In June of 2012, ReachLocal launched a small pilot to explore a potential push into a growing local commerce segment. Called ClubLocal, the initiative offered consumers a chance to book a plumber or carpet cleaner through a mobile app and then allowed service providers to track and manage projects through a complementary piece of their own software.
The project grew, but by the summer of 2013 leadership decided to ditch the consumer project, opting instead to support a SaaS version of the service released a year earlier. The circumstances around that decision remain somewhat unclear, but within a few months of the launch of the merchant-facing product, then-president Zorik Gordon resigned, followed quickly by co-founder Michael Kline, and a few months later the two announced that they spun out ClubLocal under a new brand.
Fast forward to today, and the fruit of that spin-off, Serviz, has attracted some serious capital. Adding to $10.7 million raised earlier this year, the company has snagged another $12.5 million in funding to expand beyond Los Angeles. The newest round, led by PointGaurd ventures, will help the company not only expand into new markets but enter “15 more verticals” over the next two years, according to Gordon.
The service industry faces an unprecedented rush of innovation over the next few years. With smartphone usage nearing 60%, technology companies can now develop software that guides both the buy experience for consumers and the operations experience for service providers. The network effects implicit in these experiences paired with the cost of developing software means there’s an incentive for a traditionally fragmented market to consolidate.
Earlier this week, I caught up with Gordon to talk about the investment climate for local commerce companies, what these innovations mean for Yelp and Angie’s List, and why he believes the concerns over labor are overstated.
You have gone through the fundraising process twice in the past year. How has the investment climate changed over the past few months?
We’ve raised two rounds in a year, and relative to the first round, there’s a lot more interest in the space. Some [investors] have made their bets, but the Uber valuation is clearly stoking more interest than there was a year ago. You need to nail your positioning, and make sure that there’s a clear differentiation from the companies already in market — but there’s definitely a lot of interest.
You said a lot of investors have placed their bets. In your conversations, are investors thinking about the on-demand economy as a single bet or are they investing in multiple verticals?
I think investors may make one bet in home services, for instance, but I don’t think it would preclude them from making another bet in, say, transportation. This is going to be as big as ecommerce and there’s going to be huge winners. There’s going to be specialized vertical players, but there’s also going to be cross-vertical players. It’s a very large disruption.
The ecommerce market evolved into an industry largely dominated by a single player. Do you see the local commerce market developing in a similar manner?
Eventually, I do believe there will be one or two dominant players that cross verticals like Amazon. In many ways, the Yellow Pages evolved as an early cross-vertical product. Brands will emerge that do a range of services. At the same time, I could also see verticals like transportation where you could have a single dominant company like Uber. If you look at the history of ecommerce as a model, you will inevitably have consolidation.
But there’s a big difference between retail, where Amazon dominates, and local service. In retail, there’s still this balance of power where you have Amazon and eBay online, and lot of strong offline firms such as Walmart and Target. You do not have that in local services. We’re disrupting someone’s $10-to-$15-million-a-year plumbing business or even a franchise business like Roto Rooter Because of that, I think there’s going to be a more complete disruption.
Each vertical has its own quirks. What makes local services so susceptible to disruption today?
To start, it’s deep — it’s a $400 billion industry. It’s a large set of sub-verticals. The lack of pricing transparency and general price gauging, the lack of consistent quality, the lack of digital booking, the lack of a real brand — all of this makes it incredibly susceptible to disruption. And now, mobile allows a technology company to coordinate digitally with a vast amount of on-demand participants to recreate what franchise companies have done.
So the historical weakness in this sector from a consumer perspective combined with what technology has brought to bear, now enables these new models to thrive. You couldn’t have built Amazon without the technological advances as well as innovations in business model that Amazon developed.
Okay, so imagine we all use Serviz to find and book our service providers. What happens to the local search and discovery companies like Yelp and Angie’s List? Are these complementary or competitive?
In the beginning, it’s very positive. We spend money with all of these companies. Today, we’re part of the ecosystem and we rely on the existing ways consumers find providers. But eventually, if there’s a relationship with a transactional provider, [local search providers] begin to get displaced. People who use Uber don’t look on Yelp for a taxi company. I’m sure they’ve seen a decline in those categories.
The early part of the evolution is complimentary; but eventually it’s very disruptive.
Critics have voiced concerns that these kinds of companies skirt labor laws and pose a threat to existing labor models. Do you think the so-called “1099 economy” is sustainable?
We think the right analogy is Uber. We’re a technology provider that connects consumers with independent merchant contractors. They’re free to accept each job or not take them. We don’t look at them as advertisers, we don’t look at them as employees — they’re independent contractors who we screen and we manage on a performance basis, but they’re independent.
Most of our contractors are sole proprietors today. We’re just giving them incremental demand. They’re already set up to work independently. We’re just taking the fragmented nature of these markets, and using technology to bring order to it. Fundamentally, I do not think it’s a problem. If we were not here today, they would be doing jobs on their own.
Steven Jacobs is Street Fight’s deputy editor.