The Changing Economics of Dialing for Local Data

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Screen Shot 2013-11-20 at 5.34.36 PMDespite the tech sector’s tendency to relish breakthrough innovations, most big problems can’t be solved by an inventive algorithm or helpful new feature. More often than not, the companies that solve these slow problems rely on a combination of small inventions, good timing, and changing economics.

Count local information as one of those slow problems. The industry is still trying to marry the high cost of collecting quality local information with a market that’s flooded with the kind of cheap data that’s often just good enough. Startups like Yext have raised millions to rethink the problem, while massive companies — namely, Apple — have discovered the challenge the hard way. Add a few more clauses to the normal name, address, phone number query (say, what do they sell and how much does it cost) and the economics of local information come to a grinding halt.

Matrix Partners, the Sand Hill Road firm that invested in startups like Hubspot and, thinks that equation might be changing. The company has made a $4.2 million bet on Locality (formerly Centzy), a local search startup that uses a combination of technology and manpower to amass pricing and product information for local service businesses. Users can search for hair salons or beauty parlors in over 10,000 U.S. markets, and find out who offers the cheapest blowout nearby or find which type of manicure they offer. Jared Fliesler, a general partner at Matrix, will join the company’s board of directors.

“What makes [the local data problem] so challenging is that this information isn’t aggregated anywhere,” said Fliesler, who headed up growth at Square before joining Matrix as its youngest general partner. “When you talk about the airline industry, for instance, there are only a handful of booking systems, so there’s only a small number of aggregation points, and consequently, everyone is getting the same information. In local, there’s no central thread.”

To find that thread, the startup has turned to an oft-underused resource in technology circles: people. The company seeds the search engine with basic listings data and reviews content from partners, but relies on an army of contractors to collect the bulk of the pricing and inventory data that makes the service unique. Every day, these contractors dial for data, calling thousands of salons and manicurists across the U.S. to find everything from hours of operation to product lineups and price structures.

In order to support the effort, the nine-person team has developed a proprietary call management software that decides who to call next, connects the call over the web, and manages the workflow for callers to add data, flag problems and report issues. Services like Amazon Mechanical Turk offer a similar solution, but Jay Shek, the startup’s founder, says that developing its own software allows the company to build the necessary expertise into its system, both in terms of investing in technology and training callers, that it needed to see the data collection process improve over time.

Although the technology isn’t new, Shek believes that the economics of local data are starting to add up. On the one hand, the rash of inexpensive VOIP services like Twilio paired with learnings from crowdsourcing companies like Mechanical Turk and CrowdFlower has driven the cost of each call down substantially. And on the other, the value of local information has increased dramatically.

“The local search market is a lot more underdeveloped than people think.,” says Shek. “Local is at least 10 -15 years behind an industry like travel, and in terms of information and commerce functionality, [local] has probably 5% of what a Kayak can offer.”

The second part of that equation relies on a much more fundamental shift in the marketplace. Consumers have rushed to the web in recent years, flooding the advertising market with a cornucopia of new ways to reach local users. Meanwhile, local marketers, the demand side of the advertising equation, have been slower to react. As the amount that local marketers invest in digital media (supply) catches up with the amount of time consumers spend using digital tools (demand), the bet is that the value of each search, and implicitly the underlying data, will increase.

Eventually, Shek says the company will tie into merchant booking or point-of-sale software, allowing users to book and pay for services within the site. But given the relatively low penetration of front- and back-office software among small and medium-sized business, that’s likely years off.

Steven Jacobs is Street Fight’s deputy editor.