Houzz Business Model Canvas

There is no place like home. And nobody knows that better than Houzz.

The world’s leading platform for home remodeling and design has built a marketplace that connects renovation and design professionals with consumers in local markets. How do they do it and where do they make money? We created a Canvas to answer exactly that!

Houzz Business Model

How does Houzz make money?

Houzz mobile app - 2016
Source: Houzz (2016 mobile app)

On the surface of it, Houzz is a marketplace. Marketplaces usually make money by connecting buyers and sellers, then taking a commission in the middle. But when we scratch beneath the surface, we can see that Houzz has three revenue streams:

  • Premium Memberships (Houzz Pro+) allow certain service providers to be seen in the search rankings over other members, along with other benefits. The cost of these accounts depend on the category (designer versus architect), but generally amount to several hundred dollars per month
Houzz Pro Dashboard example
Source: Houzz (Houzz Pro Dashboard example)
  • Ad Revenues are made through select placement of Display Ads from vendors in the home improvement space such as Lowes
  • Commissions from goods sold on their online marketplace (furniture, materials, etc), where they make 15% of the purchase price and use machine-learning to automate suggestions for certain types of goods (Visual Match).
Houzz Visual Match Example
Source: Houzz (‘Visual Match’ example)

While it is nice to have multiple revenue streams and lots of users, that can also make it more difficult to drive profitability in the digital space. As Houzz is a private company, there is no open-source revenue data available; however, there are some signs that they have stretched themselves too thin (ie. 180 people laid-off in 2019), like many other Silicon-Valley companies in this era of cheap capital.

Our estimates would be that they drive most of their revenues from Commissions. Based on available data (2020), they have:

  • More than 2 million service providers listed on the platform (no data on freemium versus paid)
  • More than 40 million monthly active users globally
  • More than 10 million products available for purchase on Houzz across 65 categories

Looking at all the data points, there is no doubt that Houzz has built a valuable service that is comparable to Pinterest in some ways and Angie’s List in others. How valuable is the question, and that is difficult to fully understand without more data on their different revenue streams.

Community-Centric or Commercial Partner Strategy?

Like most companies built in this era (Houzz was founded in 2009), Houzz built its core around massive community engagement. They focused on creating a platform that would allow its users to share renovation and design-based content that both inspired them and could be used as a template for a renovation or upgrade. In this way, they are very similar to Pinterest.

Based on the data below, we can see that different rooms take priority for renovation or remodeling, a valuable insight at a platform level.

Houzz Data - Median Spend on Remodelling Rooms in a house
Source: Houzz

As they grew, and the commercial applications became more visible, they started to create partnerships with industry-leading corporations. One of their early commercial partnerships, for example, was with Lowes in 2012.

Technological development on the platform enabled the company to better serve its community:

  • Visual Match enabled better product discovery
  • View My Room in 3D created AR (augmented reality) functionality in the app
Houzz Visual Match - Kitchen
Source: Houzz (Visual Match Kitchen)

Most recently, Houzz created the Trade Program for its service professionals (interior designers, architects, renovators, etc) to be able to buy their products at wholesale prices and receive referral bonuses, in effect creating a network of partners.

Source: Houzz (My 3D Room)

You can see how Houzz has oscillated between a more community-focused strategy and a more commercial-partner strategy over time. Part of the challenge for them is that they have a business model that is in some ways eCommerce, and in other ways membership-based.

Source: Houzz (Houzz Reward Dollars)

Last year they launched their own credit card, offering 5% back for money spent on Houzz (Houzz Reward Dollars) and options for special financing deals. These types of brand extensions make sense on the surface, but only time will tell whether they have a positive effect on the bottom line.

Houzz Fundraising and Valuation

Most recently, Houzz was valued at $4 Billion USD; however, this fundraising round occurred in 2017 when the market was both frothy and red hot. They have raised more than $600 million to date, with their last round being slightly more than $200 million.

It is unknown what their future plans are for raising capital, but it is not necessarily a bad sign that they haven’t raised capital since 2017. Having gone more than 2.5 years without a subsequent raise means that they have been burning a minimal amount of money, or they became cash positive at some point during that time period.

Houzz Business Model Canvas

A business model is defined as:

“the rationale of how an organization creates, delivers and captures value.”

Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.

Houzz Value Proposition

Pinterest meets Angie’s List in the home-improvement space. Curated network of content and professionals geared towards homeowners:

  • Design inspiration and ideas a lá Pinterest.  Buy products straight from the site. 90% of users are homeowners.
  • Service professional search and reviews a lá Angie’s List. Members and their partners can source leads and create a strong customer-acquisition pipeline from Houzz.
Houzz Business Model Canvas