There has been a stark rise of startups taking advantage of the on-demand economy in the last decade. Many successful stories abound, including Airbnb and Uber. There is even some success amongst on-demand grocery services provided by Amazon Prime Now and FreshDirect. However, crowdsourced cleaning services have struggled to be successful though they represent a $400B opportunity.
Take, for instance, the story of Homejoy. Homejoy was an online platform that connected customers with cleaning and handymen services, provided by independent contractors. The company generated a lot of buzz after its initial founding in 2010, but it closed just 5 years later after having raised $64M from investors like Andreessen Horowitz, First Round Capital, and Google Ventures. Several things led to Homejoy’s demise: growth was too quick, quality control was lacking, lawsuits were expensive, and a customer retention strategy was missing.
Growth in on-demand services is usually a key component in developing a competitive edge and a sustainable business model. On-demand services usually have a “chicken and egg” problem where more customers are necessary to attract more service workers and vice versa. However, the growth at Homejoy happened at the expense of a sustainable path to quality and profitability. Homejoy focused too heavily on discounts and too little on attracting quality service workers. The large discounts in Homejoy’s services would attract customers who were willing to give a cleaning service that’s usually worth ~$85 a try for $19. But customer expectations for home cleaning are vastly different from a taxi service or renting someone else’s home. No matter where you fall on the personality spectrum, you have some minimal preferences on how you want items cleaned and arranged. Most people also have high expectations for the spotlessness of their home after hiring someone to clean it. The difference in preferences and high expectations amongst consumers means that home cleaning is not easily standardized and requires some level of training to learn and deliver a quality service. Yet, Homejoy’s large discount in pricing would attract lower skilled service workers. In addition, Homejoy hired cleaners as independent contractors, which prevented Homejoy from being able to effectively train cleaners.
Homejoy’s model did not easily lend itself to retaining customers. The high discount in pricing led to adverse selection, where customers who opted for Homejoy services were usually not the ones who were willing to pay more for recurring services. Furthermore, customers were unlikely to return after a poor quality experience with a service worker. For those customers that had a good experience, leakage was a large risk as customers and cleaners could easily strike a mutually beneficial deal off the platform.
Other startups in the home cleaning and handymen services are also facing similar issues today, including Handy. Handy has seen some success in following the Taskrabbit path of partnering with a large retailer. Homejoy could have benefited from a similar model. Partnering with a large retailer like Walmart or Ikea would have brought the cost of acquisition down and helped solve the issue on quality as the retailer can help take on issues in training without compromising the “independent contractor” relationship. However, Handy still faces the same dilemmas in leakage and requires a large customer service team to help retain customers after they face a quality issue. Time will only tell if they can retain their core business or will need to shift entirely to a partnership model.