Inside Urban Company’s Foray Into Consumer Durables

Even as Urban Company continues to face heat (and widespread protests) from its service partners over a range of issues, the unicorn has ventured into something altogether new, nearly 10 years after it started out.

This week, the Gurugram-based consumer services unicorn forayed into the consumer durables territory by launching reverse osmosis (RO) water purifiers and a smart door lock under the brand name Native.

While Native’s consumer durable products have been available for several months on Urban Company’s app and website, this is the official launch for these smart home products and it begs the question of whether this is a pivot from a services model to a product company.

Has Urban Company buckled under the pressure of scaling up its gig worker-centric services play (more on this below) to transition to the consumer products and durables segment, and a new revenue stream?

Don’t Call It A Pivot: Urban Company

Aditya Shrivastava, senior VP, business at Urban Company insisted consumer durables are not a pivot, but a logical extension of something Urban Company has been doing for a while.

The move into consumer durables is an extension of the manufacturing aspect that Urban Company has not always openly discussed. But this part of the operations allows it to retain some propriety in its services business.

“We have been building products internally for years now from individual spare parts for repairs to the equipment that our service professionals use. Abhiraj [cofounder Bhal] was very supportive of taking this forward so we started looking at products where we can fill a real gap for customers,” Shrivastava told Inc42.

He also claimed that these products have been under development in some form or shape for a couple of years. While Urban Company has developed some products internally for its service partners, these were unbranded products only for internal use.

For instance, when it comes to the Native RO water purifier, Urban Company recognised that existing competitor products required frequent maintenance. Feedback from the service category enabled the company to pinpoint exactly which spare parts needed the most attention and development.

As a result, the company claims that its purifier requires the least maintenance and servicing. “Some product categories are more ready for new products, but we will continue to be a services-first company and only enter those product categories where we see a long-term problem to be solved,” the senior VP added.

Shrivastava revealed that the company designed the internal circuitry of the purifier system and the software that goes into making a smart water purifier. But it also reached out to some key players in the manufacturing ecosystem for support in industrial design and manufacturing. The company did not reveal who manufactured the purifiers, but it did say that the overall design of the new products is Urban Company’s original IP.

Similarly, on the smart door lock side, the company feels that modern home buyers or the home improvement space in India today is rapidly moving towards smart home space. Servicing door repairs and installations allowed the company to map the demand and this will in turn help its distribution and channel strategy as well.

Ecommerce Comes First

Speaking of distribution channels, Shrivastava said the company is open to all avenues when it comes to selling Native products. While ecommerce will be the primary focus, modern trade and retail are also in the plans.

Of course, given the focus around smart home products, B2B is also a channel where the company can sell to real estate developers for installation in new homes. But at the moment, the startup is banking on the reach of its app to sell purifiers and smart home locks.

We, of course, wanted to delve deeper into the question of the overall business model and how the expansion into products might change Urban Company in the future. Interestingly, Shrivastava said that ROs are one of the most serviced appliances in an Indian household.

The market landscape is such that unorganised brands and local players make up a significant portion. These products are typically of low quality or have low-quality parts that are assembled without much thought, the senior VP claimed. And these are the primary targets for disruption for Urban Company’s Native lineup.

“We saw that the service volume was high and this meant the products in the market had flaws which we were regularly fixing. This data is of course critical for us in product development,” Shrivastava told us, adding that presently the focus is on the two new products only and there’s no plans to launch new categories just yet.

Gig Worker Issues Plague Urban Company

However, one cannot ignore the myriad issues that Urban Company has faced on the services side. Protests from gig workers over working conditions, on-the-job injuries, casualties, and service quality issues are growing louder by the day.

In response, the company did launch an insurance plan for its workers, but given the slew of problems, this seems inadequate.

Founded in 2014 by Abhiraj Bahl, Raghav Chandra, and Varun Khaitan, Urban Company offers a range of at-home services such as beauty treatments and grooming, home cleaning, appliance repairs and other services. Till date, it has raised a total funding of $445 Mn from the likes of Prosus Ventures, Accel, Dragoneer, Tiger Global, Steadview Capital, Vy Capital among other marquee investors.

While the company was clearly a trailblazer in this space, the gig worker-centric model has had its fair share of problems including allegations of opacity in the ratings system, high reliance on discounts to customers which eats into the income of service partners, arbitrary deplatforming and poor working conditions.

A lot of the problems faced by service professionals in the past two years are down to Urban Company’s business model, where these gig workers have to pay a monthly subscription fee to be guaranteed a certain number of jobs.

This minimum guarantee was introduced in 2021 as the company sought to become a two-sided marketplace — charging customers for the service and service partners for the job opportunities they receive. It was seen as a solution to the off-app behaviour that meant partners would often bypass Urban Company in offering services to end customers.

While Urban Company claims it would offer a certain number of jobs in lieu of this payment, partners we spoke to in the past few months alleged that this is rarely the case.

“When they started this policy for minimum guarantee, it was not mandatory for professionals. So they offered a minor commission discount to bring in more professionals under the monthly fee. But now we have no choice but to pay this monthly fee if we want work from UC, so the discount is basically pointless,” Jinesh (name changed), an electrician associated with UC told Inc42.

However, the addition of the subscription model for its service partners has clearly benefited the company from a revenue standpoint.

Revenue from operations jumped 45% to INR 637 Cr and the company’s net losses declined over 40% to INR 308 Cr in FY23. It also claimed that its India business broke even in Q1 FY24 at an adjusted EBITDA level with negative working capital. “Our India business contributes approximately 90% of our revenues…,” the company’s statement in August said.

But the subscription model has resulted in many concerns from the partners and public protests at Urban Company’s HQ in Gurugram and other cities in the past few months. Inc42 exclusively reported the protests by beauty service professionals over deplatforming, which they claim happened despite workers complying with Urban Company’s terms.

Over 200 such deplatformed workers staged a protest outside the startup’s Gurugram office in June and July. Protests were also seen in Bengaluru, West Bengal and other states.

According to the protesting workers, the company blocked their IDs due to issues such as booking cancellations, and a fall in user rating, just to name a few, which were out of control of the gig workers.

“I understand if I cancel a job and they penalise me, but what can I do about a customer cancelling?” asks Nasim (name changed), an AC repairman with Urban Company based near Gurugram.

Other service partners that we spoke to in Delhi-NCR claimed that when it comes to customer reviews, the Urban Company system is convoluted and opaque. A minor grievance often results in a one-star rating by the consumer, badly denting the average score of the gig worker and therefore the number of jobs they get.

We were also told that boosting the rating is next to impossible over a period such as one month. To increase their average rating, a professional has to complete 100 jobs with a very high average rating. But most workers barely get 70-80 jobs in a month, which makes Urban Company’s job guarantee promises hollow, service partners alleged.

At the same time, Urban Company is also seeing attrition of gig workers, particularly in the beauty space, to competitors such as Yes Madam. The Noida-based home salon service company claims to have over 2,000 professionals across more than 35 cities.

Will ‘Native’ And Ecommerce Play Work?

Given the problems and the people-heavy operations, it’s not surprising that Urban Company has decided to reduce some of the reliance on the services vertical. As a consumer products brand, Urban Company will face the same problems that have slowed down growth for most D2C brands outside the peak festive season.

Consumer spending has not exactly been robust in 2023, but the launch of the new products coincides with the festive season, where consumers are more liberal with discretionary spending.

“Festive periods tend to unleash latent consumer demand, prompting individuals to open their wallets more liberally,” Ashish Dhir, EVP (consumer and retail) of business consulting and services firm 1Lattice told Inc42 earlier this month.

Besides beauty and fashion, the festive season sees more traction for high-end electronics and appliances, which is where Urban Company’s lineup falls.

In the past year or so, Urban Company has fleshed out its marketplace of spares, electrical fixtures, furniture parts and more. But this was typical marketplace play with third-party brands; the launch of the consumer durable brand puts Urban Company in direct competition with some of these sellers.

Plus, the company’s reliance on data from its repairs and services business could also lead to problems down the road, similar to what has been seen with Amazon India, which is alleged to have taken data from sellers to launch private labels.

And of course, if Urban Company chooses to sharpen its focus on selling products in the future, it would take the startup into the marketplace fold. This transition could also force the company to adopt new structures thanks to FDI rules in ecommerce.

While Urban Company claims that the launch of the Native brand of consumer durables will not change its service-first DNA, the nature of the market is such that capital-intensive people-heavy operations are going through restructuring in favour of leaner models.

The dependency on gig workers is clearly a problem on the service side, which has persisted for several years. Scaling this up amid these issues is a challenge that perhaps cannot be overcome in 2023 yet.

The question remains: how far will Urban Company stray from what originally made it a household name?