ReachLocal CEO: Commerce Solutions Becoming Alternatives to Local Search

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ReachLocalAmid a kinetic startup scene, ReachLocal is looking to find its foothold for the future.  The lead generation specialist, which IPOed in 2010, remained fairly quiet until a year ago, when the company launched an ambitious new project, ClubLocal, that aimed to create a commerce platform for local services. Earlier this month, the company removed the beta sticker and expanded the service from its home market in Dallas to San Francisco.

The company is part of a wave of well-funded businesses looking to build an “Amazon for local services.” Startups like Thumbtack and Booker have raised double-digit growth stage rounds, and others like MyTime have snapped up big seed funding to build and scale new products. ReachLocal’s new initiative however, is unique. Whereas most companies have built either a consumer-brand or a back-end for merchants, the company has spun out a SaaS tool, ReachCommerce, from its branded ClubLocal platform.

Street Fight recently caught up with Zorik Gordon, ReachLocal’s chief executive, to talk about the origins of the new project, the challenges with bring local services online, and the impact a shift from advertising to commerce might have on local search companies like Yelp.

We’ve seen a number of services pitching an Amazon for local services. Tell me a bit about the how the concept for ClubLocal developed, and how it relates to the company’s core lead generation business.
We always knew that local required such a large transformation that it would take place over multiple phases, and that our original product was just the start. About three years ago, it became very clear to us that the next phase was beginning, and we saw that the market was shifting from advertising and to a focus on commerce and the transaction. We realized that the endgame for local is not only getting ad dollars moving into digital, but getting these business and consumers to move from buying these local services offline to online.

In a certain sense, Groupon opened up Pandora’s Box. Whether you love or hate the company, they were really the first to sell  local services online. And once you’ve done that, you can start to bring the power of the Internet to bear. You can send it to billions of people, you could track it, you could charge only if it was purchased. It was a transformational moment for us, and it became very clear that that was going to be the next phase.

ReachLocal's Zorik Gordon
ReachLocal’s Zorik Gordon

Local services tend to be priced on a case-by-case basis, making automation a bit more difficult. How has ClubLocal introduced some standardization into the pricing structure without asking providers to change behavior?
Form a consumer perspective, the lack of pricing transparency is a big impediment. There’s something like $1 trillion in transactions annually with zero price transparency or standardization. So, we went ahead and standardized the SKUs for everything a local service provider might do in a given vertical. In plumbing, for instance, we’ve come up with 3,000 plus SKUs that cover 98% of what a plumber typically does in a day’s work. We do market checks and mystery shopping to get a sense of the standard cost, and then we pre-negotiate prices for each SKU with these merchants.

At the end of day, what one plumber does and what another plumber does is generally the same thing. You’ve got to create a single taxonomy, standardize those activities, and then you can negotiate and adjust prices. A lot of these industries in the offline world have been moving to these pricing paradigms where they have these fixed SKUs already. That’s helpful because we’re not asking them to change behavior.

So we’re actually functioning the exact same way that most merchants are functioning today. The price for a service is made up of a combination of the hours of labor and the average material for those instances. When [a service provider] makes visits your house, they have a range of separate SKUs that cover nearly everything they might come across. As they diagnose the job, they’re able to create estimates within the system by adding each SKU, and our system calculates the total cost based on the pre-negotiated prices for labor and as well as the standard markup on materials.

ClubLocal has been in the works for over two years. How has the product evolved since the its conception.
What we found is that there’s a huge software-as-a-service (SAAS) opportunity as well. Where ClubLocal is the consumer brand, we had all of our merchants on our pilots asking to use this system for their own jobs. There’s just a huge opportunity here to sell the product, which we originally build for consumers, as a transaction software to local merchants. So we’ve started a pilot, which we’re calling ReachCommerce, that allows merchants to put a booking widget on their site, enables consumers to track visits, and use some of the other technology we originally developed for the consumer product.

We didn’t envision we would also have a SaaS business, but we’ve made a big push and will start to beta that product soon. That’s somewhat of a controversial approach because a lot of people just stick to a branded product, but i think SaaS opp will be huge for us. We have a lot of these businesses already [using our core product] and we have a bunch of salespeople — so we’re very well equipped to penetrate quickly. So we’re taking this two-pronged approach to local commerce where we’re building our own brand and at the same time selling the software as well.

Do you see these commerce initiatives as an addition to, or replacement for, ReachLocal’s core lead generation product?
What local is solving for is what we call the full-funnel. It’s powering the commercial experience from generating a lead, to converting that lead, to booking the appointment to buying the actual service. What we’ve added on with Reach Commerce is the booking and buying piece. We already have the lead generation and lead conversion component with ReachLocal, and there’s great synergy in having one system that runs everything.

Today, [ReachLocal and ReachCommerce] will run lightly integrated. One integration we’re considering for later this year is the ability to track a lead [generated in ReachLocal] all the way to the end of the transaction [in ReachCommerce]. Over time, there’s a vision here that sees a single interface. Whoever can build that is going to have a very powerful position with the local business: you’re bringing in my customers, your powering my website, you’re handling my booking, and you’re purchasing on the system. That’s the end state, from a b2b perspective.

We traditionally talk about local marketing spending in terms of search and display advertising as well as more direct efforts like SMS campaigns. Do you believe the emergence of commerce platforms will materially impact the spending allocated to those products?
History gives us the answer. A lot of what’s happening here is the online retailing of services. If you look at the balance in e-commerce between a directory or search model and Amazon, there’s a very large percentage of people that go directly to Amazon, and circumvent Google altogether.

That’s a similar case with Uber. I would bet that in San Francisco, Uber has captured a large enough market share that the number of Yelp searches for black car services has gone down. As these commerce-base solutions evolve, they will become a very viable alternative to searching largely because it’s more efficient for the consumer.

Steven Jacobs is Street Fight’s deputy editor.