{"id":6919,"date":"2018-03-05T14:35:40","date_gmt":"2018-03-05T19:35:40","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/houzz\/"},"modified":"2018-03-05T14:35:40","modified_gmt":"2018-03-05T19:35:40","slug":"houzz","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/houzz\/","title":{"rendered":"houzz"},"content":{"rendered":"

Introduction.<\/strong>\u00a0 As second-year HBS students, most of us have little interest in a home services platform \u2013 but after graduation, as we pursue new jobs, get married, buy homes, and eventually \u201cgrow up,\u201d many of us will wish we had paid more attention to that \u201cTEM\u201d case on Angie\u2019s List.\u00a0 When we decide to undertake that first kitchen remodel or build our first home, we will not crack the yellow pages like our parents did.\u00a0 Instead, we will seek the advice of platforms like Angie\u2019s List, HomeAdvisor, Porch, and Houzz.\u00a0 Houzz, a late mover in this market, has quickly carved out a sizeable niche as a $4 billion platform that is part-Angie\u2019s List, part-Pinterest, part-Amazon.[1]<\/a><\/p>\n

Value Creation.<\/strong>\u00a0 Houzz was founded in 2009, over fourteen years after Angie\u2019s List, but now boasts 40+ million unique users each month.[2]<\/a>\u00a0 So how does a late entrant take over a first mover?\u00a0 Three words: \u201ccontent, community, and commerce.\u201d[3]<\/a>\u00a0 Where some businesses grow from product or service centric models into platforms, Houzz first began as a network to share content, in the process built a community, and after creating value for users, only then moved to capture some of that value. (See Figure A)<\/p>\n

Figure A. Houzz Growth, 2012 – 2014 (2015-present not available).<\/strong><\/p>\n

\"\"<\/a><\/p>\n

Houzz does more than serve as a matchmaker between homeowners and service providers.\u00a0 Inspired by their own home remodeling and design frustrations, the founders of Houzz created a free platform that allows architects, designers, interior decorators, landscapers, and other contractors to display their work (content creation) while homeowners can \u201cdance through hundreds of photos in search of the [designs,] furniture and fixtures that will inspire their remodeling projects\u201d (content consumption).[4]<\/a> [5]<\/a>\u00a0(See Figure B)<\/p>\n

Figure B. Example of Houzz user generated content for kitchens.<\/strong><\/p>\n

\"\"<\/a><\/p>\n

Houzz is the beneficiary of some serious network effects.\u00a0 Consumers while delighting in millions of beautiful and inspiring photos recommended to them by Houzz\u2019s backside analytics, are also provided with contact information and reviews of local service providers free of charge.[6]<\/a>\u00a0 As a result, more homeowners attract more contractors and more contractors create more content which attracts more homeowners who also contribute new content.<\/p>\n

The founders also aggressively pursued \u201clocalizing\u201d its landing pages to 15+ countries \u201cto accelerate the global flow of design ideas\u201d and in turn leverage some global network effects.[7]<\/a>\u00a0 While a homeowner in the United States may not be able to hire the German contractor who posted pictures of a beautiful kitchen remodel in Munich, this content still increases the value for the entire Houzz network.\u00a0 Furthermore, the American homeowner in love with the German kitchen he or she saw on Houzz may choose to complete the remodel with a local contractor listed on Houzz.<\/p>\n

\u00a0(Note: Houzz\u2019s network also grew into a community where users can share tips, hacks, and other advice, but this piece will not address that characteristic.)<\/em><\/p>\n

Value Capture.\u00a0 <\/strong>Many platforms similar to Houzz start out by charging membership fees or exacting commissions on matchmaking.\u00a0 Houzz, on the other hand, deliberately chose not to capture any value during its first several years.[8]<\/a>\u00a0 The founders said \u201cno\u201d to ads, commissions, and other revenue models early on to focus on \u201cmaking Houzz the friendliest, smoothest site possible.\u201d[9]<\/a> This lack of value capture by Houzz gave all the value to its users, lowered the \u201ccost-to-try,\u201d and helped accelerate Houzz\u2019s user growth.<\/p>\n

After a few years of creating a free network that dwarfed Angie\u2019s List, Houzz began to thoughtfully capture some of the value it had worked so tirelessly to create.\u00a0 Today Houzz generates revenue in the following three ways:<\/p>\n

    \n
  1. \u00a0Premium Memberships:<\/em> Instead of charging commissions or fees to connect homeowners with service providers which can easily be disintermediated, Houzz still lets both parties join the network and connect with each other for free.\u00a0 Service providers can buy premium memberships which elevates their listings to homeowners and provides traffic analysis.[10]<\/a><\/li>\n
  2. Ad Revenue:<\/em> Houzz does sell adds to relevant vendors and manufacturers such as Lowes, Kohler, and Behr, but the ads are minimally invasive to the user experience.[11]<\/a><\/li>\n
  3. Exchange Fees:<\/em> In 2014, Houzz launched an online marketplace with 6+ million products from over 15,000 vendors.[12]<\/a>\u00a0 In doing so, Houzz created a third network effect where homeowners, service providers, and vendors all contribute to a virtuous cycle.\u00a0 Houzz\u2019s large existing network of homeowners and service providers allowed Houzz to rapidly attract vendors and simultaneously capture a 15% commission for items purchased on the site.[13]<\/a><\/li>\n<\/ol>\n

    Today, Houzz\u2019s online marketplace uses artificial intelligence called \u201cVisual Match,\u201d that uses deep learning to tag objects (such as sinks, tables, and artwork) in pictures posted by users.\u00a0 The green tags become links to similar or recommended products in Houzz\u2019s online retail store.\u00a0 Such features create additional value through \u201cclick-to-buy\u201d convenience for homeowners and enhance the value of products for vendors by associating them with aspirational pictures of remodels.[14]<\/a>\u00a0(See Figure C)<\/p>\n

    Figure C. Houzz “click-to-buy” green tags.<\/strong>
    \n\"\"<\/a><\/p>\n

    Competition.\u00a0 <\/strong>On one hand Houzz is direct competitor\u00a0to the likes of Angie\u2019s List and HomeAdvisor, yet it isn\u2019t.\u00a0 In theory, a homeowner could find inspiration on Houzz and then go to HomeAdvisor to find a contractor (which charges contractors a fee for every lead they receive), but this is not an issue since Houzz\u2019s value capture does not depend on transactions being completed on its website.\u00a0 Furthermore, HomeAdvisor does not have inspirational content like Houzz \u2013 this content makes it more likely that a homeowner\u2019s project will begin with Houzz and the \u201cone-stop-shop\u201d nature of the platform makes it more likely\u00a0 that he or she will complete the project with a service provider found on Houzz.<\/p>\n

    Given the multiple faces of the Houzz platform, both Wayfair (an interior decorating ecommerce site) and Pinterest (an idea discovery social network) could also be considered competitors.\u00a0 While Houzz is seemingly a platform where you can do everything, it is also very focused on the home improvement market, strongly associating the Houzz brand with home inspiration.\u00a0 Unlike Houzz, Wayfair does not provide homeowners with an enormous library of content and Pinterest does not connect users with reviewed service providers.<\/p>\n

    Conclusion.<\/strong>\u00a0 Some day you will move out of the city, give up your high-rise apartment, and settle down in the suburbs.\u00a0 And when you do, Houzz and its growing network of reviewed service providers, accessible vendors, inspirational content, and homeowners just like you will be there for you.<\/p>\n

    [1]<\/a> Ryan Lawler, \u201cHouzz raising $400 million at $4 billion valuation,\u201d Tech Crunch,\u00a0<\/em>https:\/\/techcrunch.com\/2017\/06\/09\/houzz-400m-raise-4b-valuation\/<\/h6>\n
    [2]<\/a> \u201cHouzz,\u201d Wikipedia, https:\/\/en.wikipedia.org\/wiki\/Houzz<\/h6>\n
    [3]<\/a> Michael Carney, \u201cHouzz’s torrid growth comes down to the three C’s: Content, Commerce, and Community,\u201d Pando, <\/em>https:\/\/pando.com\/2013\/03\/01\/houzzs-torid-growth-comes-down-to-the-three-cs-content-commerce-and-community\/<\/h6>\n
    [4]<\/a> George Anders, \u201cHouzz Tops $2 Billion Valuation, Opens Million-Item Marketplace,\u201d Forbes<\/em>, https:\/\/www.forbes.com\/sites\/georgeanders\/2014\/10\/01\/houzz-tops-2-billion-valuation-opens-million-item-marketplace\/#1cd318926fb3<\/h6>\n
    [5]<\/a> \u201cA SCALING FRAMEWORK FOR NETWORK EFFECT PLATFORMS,\u201d Pipes to Platforms,<\/em>\u00a0http:\/\/platformed.info\/scaling-strategy-platforms\/<\/h6>\n
    [6]<\/a> \u201chouzz,\u201d houzz, <\/em>https:\/\/www.houzz.com\/<\/h6>\n
    [7]<\/a> George Anders, \u201cHouzz’s Founders Have Become Tech’s Newest Power Couple,\u201d Forbes,<\/em> https:\/\/www.forbes.com\/sites\/georgeanders\/2014\/10\/15\/houzzs-founders-have-become-techs-newest-power-couple\/2\/#42bca59f72a9<\/h6>\n
    [8]<\/a> Ibid. Anders.<\/h6>\n
    [9]<\/a> Ibid. Anders.<\/h6>\n
    [10]<\/a> George Anders, \u201cHouzz Tops $2 Billion Valuation, Opens Million-Item Marketplace,\u201d Forbes<\/em>, https:\/\/www.forbes.com\/sites\/georgeanders\/2014\/10\/01\/houzz-tops-2-billion-valuation-opens-million-item-marketplace\/#1cd318926fb3<\/h6>\n
    [11]<\/a> Navnish Bansal, \u201cHouzz Business and Revenue model | How it Works,\u201d Future Work Technologies,\u00a0<\/em>https:\/\/futureworktechnologies.com\/houzz-business-and-revenue-model-how-it-works\/<\/h6>\n
    [12]<\/a> Susan Reda, \u201cSetting Up Houzz,\u201d National Retail Foundation,<\/em>https:\/\/nrf.com\/blog\/setting-houzz<\/h6>\n
    [13]<\/a> Peter Cohan, \u201cHouzz’s $613.6 Million Arsenal Targets Wayfair’s $300 Billion Market,\u201d Forbes, <\/em>https:\/\/www.forbes.com\/sites\/petercohan\/2017\/09\/18\/houzzs-613-6-million-arsenal-targets-wayfairs-300-billion-market\/2\/#326d48243e85<\/h6>\n
    [14]<\/a> Kevin J. Ryan, \u201cHow This Company Is Using Deep Learning to Change the Retail Game,\u201d Inc.,<\/em> https:\/\/www.inc.com\/kevin-j-ryan\/how-houzz-is-using-deep-learning-to-change-the-retail-game.html<\/h6>\n","protected":false},"excerpt":{"rendered":"

    You can thank this platform when you own your first home.<\/p>\n","protected":false},"author":2677,"featured_media":6921,"comment_status":"open","ping_status":"closed","template":"","categories":[1885],"class_list":["post-6919","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-digital-platform","hck-taxonomy-organization-houzz","hck-taxonomy-industry-service","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":"\nhouzz - 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\/houzz\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"houzz - 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