businesses. But for now, investors are betting on the seemingly endless consumer appetite for instant gratification — venture capital research service CB Insights says investors have poured $9.4 billion into mobile on-demand companies since 2010.

“A hundred or 200 years ago, people would have all of these servants to do all of this stuff for you,” said Chang, a cofounder of Crashlytics, which helps developers debug apps. “But this gives the masses the ability to have that kind of service, without all of the overhead and the liability.”

San Francisco-based Instacart is a prime example. The startup offers grocery deliveries in as little as an hour, usually charging the same prices you’d pay walking the aisles yourself, plus a delivery fee.

Since its founding in 2012, Instacart has raised about $275 million in venture capital and expanded into 16 US cities. It provides the official delivery service for big-name retailers such as Whole Foods Market.

Making this service work — and making money from it — is far more complicated than walking down supermarket aisles with a shopping cart. In order to reliably offer grocery deliveries in so many places, Instacart has to know what’s available in any given store, at any given time, and how much those items cost.

And, because Instacart lets customers place grocery orders a few days in advance, the company has to know when a grocery store is expecting a new delivery. It also needs to make sure that it’s got enough people on hand to fill those orders and deliver them to the customers by the promised time.

“It turns out that everyone wants to get their groceries delivered at 6 p.m. on a Sunday night,” Instacart cofounder Max Mullen said.

All this information can be accessed through Instacart’s app by both customers and the workers who fill shopping bags and make the deliveries. It’s the kind of instant problem-solving and logistics that wouldn’t have been possible before smartphones and the advent of cheap “cloud” computing — rented computer servers owned by companies such as Amazon that can handle data storage and number crunching.

Instacart’s software and the powerful servers that run it keep an up-to-the-minute tally on how fast orders are moving through its system. For Instacart workers who are doing the shopping, that means using their smartphone apps to check off each item as they pluck it from the shelf.

The company’s software also can factor in driving times and big events like the Boston Marathon or a Patriots victory parade to predict how long deliveries should take and decide whether a driver can take several orders at once to the same area of a city.

“We have an algorithm that runs every minute of the day that evaluates what orders we have, what supply we have, and whether or not we can take a one-hour order and place it on time,” Mullen said. “Before you’ve even placed an order, we’ve done all the math.”

While it’s no surprise that Amazon’s cloud-computing service would be driving in a new tech movment, smaller companies have also played key roles.

Instacart has used other tech providers that build individual features designed for easy integration into larger software programs. For example, Instacart buys mapping technology from Mapbox, of Washington. Stripe, of San Francisco, powers the payment processing applications, while another San Francisco company, Twilio, offers text and voice-call services for communicating with customers.

In another era, a company like Instacart would have spent millions of dollars in additional up-front cash and years of development time to build and test all of these components before selling to the public. But with the availability of ready-made apps, Instacart was able to quickly move from founding into the marketplace.

“We’ve been live since the very beginning,” Mullen said. “There was no beta stage of Instacart where you didn’t get charged, or we didn’t have certain systems.”

For many of these new on-demand companies, the greatest challenges come from tying into the old economy. Drizly, a Boston-based startup that lets consumers order beer, wine, and liquor deliveries via a smartphone, is intimately familiar with that task.

The highly regulated liquor industry, with retailers that range from large regional chains to small mom-and-pops, doesn’t have one or two standard systems for managing store inventory. Instead, Drizly has to figure out how to extract reliable information from about 20 inventory and cash-register software programs used around the country.

“It’s incredibly fragmented,” Drizly chief executive Nick Rellas said.

As on-demand companies grow, they are spawning a new class of startups that provide behind-the-scenes tech tools for old economy companies that want to capitalize on the trend.

One of them is Dispatch, a Boston-based startup that has raised about $6 million from investors including Wellesley-based Grand Banks Capital and San Francisco-based Salesforce Ventures. Dispatch’s customers include companies that manage a large pool of field agents, such as Handyman Connection, a Chicago-based company that sends repair contractors to homeowners requesting them.

For years, businesses like these have relied mostly on phone calls to collect customer inquiries, type them into the computer system, and match them with contractors. Dispatch provided technology that ties the company’s software into fast, modern smartphone apps that allow homeowners to request contractors with the tap of their smartphones’ screens.

Making such a leap is more than a fashion statement, Dispatch chief executive Avi Goldberg said. After watching Uber upset the taxi industry, many executives of long-established companies are now looking over their shoulders at on-demand startups.

“These companies are … out there to disrupt existing businesses — your businesses, businesses that were started by your father and your grandfather,” Goldberg said.

If previous technology booms are any indication, not all of these on-demand companies will last. Chang, a power user who once ran up a $16,000 annual bill on the ride service Uber, says the companies and their clients are now enjoying a bull market, but it could well swing the other way, winnowing the field.

Instacart’s Mullen, however, said the consumer desire for near-instant access doesn’t appear to be slowing. “That trend, of people expecting things to be fast and frictionless is just continuing,” he said. “We’re now down to the limits of what’s possible.”