The Arrival of On-Demand in the Enterprise

With the first annual On-Demand Conference happening today in San Francisco, we are excited to highlight the opportunity for on-demand services to meet critical business requirements. We’ve been observing (and hopefully helping catalyze) this movement at Costanoa, and are thrilled to announce our Series A investment in Directly.

We can agree that our lives as consumers continue to undergo a transformation driven by “on-demand” services. Lyft, Instacart, and Deliv have built and scaled networks of part-time workers to deliver goods and services quickly and cost-effectively. AirBnB, ClassPass and others have created new markets on top of excess supply. We believe there is an equivalently large opportunity taking shape in bringing these business models to the enterprise.

Companies like LiveOps were early pre-cursors to what we now consider enterprise focused on-demand services. They built an impressive business, even though they had a hard time breaking out of their core vertical in direct response call centers. The next generation of services and companies is being created now and is ready to partner with enterprises that are engaged with a remote and flexible work force.

We are already observing this begin to play out in a number of key business functions. One example from within our own portfolio is, Bugcrowd, a provider of crowd-sourced security testing solutions for the enterprise. By enabling a community of over 16,000 cyber security researchers to “hack” on their own time, BugCrowd is able to deliver superior results than traditional penetration testing consultants at a significantly lower cost. Companies like uTest, Upwork (formerly known as Elance/oDesk), Workfusion, and HourlyNerd are also part of the first wave of companies bringing “on-demand” into the enterprise. They each represent a software layer that manages and orchestrates a community of skilled, part-time workers capable of serving as outsourced labor for specific functions within a company. Be it in QA, design, finance, or data collection, these platforms are forcing businesses to think about who should really be handling the “long-tail” of tasks by making outsourced labor readily accessible and easy to manage.

The question is, why now?

First, the global workforce continues to grow more talented and skilled. While there has historically been skilled labor in a variety of countries, they were disconnected from the Western, developed economies. With the proliferation of connectivity and computing power (including in mobiles phones), these workers can now participate in the worldwide technology economy. Second, the sophistication of the collaboration tools we have makes distributed teams far more productive. “Remote worker” doesn’t have negative connotations to companies using tools like Slack, Hangouts, and Trello. The most effective marketplaces contain tools for freelance workers to collaborate and combine their respective expertise to deliver a complex and integrated service. Third, the success of on-demand companies in the consumer space has shown that workers are able to generate meaningful income, whether full- or part-time. We see the potential for the same to be true for increasingly specialized labor. The economic opportunity combined with the freedom and flexibility of freelance work will pull people with specialized skills into these markets. The best marketplaces will even invest in creating and developing the specialized skills necessary for success.

There are enormous operational benefits that come with tapping into part-time labor. Enterprises already spend billions annually with companies like IBM Accenture and Infosys to get lower cost and variable infrastructure by outsourcing functions like IT, and customer support, but it comes with significant tradeoffs in quality. For example, customer support delivered by outsourcers typically reduces customer satisfaction. In contrast, on-demand services for the enterprise have demonstrated the ability to increase quality AND reduce cost. This is why we are thrilled to announce our partnership with Antony, Jeff, and the rest of the Directly team. Customers of Directly who have interacted with their “elastic” service teams, for example, report higher average customer satisfaction (CSAT) scores for cohorts served by employees or outsourcers. Its routing technology sends customer questions and help desk tickets to expert users on their smartphones, and then rewards them for resolving the issues. In fact, customers including Pinterest, AirBnB, Udemy, Lyft and Republic Wireless have resolved nearly 500,000 customer service inquiries via the Directly platform to date. Similar to the way bug bounty platforms are changing the security landscape, we believe Directly’s on-demand service platform will transform the way enterprises service and interact with customers. In addition, the platform provides a workforce capable of scaling up to meet spikes in demand. For fast growing companies, using on-demand services might be the only way they can keep up with customer inquiries.

We believe that today’s Enterprise On Demand companies are just scratching the surface of what is possible — that the benefits of marketplaces, orchestration tools and an elastic workforce will soon undertake tasks that simply could not be done easily by employees.

For more information about Directly’s Series A announcement, read the press release here.