{"id":7074,"date":"2018-03-05T21:51:51","date_gmt":"2018-03-06T02:51:51","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/homejoy-a-silicon-valley-darlings-path-to-the-grave\/"},"modified":"2018-03-05T21:52:26","modified_gmt":"2018-03-06T02:52:26","slug":"homejoy-a-silicon-valley-darlings-path-to-the-grave","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/homejoy-a-silicon-valley-darlings-path-to-the-grave\/","title":{"rendered":"Homejoy: A Silicon Valley darling\u2019s path to the grave"},"content":{"rendered":"<p><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/homejoy_open-558x464.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-7073 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/homejoy_open-558x464-300x249.jpg\" alt=\"\" width=\"202\" height=\"168\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/homejoy_open-558x464-300x249.jpg 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/homejoy_open-558x464.jpg 558w\" sizes=\"auto, (max-width: 202px) 100vw, 202px\" \/><br \/>\n<\/a>Homejoy was one of the first platform companies to disrupt the $400 billion home cleaning market. The company aimed to create value by using algorithms to connect homeowners with cleaners and by scheduling cleanings, all of which could be done by homeowners from the comfort of an app. Homejoy had the potential to become Silicon Valley\u2019s next unicorn; it raised $40 million from sources including Google Ventures and Max Levchin, PayPal\u2019s cofounder. Nevertheless, the company was shut down less than 2 years later and turned into a cautionary tale for other platform businesses.<\/p>\n<p><em>What killed Homejoy?<\/em><\/p>\n<p>Adora Cheung, cofounder and CEO of Homejoy, claimed that the \u201cdeciding factor\u201d that led to Homejoy\u2019s failure were worker classification lawsuits. According to the lawsuit, Homejoy treated cleaners as independent workers, thus depriving them of reimbursements and overtime wages. However, further research suggests that lawsuits were not the primary reason for the company\u2019s demise. Homejoy failure was attributed to mounting losses due to high customer acquisition costs, poor customer retention, a strategy focused exclusively on growth, competition, and poor worker retention.<\/p>\n<ul>\n<li>High customer acquisition costs: A cleaning company typically charged at least $85 for a 2.5-hour house cleaning, but Homejoy offered new customers a promotional price of $19 per cleaning. While many platform companies have subsidized products and services (or offered them for free) to fuel growth, Homejoy\u2019s promotional price led to substantial losses since 75% of its booking came from discounts as opposed to referrals or organic traffic.<a href=\"#_ftn1\" name=\"_ftnref1\">[1]<\/a><\/li>\n<li>Poor customer retention: Homejoy\u2019s growth-focused strategy may have worked if Homejoy had been able to retain customers, but most customers never used the service again and did not stick around long enough to become profitable\u2014in fact, a third-party analysis showed that only 25% of customers used the service after the first month, and fewer than 10% used it after 6 months.<a href=\"#_ftn2\" name=\"_ftnref2\">[2]<\/a> This was attributed to several factors:\n<ul>\n<li>The promotional rates attracted the wrong customers: homeowners who were not willing to pay the full price of $25-35 an hour.<\/li>\n<li>The service was hit-or-miss. Since cleaners were independent contractors, Homejoy could not provide them with training, thus affecting the quality of the cleaning. Furthermore, Homejoy\u2019s focus on growth led it to deprioritize technical issues, such as a glitch in the algorithm that did not provide cleaners with sufficient time to transit from one house to another, thus causing them to arrive late to their appointments.<\/li>\n<\/ul>\n<\/li>\n<li>Exclusive focus on growth: Pressure from investors led Homejoy to expand too quickly and incur substantial costs. At one point, Homejoy was operating in more than 30 cities including New York, London and Berlin. The company\u2019s focus on growth caused it to neglect basic supply chain and operations, especially when entering countries with different languages, cultures, and customer preferences, thus contributing to a suboptimal customer experience.<\/li>\n<li>Competition: The existence of rivals such as Handy led Homejoy to make unsustainable, unprofitable offers and provided customers with multi-homing options.<\/li>\n<li>Poor worker retention: Several reasons contributed to Homejoy\u2019s struggle to retain high-quality cleaners, including lower pay than competitors and disintermediation whereby workers set up direct cleaning arrangements with clients. Some cleaners attracted enough customers to start small cleaning businesses.<\/li>\n<\/ul>\n<p>In addition to the reasons outlined above, Homejoy ultimately failed because it failed to deliver on its value proposition. Anton Zietsman, Homejoy\u2019s former West Coast operations manager, summarized it best: \u201cWe were trapped between being accountable to our customers and not being able to take much responsibility for quality of service.\u201d<a href=\"#_ftn3\" name=\"_ftnref3\">[3]<\/a> This should serve as an important learning for future platform businesses aiming to disrupt an industry.<\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"#_ftnref1\" name=\"_ftn1\">[1]<\/a> https:\/\/www.forbes.com\/sites\/ellenhuet\/2015\/07\/23\/what-really-killed-homejoy-it-couldnt-hold-onto-its-customers\/#33802ca01874<\/p>\n<p><a href=\"#_ftnref2\" name=\"_ftn2\">[2]<\/a> https:\/\/www.wired.com\/2015\/10\/why-homejoy-failed\/<\/p>\n<p><a href=\"#_ftnref3\" name=\"_ftn3\">[3]<\/a> https:\/\/www.wired.com\/2015\/10\/why-homejoy-failed\/<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Homejoy was one of the first platform companies to disrupt the $400 billion home cleaning market. The company aimed to create value by using algorithms to connect homeowners with cleaners and by scheduling cleanings, all of which could be done [&hellip;]<\/p>\n","protected":false},"author":2194,"featured_media":7075,"comment_status":"open","ping_status":"closed","template":"","categories":[2077],"class_list":["post-7074","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-homejoy","hck-taxonomy-organization-homejoy","hck-taxonomy-industry-technology","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/growing-businesses-in-the-age-of-platforms-2018\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Homejoy: A Silicon Valley darling\u2019s path to the grave - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/homejoy-a-silicon-valley-darlings-path-to-the-grave\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Homejoy: A Silicon Valley darling\u2019s path to the grave - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Homejoy was one of the first platform companies to disrupt the $400 billion home cleaning market. 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