The Giant Accelerates Its Entry Into The Internet Home Decoration Industry Or Ushers In A Change?

On March 14, Alibaba (China) Network Technology Co., Ltd. took a 20% stake in Henan Jiangduoduo Information Technology Co., Ltd. The business scope of the latter includes decoration engineering design, lamp installation and maintenance, moving service, building engineering construction and other businesses.


In fact, Alibaba is not the only giant with ideas on the home decoration industry. In September 2018, JD and Qumei Home jointly opened the "Qumei Jingdong Home", and launched the "full packaging+customization+finished products+soft packaging+life" mode; In October 2018, Tencent announced that it had reached a comprehensive strategic cooperation with Red Star Macalline, and said that it would help the home furnishing industry in terms of traffic, data, marketing, technology, social networking, scenes, etc., and explore the reconstruction of the value chain of the home furnishing retail industry.


After a bleak and negative year in the industry in 2018, with the rapid entry of giants, and with the abundant flow, capital and technology empowerment for the home decoration industry, can the home decoration industry stabilize and recover in 2019?


The value analysis of Internet home decoration industry under the framework of Metcalfe:


Robert Metcalfe, the pioneer of computer network and the founder of 3com, once thought that the value of the network should increase with the number of users' squares. The value of a network is equal to the square of the number of nodes in the network, and the value of the network is in direct proportion to the square of the number of users connected.


On this basis, some scholars believe that the value of the Internet lies in the interconnection between nodes. Every N nodes may be connected with N-1 other nodes. The potential association is N (N-1), that is, N, 2 orders of magnitude. Therefore, the value of Internet companies is: V=Nˇ2， Where V is the Internet value and N is the number of users.


Later, the judgment principle of "user first" was constantly improved. In 2015, Guotai Junan's strategy team believed that the value of Internet enterprises was composed of four core elements: liquidity factor, premium rate, number of users or potential users, and high-quality network nodes. On this basis, a more comprehensive formula was developed.


Where V is the value of the Internet, K is the liquidity factor, P is the premium rate coefficient (mainly depending on the position in the industry), N is the network user, and R is the distance between network nodes (interaction factor between customers).


Therefore, it is advisable to use this formula as an anchor to analyze the value of the Internet home decoration industry by taking Tubatu and Qijia as examples?


As far as the conversion rate or payment rate of users is concerned, Tuba Rabbit has accumulated considerable resources of users, decoration enterprises, interior designers and suppliers after years of development, and has become the largest online home decoration platform in China worthy of the name. According to data, as of June 30, 2018, Tuba Rabbit has 26.3 million users, 84500 decoration enterprises, 1.073 million interior designers and 1290 suppliers.


It can be said that the Internet home decoration industry has a large user base, that is, a large N value, and the conversion rate of Internet home decoration industry users has been good. According to the data, in the first half of 2018, the user conversion rate of Tuba Rabbit was 10.5%. Compared with the average conversion rate of 8% for Internet products, it is commendable to make such achievements in such a low frequency industry.


The essence of achieving such a conversion rate is that the Internet home decoration industry does play a certain role in helping to solve the pain points of the traditional home decoration industry. The traditional home decoration industry does have many pain points. For example, if the cost of just one soft decoration is 100000 yuan, the quotation will dare to reach 300000 to 400000 yuan. Although the emergence of the Internet has had a huge impact on this industry, it still fails to fundamentally solve the problem.


Viewing the Barriers of Home Decoration Industry from the Essence of Internet


From the perspective of the P premium rate coefficient of the home decoration industry, according to the classic business theory, the excess return of enterprises comes from the moat. What is the moat of home decoration industry?


From the perspective of the Internet Jianghu team, the moat of the home decoration industry is that it can solve the pain points of the traditional home decoration industry and reconstruct the ecological industrial chain of the home decoration industry, which coincides with the essence of the Internet. The essence of the Internet is nothing more than two points: the first is to break the information barrier and connect everything. The second is to reconstruct the industrial ecology and thoroughly maximize the efficiency.


Home decoration industry has always had three major pain points. First, the industrial chain is long and the production capacity is decentralized. It is often necessary to deal with more than 20 suppliers in a single hard installation link. Secondly, the information between the buyer and the seller is highly asymmetric, and the process is complex, leading to the attempt to earn rebates by adding items from design to construction. Finally, for the owners, the decoration is tedious, which breaks the heart, intestines, stomach and lungs of people, and severely attacks people's yearning for a better life.


It can be said that the emergence of Internet home decoration theoretically just solved the pain point in the field of home decoration, concentrated the scattered production capacity, avoided the layers of exploitation by middlemen, simplified the tedious home decoration, and undoubtedly provided value for the society. But the reality is that the current Internet home decoration industry has not only no excess profits, but also losses.


In the current home decoration industry, whether it is Tuba Rabbit, Qijia.com or many second and third tier platforms, it is now in a state of continuous loss. According to the financial report, from 2015 to 2017, the net loss of Qijia reached 163 million, 154 million and 109 million. Like Qijia.com, Tuba Rabbit has never been able to get rid of the situation of continuous losses. In the first half of 2018 alone, Tuba Rabbit lost 636 million yuan.


Achilles' heel in low frequency mode


From the R value of customer interaction factor, the industry as a whole is currently in continuous loss without excess earnings. In the opinion of the Internet Jianghu team, in addition to homogenization competition, price war and other factors, there are two reasons. On the one hand, the Internet home decoration industry is a very low-frequency industry. There is a saying in venture capital circles that low-frequency cannot beat high-frequency. As Zhu Xiaohu of Jinshajiang Venture Capital, who has invested in a number of unicorn enterprises such as Didi Taxi and ofo, said, a successful unicorn enterprise must meet the three characteristics of "high frequency, rigid demand and scale".


Although the home decoration industry is just in demand, the low frequency of user behavior determines that its user stickiness is not strong, which also makes the customer acquisition cost of the home decoration industry always high. According to the boss of a decoration company, home decoration can only rely on word of mouth, so this is a slow business. Moreover, due to low frequency, a customer may not come back in ten years, and the need to constantly acquire new customers often leads to high monthly sales costs.


It can be said that due to the slow growth of users, low repurchase rate and other factors, the core revenue source of Internet home decoration companies - traffic trafficking and transaction matching business will also face continuous pressure of rising customer acquisition costs in the future. Due to the characteristics of low frequency, the value of the Internet home decoration industry is reflected in the formula that there is no excess return, that is, the P value is low and the customer interaction factor R value is high.


On the other hand, most of the Internet home decoration industry, to some extent, is still engaged in traffic trafficking and matchmaking transactions in essence, and is still limited to the function of intermediary. It is hard to say that it has played a revolutionary role in today's home decoration industry. For example, from the material supply end to the design end and then to the construction end, although most platforms claim to be "large-scale and standardized", according to the feedback of most practitioners, there is still no difference in any process from the traditional home decoration. Instead, a large number of people are arranged to calculate, process, and coordinate the sorting and transportation of materials through the platform, The intermediate links become longer.


What is the key for the Internet to transform traditional industries? In my opinion, it is necessary to use information advantages to reconstruct the industrial chain of traditional enterprises and accelerate the circulation of the industrial chain from the whole ecosystem. From this point of view, the Internet home decoration industry has a long way to go.


In general, although the Internet home decoration industry has the advantages of high customer price, rigid demand and so on, it is still a long way to try to change this industry by means of information intermediary.


Under the entry of giants, is it the platform mode or the proprietary mode?


Although the golden age of the real estate industry is no longer, and the real estate has ushered in an era of stock, it is not believed that the demand of the home decoration industry will decline significantly. With the wave of consumption upgrading, the demand for renovation of old houses and partial decoration is still rising. In addition to the obvious demand and high customer price, the market of home decoration industry is still a trillion scale market with reform opportunities.


From the perspective of Internet Jianghu (ID: VIPIT1), if Internet home decoration companies want to break the situation, they must not just act as information intermediaries. In essence, they are still in the mode of matching transactions and selling traffic. Therefore, we must start from the essence of the Internet and use the Internet to re split and integrate the entire home decoration industry chain.


Standardization and replicability can lead to scale and long-term development


The platform must participate in the specific process of home decoration and formulate unified standards. Users of Internet home decoration often report that the average price is expensive, the decoration materials are poor, and the decoration company is running away. To a large extent, the reason for this is that the platform just wants to be an information platform of "lying and earning", and does not really participate in the field of home decoration. In addition, there is a lack of measurable standards for the design of home decoration, such as specifying which brand of home decoration materials and floors to use,


Therefore, if the home decoration industry wants to scale up and achieve long-term and stable profits, it needs to focus on the model, and implement the route of replicability and standardization in design, because only standardization can ensure quality, and it is easy to replicate and grow.


For the demand design of those high-end and small groups, even if the single profit is large, the small number of people does not conform to the theory of Internet economies of scale, and it may not take much advantage. It's said that you can't have it both ways. In a bad environment, it's most important to fill your stomach first.


A senior practitioner once said frankly that home decoration itself is not a product, but a service with a long cycle and heavy links. Therefore, in the face of various problems in the industry, only the platform wades in person, in other words, let the model be more important, can it really play the role of empowering the home decoration industry.


The platform mode is dead, and the heavy mode ushers in a new life


At present, the Internet home decoration industry is mostly gimmicky with low prices, but the quality can not keep up, and even large-scale losses appear. In the opinion of the author, on the one hand, the platform is eager to create low-cost blockbusters with the thinking of the Internet. On the other hand, on the basis of not being able to control the supply chain, we can only subsidize the home decoration companies and users on a large scale, resulting in a situation where it is difficult to make profits and low prices do not please.


Therefore, in order to break the situation and create blockbusters, we must take the route of economies of scale. Specifically, we should take the initiative to control the supply chain in our own hands, leverage the entire supply chain with orders, and reshape the ecology of the home decoration market. For example, when the decoration design scheme is standardized, the company should directly participate in the one-stop purchase of decoration materials, reduce the decoration price for users and form its own competitiveness through economies of scale and reducing the participation of intermediaries


In a word, as Alibaba and Tencent enter the home decoration industry, they will not only bring huge flow and abundant funds to the industry, but also re purchase the value chain and resource allocation of the industry from technology, scenarios, industrial chains and other aspects. At the same time, those "information intermediary" fake Internet home decoration companies that just want to make money lying down will also be gradually eliminated, and a number of new Internet home decoration companies that can really bring value to the industry will also rise.