Insights From Home Services Heavyweights

Two real success stories in the home services category shared the stage this afternoon on the “Home Services Visionaries” panel, offering two different perspectives on how to make money from creating a local home services marketplace, built on a foundation of credible consumer reviews.

Angie Hicks, CMO and cofounder of Angie’s List, described how she has built a successful business based on charging consumers for access to small businesses that have been rigorously reviewed by their peers. Angie’s List also generates revenues from the sale of advertising on its site and in print magazines.

Rodney Rice, cochairman and cofounder of ServiceMagic, built a business based on charging home services businesses for leads, while offering consumers access to small businesses that are highly rated by their peers. As Rice pointed out, ServiceMagic (now an IAC company) is one of the survivors from a wave of home services marketplaces sites that emerged before the 2000 Internet bubble. Other sites raised tens or hundreds of millions in funding, only to go under or be sold for peanuts, in all likelihood to ServiceMagic.

Rice colorfully described his company’s base of operations in Denver, rather than Silicon Valley, as one reason for its survival amid so much carnage nearly a decade ago. “We were not sucking the Internet exhaust.” In other words, ServiceMagic focused on delivering a solution that didn’t kill SMBs with technology but put “technologies that made sense at the time” into the market. Today, ServiceMagic has a $120 million revenue run rate, and has about 500,000 verified ratings posted.

Angie’s List currently has 450,000 reports on local businesses in the top 125 U.S. cities. Angie’s list pulls in about 40,000 reports a month, and runs regular campaigns to gin up higher volumes of reports, or reviews. Recently Angie’s list held a drive that produced 80,000 new reports, giving out flip cameras to those who produced a given number of new entries. Angie has expanded beyond its core home services categories, most recently adding health care.

One key issue overhanging the prospects for both businesses is how the economic downturn will affect their businesses. Moderator Matt Booth shared his hypothesis that as consumers stop tapping home equity to fund home improvements, home trade service businesses will find themselves needed to generate new lead sources, where before, most businesses in this category had more jobs than they could handle.

The two panelists suggested they are beginning to see evidence supporting this hypothesis.

“We are seeing more demand on our services side, in an economy where ad prices are going down,” Hicks said. “Companies that were [highly] rated, who used to say they were too busy, now need to invest to shore up leads.”

“We are seeing slight pickup,” Rice said. “They are getting slightly hungrier. Next year, we expect them to be significantly hungrier.”

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