Ikea Acquires TaskRabbit in Effort to Modernize Retail

Posted: 20th October 2017 09:02

In September, Swedish furniture retailer Ikea quietly snapped up TaskRabbit in a bid to transform its longstanding retail model.

TaskRabbit was an early pioneer of the “gig economy,” the industry of on-demand services. Using a smartphone app, TaskRabbit customers could summon contractors—“taskers”—to perform a variety of one-time services, such as housecleaning or furniture assembly, one of the most sought-after tasks on the site. Given that nearly all of Ikea’s furniture offerings require self-assembly, the acquisition seems to be immediately synergistic.

“As urbanization and digital transformation continue to challenge retail concepts, we need to develop the business faster and in a more flexible way,” Ikea CEO Jesper Brodin said in a statement.

TaskRabbit will maintain operations as an independent subsidiary of Ikea. Its 60-person staff will continue to be led by CEO Stacy Brown-Philpot at its headquarters in San Francisco.

Ikea’s purchase price was not disclosed. Since its founding, TaskRabbit had raised more than $37 million from investors including Lightspeed Ventures, Shasta Ventures, and Founders Fund, according to Crunchbase, a database for startups.

A Retail Experiment

Ikea’s bread-and-butter has been its line of inexpensive, stylish furniture that can be assembled at home with a clear set of instructions and simple tools—often just a screwdriver.

The Swedish company’s retail and distribution model is legendary. Flat, space-saving packaging has helped Ikea improve its business and logistics processes, including shipping and warehousing. The simple self-assembly of its products has allowed it to minimize store staff and keep a lean workforce.

Consumers have also responded positively to what some researchers call “the Ikea effect,” examined in a recent Harvard University study, which suggests there is an increase in perceived valuation of self-made products, like successfully assembled Ikea-made furniture.

Ikea knows its strengths and weaknesses. The purchase of TaskRabbit addresses some of its weaknesses.

As Ikea expanded its retail footprint in the United States, the company was aware that some customers simply would not consider its furniture because it requires assembly. Providing an assembly service wasn’t a core competency within its business model, until the arrival of TaskRabbit.

While it isn’t entirely clear how TaskRabbit will change Ikea’s service—and vice versa—we can make some assumptions based on each company’s strong suits. And it’s a model other retailers will be closely studying.

Ikea can control the quality of its materials, but it can’t control the quality of assembly, which depends on the customer’s skill. TaskRabbit assembly—for a fixed fee—allows the company to offer basic assurances on minimum quality and safety of furniture assembly.

The ongoing population shift out of suburbs and into cities across the country means limited growth potential for big-box stores in suburban areas. To meet the increasing demand from urban dwellers without cars, Ikea can reach these customers with TaskRabbit, which provides both delivery and assembly.

Lastly, the nature of the gig economy allows Ikea to keep TaskRabbit contractors off its payroll, freeing the company from paying benefits and taxes.

The TaskRabbit acquisition underscores Ikea’s ongoing embrace of new technologies. In September, it introduced an app called Place, which allows customers to place Ikea furniture inside their homes in virtual reality with just a few swipes. The app has access to 2,000 Ikea products, nearly the company’s entire furniture collection.

Place is a major improvement over Ikea’s first catalog app introduced in 2012. That app had a limited virtual reality feature to recreate some Ikea furniture in 3-D, allowing the user to place the item within a photo.

Failure of the Gig Economy?

TaskRabbit launched in 2008, around the same period two other “gig economy” giants also began life—Uber and Airbnb. TaskRabbit provided an easy way to seek local helpers who had spare time to perform odd jobs. Customers would list the jobs and submit a price they were willing to pay, which would be matched up with local “taskers” who had the choice to accept or reject the work.

In the New York area, TaskRabbit was famously tied to the “Cronut” craze of 2013—for $50, “taskers” would be requested to stand in line at SoHo’s Dominique Ansel Bakery to purchase a $5 croissant donut and deliver the pastry to the customer’s door.

While initially successful, more startups sprouted as competitors. Over the years, evolution within the “gig economy” steered individual companies to position themselves around specific types of jobs. Handy was founded in 2012 to cater to customers requesting handyman services. Bellhops was created to specifically provide moving services. Instacart focuses on grocery shopping. DoorDash, Deliveroo, and Postmates specialize in on-demand food deliveries.

While Uber and Airbnb have grown to hold multibillion-dollar valuations, TaskRabbit has been floundering in comparison. Bloomberg reported in December 2016 that TaskRabbit was “telling its backers it could be profitable in the near future but needed more money.” It also significantly lowered its valuation and raised some funds through a crowdfunding website—an unusual step for a major startup.

Whatever the reason for TaskRabbit’s apparent struggles, its valuation has lagged behind some newer competitors. As of October 2016, CB Insights estimated TaskRabbit’s private-round valuation to be approximately $120 million, which trails Handy ($340 million), DoorDash ($660 million), and Thumbtack ($1.2 billion), a service with a very similar mission to TaskRabbit’s.

The Achilles’ heel for companies serving this space has always been value. Given the simplicity of certain “gigs,” the premium price some startups charge isn’t commensurate with the value delivered. So in order to scale and succeed, companies must focus on niche tasks that can command a premium.

“On demand isn’t going away as an investment sector,” Foundation Capital’s Zach Noorani said in a recent interview with TrueBridge Capital Partners for Forbes.

“There are many sub verticals where investor appetite remains strong. Wherever there’s a big market and some consumer annoyance—think alcohol, prescription drugs, gas—you’re still seeing a bunch of entrepreneurs and VCs chasing it.”

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