Last month, Airbnb did something rare for a Silicon Valley darling: Brian Chesky, the company’s founder, told Fast Company’s Austin Carr that the apartment sharing site would focus exclusively on building a hospitality business, forgoing the horizontal opportunities implicit in selling a technology and embracing the challenges of a service-driven business.
The move has deep implications, not only for Airbnb and the hospitality industry but also for a growing segment of startups that have built similar digital marketplaces for a number of traditionally offline industries.Today, these startups face a similar ontological decision: should they become a consumer brand, expanding deeper into a given industry, or should they expand horizontally, working to disrupt bigger players like Yelp, Google and the other mainstays of local search and discovery.
For Adora Cheung, the 29-year-old founder and chief executive of housecleaning marketplace Homejoy, it’s a delicate balance. The engineer pitches her business as something more akin to the next generation of Craigslist, but she admits the experiential nature of the product and the company’s transactional business model complicates the matter.
“There’s always going to be a mixture of technology and people at play with this business,” said Cheung. “What we provide is a platform which includes the customer service and the filtering process to make sure the providers are legit. When you think about making a transaction about getting a service pro in your home, all of them are super-painful.”
In the startup world, Homejoy sits a rung (or two) below Uber and Airbnb. The company raised $38 million earlier this year, thrusting it well-ahead of a pack of smaller competitors, but it’s still pales in comparison with the capitalization of the two other tech darlings. But the companies share a similar challenge: the product in the service industry is a human being. And, at least today, there’s no way of getting around that.
Today, Cheung still thinks of Homejoy’s product as a technology. She frames the company as a tool to connect supply and demand more efficiently, and smooth over some of the pain points — namely, trust — that Craigslist, Yelp, Google and other search tools still have yet to solve. But she does not see the company as a disruptor in the home services industry — a home service provider in its own right — in the way that Uber and Airbnb have been in the taxi and hospitality industries respectively.
“It’s not like we’re revolutionizing the core way of getting something cleaned. What we’re bringing to the table is this extra layer of convenience and trust to an already existing industry,” she said. “We coexist with other mom-and-pops and smaller cleaning companies in a way that Uber and Airbnb have not.”
What’s less clear is how long the company can keep the peace. Today, Homejoy and others straddle the line between being a technology and a service provider, playing an increasingly ambiguous role as both a tool for their industries and a potential replacement. However, as competition increases aspects about the product and business model will push these companies deeper into the verticals, building deeper ties as a provider, rather than just a technology.
These companies face a unique product challenge, which more traditional ecommerce companies do not: human interaction is a critical part of the user experience. Whereas an Amazon or eBay can template and monitor the interactions between buyers and sellers, a large portion of the customer-client interaction occurs in person, and outside of the reach of a digital interface.
But it’s the business model that will force the issue. In a service industry, the relationship between the service provider and client often plays a much more central role than in retail. It’s not always the case (in taxi industry, for instance, the relationship is somewhat commoditized), but in home services, where trust is critical, the relationship between the provider and the client is extremely important.
The key problem is generating recurring revenues. For Uber, each time a user uses the application, there’s a new information problem: how do you connect the demand to the nearest supply. But with a cleaning service like Homejoy, the user will likely select the same provider every time. It can’t simply solve an information problem. It needs to own the actual relationship between two parties. It can’t just be a channel; it needs to play a much deeper role. It needs to be a brand.
Steven Jacobs is Street Fight’s deputy editor.