$600 billion. That’s the size of the US home services sector. Coming from ad tech — with a US market size of $60 billion and 1800 companies fighting for those marketing dollars — I was amazed by how few technology companies in home services there were.
As a first-time home owner and long-time renter, and just realizing the pains of home ownership, I gleefully jumped into the home services sector for my next business, seeing all the consumer pain first-hand. That’s the story for a lot of entrepreneurs who got into the space. But once I was in the throes of fundraising, it was clear why there were not more players in the sector: Investors are uninterested in, or have been burned by, low margin businesses with high customer acquisition costs.
Yet, there are name brand companies in home services who are standing tall. Many of these companies are a sign of their times, reflective of the popular business models and technology trends of their days.
But there is still no Google-level company in home services. I believe it’s inevitable that there will be. We will find that company at the end of the trend line: an evolution of these businesses and how they have become better at solving pains for customers by improving the homeowner experience. In order to know where we are going from here, I look at how each company has solved the problems of the previous generation.
WHERE WE’VE BEEN
Pre-digital: Yellowpages was obviously the pre-digital favorite advertising solution, dating back to 1883. The largest ad spend frequently yielded the largest business.
Ratings Sites: Twenty years ago, digital alternative rating sites clearly focused on ratings to democratize those who theoretically were providing the best service. Crowdsourced reviews come with limitations, though (e.g., the relevance of any particular review to the specifics of your needs). Paid content was the starting point (e.g., Angie’s List), until consumers lost a taste to pay, when an advertising model (e.g., Yelp) became the favorite.
Bidding Marketplaces: But rating sites lacked the ability to help consumers with pricing. The natural next step was to combine bidding or pricing with ratings in a marketplace approach. Thumbtack’s success has attracted similar in-house investments from companies like Amazon and Google. One candidate interviewing to lead Google’s home services initiative was told that “marketplace is the new search.”
On-Demand Providers: “Uber for X” on-demand businesses in home services have a different approach for how to solve the problem: centrally-managed independent workers who now have smartphones provide services on behalf of the company. Prior to smartphones reaching a price point to gain traction with these workers, the only way to increase visibility into field services was through high-cost, proprietary hardware and software. On-demand companies promise fixed pricing and high-quality service by measuring customer satisfaction.
Today’s digital home services sector is just beginning. You might believe it’s the end, with news of Google and Amazon entering the space. But lack of significant growth to date in Amazon/Google’s on-site reviews may be reflective of lack of growth in those initiatives. During my time in ad tech, numerous startups obviously flourished with the specter of Google hanging over their heads. More large investments and valuations are to come (e.g., recent rounds with Handy, Thumbtack), and more will fail (e.g., Homejoy).
WHERE WE’RE GOING
Where does the trend line go from here?
I had an investor in a then-successful, now-failed on-demand home services startup ask me, “Isn’t the future just all on-demand?” I imagined an investor asking 20 years ago if “Angie’s List”-style business models were the future, as if there were an evolutionary finish line in technology. On-demand technologies and practices are great individual tools. I’m always going use a hammer, but I need other tools to finish the job.
What hasn’t been solved yet by home service technology companies? So much.
Margin: Lower margin businesses may be fine at scale with very low cost of customer acquisition. Yet, no one has cracked product offerings that either merit a premium at scale or fundamentally change the unit economics of this industry. This is a question of value proposition and delivery model, not simply injecting a service into a pre-existing transaction.
Comprehensive consumer experience: It’s 2016, and no one has fundamentally changed the consumer experience in home services. Tech incumbents are simply facilitating an existing transaction that has happened for a very long time. You can go online to get someone to come to your home, but home ownership still takes too much time, costs too much money, and is too unpredictable. Every tech company in this space has focused on saving consumer time and money (worthy problems to solve), but none of them address the last pain: unpredictability. Look for companies that gain a better understanding of your home in order to build solutions that address the specific needs of your home.
Changing the underlying assumptions of the customer: The flawed assumption of twenty years of home services tech businesses is that they expect you, the homeowner, to be a great professional property manager. Most of us simply aren’t good at this. With the time commitments of work, marriage, kids, and generally life, homeowners don’t have the time, knowledge, experience, or inclination.
Measurement: It’s 2016, and no one is truly measuring the operational performance of service providers. We all know that it’s unlikely to improve if it’s not measured. Customer satisfaction scores are great, but we need to evaluate and alter operational processes, on the fly, as we get the data.
Consolidated purchase power: It’s no wonder the dynamics of this industry haven’t changed. Consumers have no leverage to make change, regardless of what technology we give them. Leverage comes from greater buying power. There have been very few non-tech companies that have succeeded in building enough buying power to change supply-side dynamics in home services. They exist (e.g., home warranty companies), but their business models are ripe for change. Lacking leverage of a service with greater buying power, consumers instead poach service providers off tech platforms, thinking they’re getting a better deal by taking out a middleman.
Timing of smart home adoption: Will smart home create new opportunities for service delivery? Yes. Will that happen soon? No one knows what the adoption curve looks like. My experience in starting a mobile business more than two years before the iPhone launched is that building a business predicated on an unclear adoption curve is a dangerous and costly approach. And considering that the smart home is not a singular, carrier-subsidized device like an iPhone, but really many unsubsidized devices, adoption will take time. Look for new businesses that can deliver unique value and scale immediately, made only better by emerging smart home adoption.
None of this is easy. There’s a limited supply of high quality home service talent in this field, and they’re not easily available (and not interested in changing their processes when they are in such high demand). You can find tons of lower quality supply, but trust me: you don’t want them. And there’s very little technology being used by service providers generally.
But someone is going to crack this sector that’s 10x larger than ad tech. And that business is going to be a monster.