Styleseat: creating a two-sided platform in the fragmented beauty industry

StyleSeat has developed a two-sided marketplace for the historically fragmented beauty industry, and is betting on network effects as it prioritizes quick growth of its user base.

It is not uncommon for companies that make use of the network effects made possible by digital connectivity to disrupt historically fragmented industries. Following up on successful disruption of other fragmented industries like the restaurant industry, a recent sector of interest has been the beauty salon industry, which sees only a handful of large chains and a number of small and independent salons.

With the “OpenTable for X” model rising in popularity, StyleSeat, one of the leading beauty booking platforms in the US, is tackling this fragmentation of the beauty salon industry. Founded in 2011, StyleSeat allows consumers to discover beauty salons and stylists and book appointments on its platform. With 320,000 beauty professionals listed on the site today, and expected 2015 bookings of over $1B, the site has seen steady growth, from 800,000 bookings as of June 2012 to over 5.5M at the beginning of 2014, to 20M today. StyleSeat has raised nearly $40M in funding as it continues to grow.

StyleSeat’s model is a classic marketplace model that makes use of two-sided network effects to create value. As more salons offer their services through the platform, consumers find the platform’s value proposition more interesting: they have greater choice, and are more likely to find exactly what they’re looking for in an industry where personal needs and tastes can be significant (e.g. a salon specialized in curly hair, coloring, etc). Having more choice also makes it more likely that consumers will be able to find a salon that is conveniently located and/or has availability at the time when they would like to book.

On the other hand, as the number of consumers on the platform grows, salons have a greater incentive to list their business. StyleSeat and other similar platforms claim to boost salons’ revenues by driving incremental business from online, helping to fill the underutilized idle time that is typical for stylists. Indeed, StyleSeat claims to boost salon revenues by up to 68% over the salon’s first 15 months on the platform, both from incremental reservations and additional marketing tools that the company provides.

Attracting users also potentially has direct network effects for other users. For instance, a larger community of users will generate more salon reviews and ratings, which in turn will be helpful to new users who want to be able to trust the quality of a salon they haven’t tried before.

Network effects are essential to StyleSeat’s growth and potential success, all the more so because the platform faces a number of competitors who can benefit just as easily from network effects, and because both salons and users can easily multi-home in this market. Quickly attracting a large user base of both salons and customers – while delivering a superior user experience – may be the best way for StyleSeat to defend its territory.

Indeed, StyleSeat has been more focused on building out its user base and creating a strong experience than on short-term monetization. To attract stylists to the site, StyleSeat has focused on independent stylists, who may be particularly responsive to the platform’s value proposition. It has allowed them to list for free, and has progressively introduced various tools to help them manage bookings, communicate with customers, promote themselves, and even do their taxes. In some cases, this required substantial upfront investment of time and effort, as some stylists lacked the basic tools and connectivity to allow them to use the platform.

To attract and retain users, the platform has strived to deliver a positive experience and cater to users’ needs. Every version of the site has had direct feedback from users to improve the experience. Recently, it has invested in improving its mobile app after noticing a dramatic uptick in bookings made via mobile (around 75% of booking are expected to be via mobile this year).

To date, StyleSeat has captured value primarily via a freemium model in which salons pay for premium services, and has recently also established an e-commerce partnership with L’Oreal. Going forward, the company plans to diversify its revenue streams, for instance via direct referrals to salons. Many of its competitors charge a percentage of each transaction.

Interestingly, StyleSeat is also planning to capitalize on its large user base to use its substantial trove of booking behavior data to predict future demand, purchase appointment slots and offer them to consumers.

As it looks to grow, StyleSeat will likely continue to try to build its user base both via its rapid organic growth (both in the US and via planned international expansion), and potentially through consolidation of smaller competitors. In the UK, for instance, beauty platform leader Wahanda has been acquiring smaller competitors across various European countries to strengthen its foothold in the region. Similar consolidation has been observed in more mature platform industries, such as travel. The strategy is very much in keeping with the winner-take-all mentality of a business model where network effects are key.

What will be interesting to see, in parallel, is how the traditional beauty industry responds to this transformation, and whether other players — salons, beauty product companies, etc — will be able to capitalize on this new model or whether they will be forced to cede value to the platforms.




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