It’s been a stellar few months for local commerce companies. The public markets greeted Grubhub — one of the forefathers of the model — with a warm reception while private investors poured millions into a host of startups that help consumers do everything from booking cleaners and contractors to hiring dog walkers and sending out laundry.
But there’s a potentially troubling dynamic developing for these companies. Today, Grubhub — likely a comparative model for many startups — can take a massive cut (between 10-20%) of each transaction in large part because merchants cannot provide the same seamless experience directly. But back-office software firms — everyone from Micros to Intuit — could undercut that position by offering small businesses the chance to allow customers to book and order directly and avoid the aggregator’s share.
Today, that threat comes from New York-based Booker — a deep pocketed software-as-service-business that sells operations software to salons and spas. The company has announced a new partnership with Como to use the firm’s technology to allow businesses to instantly generate a customized consumer-facing mobile application with full booking capability.
Customers can use the application to browse the availability of stylists, book an appointment, and store their information for future use. The application takes less than 15 seconds to create, and automatically draws from a company’s existing account with Booker, with every update seamlessly appearing in the app.
The app creation technology comes from Como, which rebranded from Conduit Mobile earlier this year. Como’s tool generates templated mobile applications for businesses — similar to what Wix and SquareSpace have done for websites. Gil Harel, an Israeli entrepreneur who now serves as VP of business development at Como in New York, says the company is creating roughly 3,500 applications per day, running offices in New York and Tel Aviv.
Booker and Grubhub serve separate markets, but the move underscores a growing tension between commerce aggregators and firms such as Intuit and Booker that have begun to build lead generation tools into their existing back-office software for small businesses. The question for both parties is simple: are consumers willing to forgo the convenience of one-stop-shop to book and buy directly through a small business’s branded application.
“There’s always a natural tension between the needs of the local business and the needs of the directory,” said Matt Mahoney, Booker’s VP of business development, speaking mostly about content-driven directories such as Yelp. “The directories play the role of discovery better than anyone else, and for their own business they want to keep the customer and have them come back there. Meanwhile, the local biz would prefer to have someone go direct.”
Mahoney envisions a world where consumers use the two services in tandem. He suggests that consumers will still use directories like Yelp to discover new businesses, and then will turn to a branded presence (app or website) to interact with the handful of local business they frequent the most. The extent to which that happens depends on both the nuances of mobile and the particularities of the vertical, which a business serves, and the overall viability of direct communications online.
If the web is an indicator, the app creation business could find a big market in small businesses. Websites still aren’t ubiquitous — but they dominate spending across the board for small businesses. According to fall 2013 survey by Borrell Associates, 82% of respondents said they expected to invest in their website in 2013, and website creation and maintenance accounted for more than a third of total marketing spending.
But the data about consumer behavior on mobile shows a more complex landscape. According to a 2013 report from Flurry, consumers spend nearly two-and-a-half hours a day in mobile applications, but they only use about eight apps per day. But the good news for Booker and Como is that that number continues to grow, and there’s room for new apps in the mix.
There’s one more critical trend to consider: commerce. Online, businesses typically used websites to display information and content. They operated largely as a means to discovery, allowing a business to place within Google’s search results. But on mobile, studies show that people tend to buy more and research less. And the flood of capital into booking services demonstrates the value, which investors have put on it.
So what’s left is a two-tiered system: websites (mobile-included) and directories will handle discovery while merchant applications, if they are to succeed, will duke it out with aggregators for recurring customers. In that sense, the growth of mobile applications poses a much larger threat to companies like Grubhub than Yelp and Google.
Mahoney does stress that the value of a merchant applications varies based on vertical. He argued that the complexity of a salon — the ability to book different service providers — required a deeper integration, which consumer facing aggregators couldn’t provide. The food delivery market, on the other hand, might lend itself more to an aggregator.
The breakdown will undoubtedly vary between vertical, but the pricing dynamics in the food industry in particular are simply untenable today. The position that business will pay a double digit percentage of each transaction — the standard prices at Grubhub — to a company to allow a returning customers to order online (it is unclear what percentage are new and returning) seems as unsustainable as a business offering 25% to Groupon for blasting out a coupon to an email list.
The model will change. The question for Booker and Como is whether consumers want another app on their homescreen.
Steven Jacobs is Street Fight’s deputy editor.