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Handy: an online broker for commoditized home services

Handy, an "Uber for cleaners and handymen," spun out of the Harvard Innovation Lab in 2012 and has raised $46M since then. As a major player in the oft-vilified 1099 economy, the company is a pure broker who takes a 20% fee of every booking amount, while also pushing customers toward its subscription model. This company, like myriad other "Uber for X" companies, is another excellent example that convenience and simplicity can be a huge digital business.

Photo of Aaron Kletzing
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Handy is a digital platform that lets its customers book appointments with cleaners and handymen, with as soon as next-day availability. 
 
The company creates two-sided value: for customers, Handy simplifies the home cleaning process by removing provider vetting and selection from the booking process, as home cleaning is generally a commoditized service.  Specifically, Handy customers need only select a date and time and pay, and from there the company’s technology handles the rest: it automatically assigns a cleaner to the customer, puts them in touch, and ensures satisfactory fulfillment of the booking. 
 
Secondly, for its providers, Handy enables them to earn supplemental income by taking on more cleaning jobs.  Handy removes their burden of otherwise needing to source those jobs, thus reducing their own customer acquisition costs, while also purporting to give them flexible hours (though this is disputed in an ongoing lawsuit).
 
Handy takes a 20% fee (value capture) of each overall booking price for the role it plays in brokering the transaction.  Handy does not utilize a freemium model.  The company charges customers who pay for the services offered through its website.  The true extent to which dynamic pricing exists in the company’s pricing model is not readily knowable.  For its home cleaning service, pricing is a function of the following: zip code, number of bedrooms, number of bathrooms, number of total cleaning hours, frequency of cleaning (e.g. every week), and date and time.  For its handyman service, these variables similarly include zip code, total working hours, and date and time.
 
Many theoretical combinations exist from among these pricing variables, though one example is the following: a cleaning appointment in zip code 02138 (Cambridge, MA) on March 9 at 10:00am EDT, for 3 total hours, to take place once every 2 weeks, is priced at $81.  Looking at this single transaction in isolation, Handy would generate roughly $16 in revenue for brokering that transaction.  If the booking was done by a first time Handy customer, then we must account for how much Handy spent on average to acquire that new paying customer.  If we assume this acquisition cost to be $8, then Handy has achieved profitable unit economics by a wide margin.  Moreover, if this customer is satisfied with her first cleaning experience and opts to retain her “Every 2 Weeks” subscription, then Handy continues to generate $16 for each subsequent cleaning event.

It is reasonable to assume that some extent of supply-demand dynamics drives Handy’s pricing in ways not unlike Uber’s surge pricing.  By leveraging dynamic pricing (assuming this is well executed), Handy price discriminates with near-optimal effectiveness at any moment in time.  It is unclear whether Handy properly bundles its offerings, though this does not appear to be the case beyond special ad-hoc promotions.  Handy does not disclose its financial performance, though it is reasonable to argue that the company’s value capture model is quite effective, given its ease of access to $46M in capital since 2012.

Sources:
- www.handy.com
- https://www.crunchbase.com/organization/handybook
- http://www.forbes.com/sites/stevenbertoni/2014/03/26/handybook-wants-to-be-the-uber-for-your-household-chores/
- http://www.sfgate.com/business/article/Handy-com-housecleaners-lawsuit-could-rock-5891672.php

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Photo of Lauren

Hi Aaron,
I found your post really interesting, since I'd never heard of Handy. Their model seems to be very user friendly.

I wonder, though, about the risk of disintermediation. It is hard(er) to disintermediate Uber, because you do not always want a taxi at the same physical location, and the taxi driver whose phone number you have may be in a different part of the city.

For Handy, however, the same person would likely be available to come to your house every two weeks. What would prevent you from getting the phone number of the cleaner and arranging to pay him or her 10% more to not use Handy? You could then keep the other 10% savings. I can see their value capture being strong for first-time users, but for recurrent users there is definitely a risk of being cut out as the middleman.

Photo of Lana

Thanks Aaron for the post! Lauren - you pose a valid comment that I thought about for all these errand type of marketplaces. Their current business models are focused on one time transactions, which may be true for some transactions such as painting or fixing something in the house. However, for other routine type errands such as cleaning, I think it would be optimal to resort to indirect price discrimination and offer discounts as users subscribe to more frequent services. This would encourage users to stick to you and it'll generate more revenue in the long run given its automatic subscription nature.

Another comment I wanted to raise is regarding their current pricing algorithm. While I do understand that they are applying direct pricing discrimination where they price the transaction based on location, length and type, I do believe this lack of clarity in pricing and transparency will deter users from completing the transaction. I am thinking more of a localized website by city where the menu would offer clearly laid out services along with estimated prices. This model is more in line with the current search and click transactions apps around.