The Uber-zation of HVAC & Home Performance: Will “On-Demand Local Services” Eat Your Lunch?
By now, most of us have heard of Uber, the upstart car service that is now valued at more than $40 billion. In the same way that Uber has upended the taxi business, many entrepreneurs and venture capitalists see a similar opportunity in home services. In the quest to capitalize on the Uber craze, Silicon Valley’s latest infatuation is business models that get in between homeowners and contractors. The general view of the venture capital community is that contractors are lousy at marketing themselves and, therefore, there is a big financial opportunity to get in the middle. HVAC contractors are squarely in the crosshairs of these new ventures and, in our view, companies delivering home performance services are not far behind.
Our view is that this is a trend that will have a significant impact on the HVAC community. So we’re making a commitment to report on it. Consider this post our introduction to the topic.
The formal name for this uber-ization of everything is On Demand Local Services (ODLS). A dizzying array of new companies has entered the ODLS space specifically around home services, and collectively they’ve attracted hundreds of millions in venture capital. Smart people are betting lots of money on their success. So are these services friend or foe?
A Fundamental Premise of ODLS Companies: Contractors Suck at Marketing
Core to theses business models are a couple key things: 1. the market is huge (some say north of $400 billion for all home services) and 2. there are many weaknesses to contractor business models that can be exploited. Just listen to how some of the founders of these companies pitch themselves.
Serviz On-Demand Home Services
“To start, it’s deep…It’s a large set of sub-verticals. The lack of pricing transparency and general price gouging, the lack of consistent quality, the lack of digital booking, the lack of a real brand — all of this makes it incredibly susceptible to disruption.” – Serviz CEO, Zorik Gordon
“Until now, finding the right professional at a fair price has been comically painful – whether that be for a simple handyman project or a large kitchen remodel. In addition to being the largest investment in one’s life, the home is where we create life’s great moments. And while it should be easy, there is no free, simple, and personalized solution that provides the trusted information and tools necessary to make home improvement and repair easy.” – Matt Ehrlichman, CEO and Co-Founder, Porch.
These platforms attempt to capitalize on a homeowner’s desire to make informed decisions about who and what goes into their homes. In theory, the end user is given fast, efficient access through mobile applications. The supposed benefit to contractors is the advantage of the amassed demand and potential leads for their services. But, just like all directories and other aggregators, these leads come at a cost, which varies depending on the different business models. What is clear, however, is that your business is competing directly with the ODLS’s for leads. And big, authoritative websites like these always perform favorably in search against local companies.
Is This Necessarily a Bad Idea?
Setting aside for a moment the apparent antipathy these CEO’s have for the businesses they’re selling to, is there an opportunity to take advantage of these new players?
Even though HVAC contractors tend to be a different breed, and more customer centric than many home service companies, we are still….contractors. It is our reality that we have to overcome some level of distrust. People like to know what they’re getting into. Home contracting can be one of the most foreign and frustrating ventures for homeowners. Who’s doing the work? What are they doing? Are they over-charging? Will the job get done on time? The questions and concerns go on and on. Sites like Porch and Pro.com are supposed to take the guesswork out of hiring a contractor. You can see pictures of contractors’ past jobs, read reviews, find average job costs in your neighborhood, and even track the work you’ve done on your house over the years.
“With almost every other industry in the world at this point, as a buyer, you can go and do research online, become informed and get the answers that you need,” Ehrlichman says. “The home is really the one space out there where that’s just not true.”
The real question is whether these services will produce incremental leads, or if they’ll simply cannibalize new opportunities that should be coming direct to contractors. On this, the jury’s still out.
Is There a Place for HVAC in this New Market?
For us, at least so far, it’s a qualified certainly. An HVAC contractor who is an expert in whole-house energy systems and retrofit techniques has the added selling point of taking the extra effort to inform and educate customers, to approach the work via a diagnostic process, and provide a range of options that fit their budget. Finding a best-in-class HVAC professional is a considered purchase, so generic intermediaries may not be the ideal channel for our unique industry. We are not ready to say “get yourself listed on these sites immediately!” but the sites we’ve listed, and other regional competitors popping up like HomeFront Home Services, are certainly work keeping an eye on.
Our Take, for Now
As it always has been, our first priority will be to support contractors directly to be strong, exceptional companies and marketers. There is no doubt that leads generated by contractors directly to their businesses will be the highest quality, lowest cost and most likely to convert. That said, we are constantly looking for new, effective marketing tactics that will improve HVAC and home performance businesses. In that vein, we will look for opportunities to test these services. If we can prove out a model for cost-effective, incremental lead generation, we’ll let you know.
In the meantime, we’re in the process of building out the Energy Circle Guide to On-Demand Local Services, where we’ll be giving you the full details on how each of these platforms works, what it costs and our assessment of the fit for HVAC and home performance.
The newbies we’re keeping tabs on:
Porch, RedBeacon, Serviz, Thumbtack, Houzz, Pro.com, Amazon Local.
And the old guard too:
HomeAdvisor, Angies List.
For more information on the emerging ODLS market, I recommend reading Steven Jacobs and Michael Boland on the StreetFight Blog.
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