How big is the market housekeeping startups such as HomeJoy, Handy and Thumbtack? Is the business big enough to justify Amazon Home Services’ leap into the market? We’ll answer that question the last week before BIA/Kelsey NOW, coming up on June 12th at the Mission Bay Conference Center in San Francisco. Use the discount code “MR100” to save $100 on tickets. Will you be there?

$20 an hour. That’s the price of a HomeJoy housekeeping professional. How big can the market for these services reasonable grow? Will these on-demand companies grow without taking a major bite of the approximately $8.5 billion in revenue from the industries that provide housekeeping services today?

Using the methodology explained in our first Local On-Demand Economy market posting, which examined the market for unpaid household work that is currently performed by the householder, we estimate that the Housekeeping Services vertical represents $57.8 billion in addressable revenue in 2015. The growth of this market depends on increasing homeowners’ and renters’ ability to earn income from some of the labor they do to support their home while spending to have others do household work they want to avoid.

By lowering overhead using digital logistics to match housekeepers and clients, as well as to collect feedback about the customer and worker’s experience, HomeJoy hopes to prosper as less agile companies flounder in employee costs that the San Francisco-based LODE company eschews. This flexibility comes at a cost, as HomeJoy has much more limited control over individual cleaners that contract with it than a firm like Merry Maids, where uniforms and policies are enforced as part of the employment agreement. Regulatory changes at the municipal, state and federal levels will be necessary to resolve the ongoing questions about the legal status of a “1099 worker” with regard to their obligations to uphold corporate standards, but for the sake of this analysis we will simply point out that brand experience will turn on the on-demand company’s ability to engage laborers in delivering a consistent customer experience.

The Housekeeping Services Industry
Housekeeping services are lumped into a variety of labor categories, including janitorial services and traveler accommodations, by the Bureau of Labor Statistics. As of May 2014, more than 70 percent of “maids” worked in hotels, motels and medical facilities. Approximately 260,000 housekeepers work in the home services market and drive approximately $8.5 billion in revenue for themselves, their franchise or housekeeping company. The median hourly wage for a maid in the United States is $9.67 an hour, and the top 10 percent of earners bring in $15.74 an hour.

Existing housekeeping and services companies, such as ServiceMaster’s Merry Maids as well as the Molly Maids franchises, are long-established players who see an emerging fight for their lives as on-demand companies revise the economics of service delivery. The result will likely be the transition of all these companies to on-demand labor models over the next few years, as 86-year-old ServiceMaster has in Europe, where it has launched on-demand home cleaning. However, these on-demand services will compete with their existing franchisees, leading to potentially declining overall revenue. ServiceMaster reported declining revenue in 2014 in its Franchise Services Group, where Merry Maids revenue is reported, of $253 million, down 2.4 percent year-over-year. The trend continued in Q1 2015, when ServiceMaster reported an additional 1.9 percent year-over-year decline in quarterly revenue.

Existing home and commercial services businesses have combined far-flung service businesses to establish their profitable foundations. ServiceMaster, for example, provides home security and insect/pest control services through its American Home Shield and Terminix groups. We anticipate that each of these services can stand on their own in the on-demand market, if the provider masters the infrastructure, marketing and engagement challenges involved.

At $12 to $15 an hour, HomeJoy’s compensation is comparable to the employee-based model of the traditional housekeeping business and slightly higher than the median hourly wage for maids reported by PayScale, $10.73 an hour. These figures suggest HomeJoy runs a topline margin of about 40 percent, higher than the average on-demand company margins at, for example, Uber. This will enable HomeJoy to concentrate on quality experience, which is the keystone to building a competitive offering and growing its market.

Based on our model, the housekeeping industry has converted only 14.7 percent of the addressable market in 2015 — that is, the people who can access and afford on-demand housekeeping services. There is plenty of room for growth, but much of that growth is predicated on the exchange of on-demand labor among household laborers, not simply the existing housekeeping market.

Table stakes
HomeJoy, which has acquired one company, GetMaid, is purportedly in discussions about a merger with Handy. Both companies have anted up to play at the consolidation game, bringing strong logistical and demand-generation tools to potential business relationships. The enduring question for all LODE companies will be “How many services make a minimum viable offering?”

Based on the early M&A activity in the pure-play housekeeping business, which has attracted between $240 million and $290 million in venture investments, it is clear that the appropriate mix of services that will attract both sufficient labor interest and customer attention is still to be discovered. Thumbtack, which also offers cleaning and assistant-like services for the home, reaches far beyond the cleaning category, offering plumbing and yard services, among others may be better prepared to win the share of customer necessary to grow. A combination of HomeJoy and Handy, should it come to pass, would compete more directly with Thumbtack.

But then there is the specter of Amazon Home Services, which promises a wide variety of vetted in-home services and already delivers more goods to directly to American home than any other online source. The bet by Amazon is simple: They can transform consumer attention to products around the house into services revenue related to delivering and using those products, as well as services that were previously found through the paper and online directories. Amazon’s primary competition for labor will likely be the directories and marketing services companies seeking to aggregate services businesses, such as TalkLocal, ReachLocal, as well as individual businesses competing through tools such as BreezeWorks, FreshLime and the recently announced Prompt.ly.

We anticipate intense consolidation by home services companies seeking to find the ideal mix of services and market reach. With the transition to on-demand labor, which we view as a logical and inevitable consequence of network technology, automation and organizational change, existing home services companies will face tremendous margin pressure and a few will certainly die, but none is assured to die from the competition coming from LODE startups. There is ample upside available if the LODE scenario leads to higher incomes for household workers.