Why traditional businesses should invest in online startups

Bana Shomali of ServiceMarket.com, which recently closed a $4m funding round, says brick-and-mortar firms may struggle in an uberised digital world

Being able to book and pay for home services, such as cleaning, online has revolutionised the market in the UAE. Getty Images

All over the world, an increasing number of global offline players are now acquiring, partnering or investing in online start-ups.

In September this year, for example, ServiceMarket.com announced the successful close of a $4 million funding round by AddVenture and Emaar Industries & Investments. While the investment makes strategic sense for us,  what is more interesting is the entry of Emaar into the digital start-up space.

Such forays for offline businesses are gaining traction in the Middle East because they unlock many new opportunities. Here are the main reasons behind this emerging trend:

Digital marketplaces are the way forward

Online marketplaces have disrupted the way people find and access services today. Rather than spending days shortlisting the right service in your area and making calls to negotiate rates, you can easily book a service online with a couple of clicks.

That's why digital marketplaces have been growing in popularity and more customers are choosing to make online transactions. While the overall offline market has remained stagnant over the past year, online bookings of home services have soared in the UAE.

By jumping onto the online bandwagon, traditional businesses have a chance to not only retain their customers but also capture new clients looking for ways to buy services and products online.

Online transactions already dominate many sectors. It’s estimated that 50 to 80 per cent of the services related to travel, flights and hotels are found and booked online in developed markets. On the other hand, less than 1 per cent of home services are bought online in the GCC region, which means it is the ideal time for offline businesses to gain first-mover advantage.

It extends services

Another benefit of joining hands with online start-ups is it allows an offline business to extend its existing services or offer new options related to its products. For example, having acquired TaskRabbit in the US, Swedish firm Ikea now offers furniture assembly services, sought after by many of its customers. With this acquisition, Ikea has saved its customers the trouble of looking for furniture assembly services elsewhere, resulting in a better customer experience. Similarly, US retailer Walmart partnered with US home services platform, Handy.com, to allow its online customers to add installation and assembly services to its digital carts.

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It helps understand customers 

If you are selling a product and looking for insights into how it is being used, then the best way to do so is to be directly involved in the services that revolve around your product.  Last year, global consumer goods company Unilever invested in Helpling, a German home-cleaning platform. Since Unilever sells many cleaning products, any insight into consumer behaviour such as how often and on what days people need cleaning services, can prove very useful.

In June, The Home Depot, an American home improvement supplies retailer company that sells tools and construction products, invested in Homee, a US servicing app. Another example of this trend is the strategic investment in Zipjet, a laundry and dry cleaning app, founded in Berlin, by some of the leading producers of detergents and washing machines, including Henkel and Bosch home appliances. Home services companies also look to capture insights on consumer preferences such as when they like to clean, what they want when they move, and what types of parts they need for handyman or plumbing services. All of this data is useful for the manufacturers of these products, the suppliers of such services, and can even help in resource planning.

Such investments, acquisitions and partnerships can unlock a wealth of consumer data, which can drive value to the bottom line in many ways. Firstly, consumer insights allow companies to cut their operational and other costs by identifying aspects of the products and services that are inconsequential to customers. Secondly, companies can use insights to refine their target audience and improve marketing campaigns. Thirdly, companies can find out what else their customers are looking for and fill the gaps by improving existing products and services or launching new ones.

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Offers new ways to boost sales

Online marketplaces provide traditional businesses with effective channels to increase the sales of their products and services. Unilever, for example, offers bleaches and washing powders that complement Helpling's ecosystem, where these cleaning products can be potentially used and promoted. In the same way, The Home Depot is in an ideal position to improve the sales of its tools and construction products through Homee.

A way to 'Uberise' services

Everybody knows that Uber is disrupting the car ownership market, and many experts believe consumers may not need to buy cars in the future. This emerging trend, popularly known as "uberisation", is not only limited to the car market - similar disruptions are also taking place in other industries such as home services marketplaces.

Today, manufacturers of cars, washing machines and cleaning products are all eyeing the space in case it disrupts their business. Many realise that having an online presence is becoming an absolute necessity for survival. Already, the UAE's Washmen, a laundry app based on the Uber model, has declared war on washing machines. By making the process around laundry seamless through technology, Washmen hopes to render the home appliances obsolete. It could be that you no longer need to buy washing machines, vacuum cleaners, or cleaning products in the future, and instead use an Uber-like home service provider.

Traditional players that do not adapt soon might struggle to survive in an 'uberised' digital world. For many companies, the only viable way to maintain their position is to invest in online startups operating in the same space. The sooner offline businesses start delivering services online, the better chances they will have of staying ahead of their competitors.

Bana Shomali is the founder of ServiceMarket.com - a home services marketplace based in Dubai