Urban Company rides on pandemic-led home services wave

When pandemic-induced lockdowns forced people to stay at home in 2020 and fear of contracting Covid-19 made many wary about stepping out for essential goods and services, the time was ripe for India’s home service marketplaces to step in.

So much so that about $457 million were raised in funds in the two years starting from April 1, 2020, by India’s home service marketplace sector. To put this in context, the sector was able to raise only about $360 million until March 31, 2020, according to Crunchbase, a US-based platform that tracks private companies.

The space has seen Urban Company (UC), which joined the unicorn club in April 2021, enjoy near-monopoly. It raised $260 million – more than half the money raised by the entire home services marketplace space in the two years ending March 31, 2022. While Quikr’s Zimmber, HouseJoy and LocalRamu have also been around, none of them has been able to challenge UC’s dominance.

That is set to change with the growing adoption of home services and serious competition from e-commerce and hyper-local companies.

“Both have a customer database and are in a better position to up their offerings to customers without much acquisition cost,” said Anil Joshi, Managing Partner, Unicorn India Ventures - a Mumbai-based early-stage investment company.

“One of the biggest challenges Urban faces is the retention of service providers and offering reliable service at a decent cost,” Joshi said, citing the recent rise in competition. Urban will also have to thwart independent rivals specialised in specific services. “The winner would be one who is able to offer better and reliable services at a reasonable cost. The customers are price-sensitive and hence loyalty-building would take time,” Joshi said.

Delhi-based UC “started as a classified or a leads-providing platform alongside the likes of JustDial about seven to eight years ago,” said its chief business officer, Mukund Kulashekaran. It then transitioned into an online marketplace five to six years ago.

The Tiger Global-backed firm, which was formerly known as UrbanClap, wanted to become “a horizontal gig marketplace, with a global footprint and leadership position across service categories, beauty & wellness and home repairs & maintenance,” according to a blog post.

That’s precisely why it rebranded itself in January 2020 as “Urban Company”, which it saw as a more globally acceptable moniker.

Pandemic-induced changes

When the pandemic struck, UC’s early actions were aimed at partner retention. It rolled out Rs 20 crore in advances to its beauty partners to support them during the pandemic. It then readied them for business.

“While the upkeep of home became important in the last two years, a bar on who you let into your homes also became higher. So, we had to do heavy communication. We shipped PPE kits, masks and gloves to our partners’ homes. We announced liberal policies for partners like providing 10 days of earnings in case they fall sick,” Kulashekaran said.

While an average repair mechanic in India can manage to earn just about Rs 15,000, each month, the net earnings of UC partners who complete 30 bookings in a month on its platform is close to Rs 30,000.

Although Covid-19 hurt demand for beauty services that involved proximity, UC’s business doubled during the pandemic.

This was because it redefined the standard operating procedures for many of its services and recalibrated its business mix to zoom in on those services that saw demand uptick during the pandemic, explained UC’s Kulashekaran.

“We had to change a lot of SOPs. For instance, the way threading is done changed totally – wherein initially the thread used to stay in the mouth. Imagine doing that in the post-pandemic era!”, he said, adding how it had to ensure other services such as waxing and threading were also made contactless.

UC also unveiled newer services such as men’s haircut, cleaning and disinfection that saw a lot of demand. The demand for home services helped UC expand to 46 Indian cities during the pandemic, more than triple its pre-pandemic count.

Inflation and a slowing economy could weigh on the frequency of use of home services. “It doesn’t seem that the sector would see a major impact on volume, yes - the pricing may get impacted, which is fine considering the economic downturn,” Joshi said.

Still, since the business model ensures that the infrastructure and middlemen get taken out of the equation, it is a very high margin business, with no delivery costs and healthy unit economics, said Kulashekaran.

UC, which charges about 20% commission on most of its offerings, isn’t looking to raise any additional capital in the near term and has no plans to go public any time soon. “We have a very low burn rate in terms of costs since it just has to spend on training and marketing – which also can be leveraged as we scale,” said Kulashekaran.

The approach made sense to investors amid the funding winter. “Considering the current investment cycle, conserving cash would be better for a home services company than focusing on customer acquisitions. In the near term, the home services companies may face stress on revenue but the volume seems to be ok,” Joshi said.

(This is the fourth story in the “a billion $ idea” series focused on startups that joined the unicorn club in 2021)