Service Marketplace Lead Gen — What Color Do Disruptors Bleed?

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As someone who grew up in yellow pages and then graduated into paid search, lead generation is in my blood. They used to say we “bled yellow.” Nowadays, I’d say we bleed green, thanks to an influx of venture money being invested into local, on-demand service businesses. Lead-gen value created from curated marketplace platforms is, and will continue to be, a huge draw for small businesses — especially service businesses.

On-demand has created upstart marketplace platforms that service every type of need. Lead gen is one of those needs and a fast-growing niche where we’ll analyze the platforms that are creating a marketplace to connect small business service providers with consumers. Different from peer-to-peer, and from the “Uberfication of Everything,” these marketplaces have created a formal, business relationship between buyers and sellers.

The Land of Disruption
Marketplaces are sexy. They have disrupted long-standing lead-gen sources like Google, Craigslist, HomeAdvisor, Angie’s List — all of which caused disruption within yellow pages years before. Layer in mobile, and consumers’ migration to that channel, and we are going through a new era of business models for service businesses to consider. Because there are so many options, SMB service providers do not have to be loyal to just one.

There are still many business models related to lead gen: basic listings, reviews, premium placement, auctions, CPX and pay-per-transaction. Transaction-based models offer the lowest risk for service providers, assuming there is no subscription tied to their marketplace presence. But, for the value to truly be worth the effort to cultivate a presence on those platforms, the marketplace must deliver leads.

The win-win model allows a transaction to stay tethered to the platform, but also provides both the consumer and local service provider some flexibility in how they develop an ongoing relationship. The marketplace that delivers customer lifetime value (CLV) by creating, building and managing business relationships that can be facilitated, in part, but not completely, by a service marketplace or platform should win. Providing new sources of revenue for small service providers beyond the initial transaction is where loyalty and ongoing value is created for both the service provider and the consumer.

Because this is an easy market to enter and disrupt, there are new up-starts and large enterprises seeking investment and making large bets. The big guys playing in this space include: Google Home Services ads, Nextdoor’s Nextdoor Now, Facebook’s Services site, and Amazon. The Seattle-based marketplace has doubled-down with the Amazon Home Services platform and beyond the U.S. India is proving to be a receptive culture to service marketplaces with Housejoy. There are new market opportunities in Europe, including Nextdoor and TaskRabbit. One of the latest entries to this space is Bidvine, a London-based start-up funded last year. Bidvine was recently selected by 500 Startups for its post-seed, Distro Dojo.

Answering the ROI Question
The problem that has persisted since the beginning of advertising remains partially unanswered with the current crop of marketplace platforms. Until lead gen can answer the ROI value question, we will continue to see a lot of SMB churn.

Value comes in many forms, but is almost always tied back to the CLV. For all involved, the draw is consistent: the investor, the platform, the small service providers and the requirement to provide value to the consumer. For investors, there is opportunity to create new value and take market share from existing, established markets. The disruptor can almost always garner investment attention, if their marketplace has a new, repeatable, scalable way to build their SMB install base.

For the platforms, those with the most long-term potential are creating multiple revenue sources for themselves and their SMBs. Transactions, and all services that lead up to the transaction create the potential for tremendous value at scale. Those services can and should include discovery, near-me promotion, rating, reviews, quote, proposals, invoicing and transaction services.

The diversity of revenue also should come from the diversity of markets, consumers, or types of services that can be promoted on the platform. We’ve seen much of the on-demand economy focus on niche markets. Where on-demand and service marketplaces differ greatly is in the frequency and motivation for the demand. The successful service-based marketplaces strike the right balance between frequent, ongoing service needs, where the matchmaking is only one of the values provided (such as lawn services who can invoice and seek referrals) vs. infrequent, high-price or high-risk transactions (like tree maintenance or deck builders who need ratings, reviews, and proposal/quote services too).

Lead-gen value lives and dies on ROI. Which is why we see ROI always tie back to retention and CLV. The lead gen marketplace that can clearly and effectively show how they will not only introduce new revenue to an SMB, but help them grow and retain that new customer base, are the platforms that will outlive the next round of disruptors.

Turning Green Into Black
Bill Gurley, one of the most recognized and successful investors to the marketplace industry, shared his point of view on this in the Above the Crowd blog: “Great marketplace execution is more nuanced and less systematic than other venture backed categories, and for every successful marketplace, you will find an amazing entrepreneur that out-executed the many others that had chosen to attack the same market. In addition to great marketplace characteristics, you also need a world-class entrepreneur to make the dream come true.”

Tech platforms have pulled in billions in investment, according to the New York Times and TechCrunch, with the home services portion for the industry alone valued at $800B. The business models continue to be refined, with TaskRabbit and Angie’s List both pivoting on their models in the last year. Pressure from new start-ups threaten disruption yet again. What remains to be seen, is if one of the up-starts or enterprise giants can bleed from green into the black and turn a sustainable profit…before they are disrupted yet again.

Tech Company Last Raise Last Round Investors
Housejoy $23M, series B Dec 2015 Strategic: Amazon

Venture: Matrix India Partners, Vertex Ventures

Fiverr $60M, series D Nov 2015 Venture: Square Peg Capital, Accel, Bessemer Venture Partners, Qumra Capital
Handy $50M, series C Nov 2015 Institutional: Fidelity Investments, TPG Growth, General Catalyst, Highland Capital, Revolution Growth
Thumbtack $125M, series E Sept 2015 Institutional: Baillie Gifford, Tiger Global Management

Venture: Google Capital, Javelin Ventures Partners, Sequoia Capital,

HeartThis Acquired by Thumbtack Sept 2015
Moonlighting $1.4M, seed June 2015 Strategic: The McClatchy Company

Venture: New Richmond Ventures

Individuals: Paul Palmieri

Nextdoor $110M, series D March 2015 Venture: Insight Ventures Partners, Redpoint, Valor Capital Group
Bidvine $100K, seed Feb 2015 Venture: MENA Venture Investments
Porch $65M, series B Jan 2015 PE: Valor Equity Partners, Capricorn Investment Group, Panorama Point Partners

Venture: Battery Ventures

Strategic: Lowe’s

Individuals: Fabrice Grinda, Ty Pennington

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E$1.4M seed Jan 2015 Venture: Faber Ventures, Portugal Ventures

charity-huffCharity Huff is an active member of the local media industry, contributing in an advisory capacity through public speaking and her entrepreneurial ventures, including Tru Measure, a metrics-driven, technology services company that captures consumer engagement generated from media and advertising. She can be reached on Twitter @charityhuff.

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