In January 2012, Home Depot bought a small startup, Redbeacon, that allowed shoppers to request quotes from local contractors and other service providers. The company essentially flipped the typical search model on its head: consumers outlined what they wanted, and businesses would come calling.
A week before Red Beacon sold, another startup, Thumbtack, raised a relatively small series A round to fund a similar project. Three years and $143 million dollars in funding later, the San Francisco-based company is exploding, cashing in on a surging local services sector that has seen four companies close hundred-million-dollar rounds in the matter of six months.
Street Fight recently caught up with Marco Zappacosta, Thumbtack’s chief executive, to talk about how online dating helped drive the company’s meteoric growth, the challenges facing the on-demand economy, and how online a service industry is changing — whether professionals like it or not.
When we talked last year, the company had just closed a $12.5 million series B round. What changed in the year and half since then that suddenly would justify a $100 million bet?
Nothing changed over the last two rounds. It’s just that we kept growing and people kept getting increasingly bullish. But we also got lucky. Luck comes from the fact that customers and professionals now are looking online first and foremost when they’re trying to solve these problems. When we first started going, we would talk to professionals who said, “This Internet thing is not for me.” That’s tough to push back on. We just don’t feel that anymore.
From a customer perspective, people are just a lot more comfortable with bring people they met online into their lives these days. The growth of Uber and online dating has conditioned people to be more willing to meet strangers in the real world that they met online. There’s sort of a cultural shift that has happened among both buyers and sellers that has been a tailwind that propelled us forward.
Thumbtack is not the first company to try implementing what some call a reverse marketplace: consumers post their demands rather than professionals posting their supply. Why is the model working now when it didn’t for Redbeacon, Zaarly and others?
Mobile is definitely the biggest change over the last five years. Our whole model is predicated on our ability, in real-time, to poll our professionals with very specific customer requests and get them to offer a quote on a job. A lot of people do not realize that when they submit the details of their project on Thumbtack we’re emailing and texting and sending push notifications to this massive network of professionals.
That wouldn’t be possible if our professionals only were checking the internet through their computer a few times a day. It couldn’t work without mobile — almost 70% of our our quoting comes from a mobile device. My guess is that over time that will continue to go up. Thumbtack wouldn’t work if that didn’t exist.
One of the most compelling narratives in the technology industry today is the way in which marketing and commerce technology is actually causing a shift in the way traditional industries operate. In services, for instance, there’s a push by companies such as Thumbtack, Pro.com and others to move the industry away from a custom pricing model (e.g. quotes) to more fixed rates for services. That allows instant booking and other capabilities for consumers, but it also means a big change in behavior, and a loss of pricing control, for service providers. How do you see that developing?
The reality is that the transparency which the internet is bringing to the sector has the most to bear on the best and worst professionals. The best professionals will lose some pricing power when customers realize how much more they’re charging. The worst professionals will lose pricing power when the quality of their service is revealed to be what it is.
Overall, I think you’ll see less variance and the pricing across the board will cluster more. On net, that’s a huge benefit; but at the extremes, it’s a cost. That’s a reality that some of these professionals will have to face.
I’ve written extensively about the impact of demand-driven marketing and commerce models. I’m talking about models developed by companies such as Uber and Handy where supply can extensibly build around demand rather than vice-versa. Do you believe these models will impact other parts of the service sector?
Because of Uber’s immense success, there has been a lot of companies that try to replicate the model in other categories. The way I think about it is that the demand-driven model is best suited when the service is a true commodity. When you’re trying to get somewhere, you don’t care about the car or the driver; you just care about renting a back seat for as cheap as possible. That’s the definition of a commodity: you’re indifferent to who supplies the service.
I am admittedly pretty skeptical about the outlook for the Handy approach, for instance, because I do not believe that cleaning — or many local services for that matter — are true commodities. When you’re spending $600 dollars on a project or asking someone to come into your home, that’s as intimate as a purchase gets. The challenge they have is that it’s hard to be a cleaning company at scale. It’s hard to deliver a consistently high experience. We’re seeing that play out.
Two competitors — Porch and Houzz — have both raised more than $60 million each to develop a more content-centric approach to the market, and both are moving closer to the transactional network model. How do you see the market developing, do you see a split between discovery and transactions or will those two models eventually converge?
With Porch, I’m admittedly less bullish on their model because I do not view it as new or innovative. It’s a content play. It’s essentially a directory model, and that model is not really the best model for our categories. The customer doesn’t want to spend the time searching and drowning in information. Today [Porch] is like Yelp or Houzz. Those are both great content companies, and they are tough to beat at that game.
In the end, I think there will be a company that owns the service industry from end-to-end, from discovery to transaction. My view is that by being more transactional, and having all of this data around that, it will enable us to build much richer experience for inspiration, pricing and scoping simply because we have much more to work with. At the end of the day, it’s the data set that will allow the companies to ultimately create the best experience.
Steven Jacobs is Street Fight’s deputy editor.