The BOXT effect - the implications of online boiler quotes and next day installations

 

According to Andy Kerr, co-founder of BOXT, “Home installation is ripe for disruption and we want BOXT to be the first choice for customers who want to install heating, cooling or any smart technology in their home”.

BOXT has certainly caused shock waves in the market since its launch in early 2017, but is the business a true market disruptor or is the innovation no more than a predictable evolution in the heating market? The distinction may offer some insight into the longevity of the BOXT model and what local installers can do to move with the times.

What is market disruption?

The term ‘disruptive’ is used regularly in business and seemingly describes any technological innovation that puts a new spin on an existing product or service, but it is often misapplied.

The concept was developed by Prof. Clayton Christensen and describes the process whereby a cheaper, downmarket product or service over time rises upmarket to take mainstream market share and eventually displaces or replaces established businesses.

Christensen gives the example of Ford Motors. For a long time, Toyota was producing cheap, low-end cars for customers ignored by Ford. Over time, the credibility and quality of Toyota cars improved sufficiently for Toyota to take market share from Ford’s wealthier customer base and displace them. This is true market disruption.

BOXT: disruptor or innovator?

The BOXT innovation has been to develop an online quote system that gives a price for a new boiler without an in-person home survey. While BOXT was the first to get there, technological innovations across other sectors were such that it was an inevitable evolution. What BOXT did very effectively was use its significant funding resource to make quick market share gains via Google Adwords and an ultra-low pricing strategy.

Are they a market disruptor? According to Prof. Christensen’s definition, they are not. The development of online boiler quotes is certainly innovative, but BOXT has not taken a low-end product upmarket, nor has it displaced or replaced established businesses. In fact, established businesses have been quick to copycat the model and absorb the innovation.

As an innovator rather than a disruptor, BOXT’s position is more precarious as its USP is easily replicated. The market’s perception of BOXT as a disruptor, however, has led to a rush to invest and adjust to its low prices. In many ways, this has fed the model and prevented full exposure to normal market forces that would otherwise test its robustness. While the BOXT model is not disruptive, the industry’s response has been destructive at times.

The BOXT effect

What none of us yet know is whether the BOXT model is profitable. Many feel BOXT prices are unsustainable and point to a £2million+ loss in their second year of trading. Such losses may not yet give cause for concern amongst investors if the plan is to gain market share in the short term. If prices do have to increase to turn a profit however, only time will tell whether the slick user experience is sufficient to retain market share over similarly priced competitors.

If the model does not stand up to price rises, two things will have to happen for BOXT and others to continue:

1) More customers will need to be convinced that gas work is as safe and simple as a washing machine replacement in order to make such a purchase online.

2) The value of the industry and its workforce will need to be forced down permanently to meet the low prices.

The implications of a devalued industry are tighter margins, the fear that corners might get cut and difficulty attracting apprentices to a technical trade when they can swap washing machines for the same money. That is not to say the model is without merit.

Time-poor consumers can benefit from the customer journey and quick installation. The danger is that while consumers can make a hassle-free purchase, the workforce and standards might suffer.

Is there a bubble?

Copycat online boiler quote models include Heatable and Hometree. Like BOXT they have attracted millions of pounds in investment. There are many similarities in the rush to invest in these models with the .com boom of the late 1990s. During .com, internet start-ups were valued not on the robustness of their business model, profitability or cash flow, but on their future potential.

As far as the market is aware, BOXT has not turned a profit and Heatable and Hometree have both changed their models since inception. Any investment it has attracted is probably based on future potential and perhaps a touch of ‘FOMO’ (fear of missing out). 900,000 domestic boiler sales annually is a seductive figure but in reality, the inroads to market share are much more difficult. Like .com, we should be careful not to mistake investment potential for success.

If the bubble does burst, well, the impact will likely be limited. The thing about ‘layer’ businesses, i.e. platforms that position themselves between the work and the customer online, is that they do not bring true value to the industry in themselves; but they may leave a nice legacy of technological innovation.

Upholding our worth and values

Whether BOXT stays or goes or gets bought out is now irrelevant; online quotes are here to stay. The opportunity is there for installers to incorporate online quotes, website bookings and FaceTime surveys into their customer journeys. When installers combine ease of use for their customers with great advice, skill and personal service they offer a far more compelling sales pitch than an online company ever can.

At a wider level, the industry needs to dial up the emphasis on skill and education. Boilers are simply not another white good that can be delivered into our homes and engineer knowledge cannot be distilled down to swapping like-for-like combis. Efficient systems are the key to reducing our gas consumption and that takes skill, knowledge and on-going learning. The industry has an important role to play in meeting UK emissions targets and it is a duty that must rank above the pursuit of market share.