Thumbtack CEO Marco Zappacosta always knew his startup would be a family affair. It began in 2009 in his brother’s house until his elder sibling couldn’t stand the ruckus and kicked him out. Zappacosta got his parents to be the first testers of Thumbtack’s website, a marketplace that connects consumers with local service professionals such as floor remodelers, treadmill repairmen and bartenders. For real reconnaissance he moonlighted as an Italian chef offering cooking lessons to unsuspecting customers, sharing his aunt’s recipes for homemade ravioli and lamb ragu.
So it only seemed fitting that on a Wednesday night in early August, prior to Thumbtack’s announcement of a massive $100 million investment led by Google Capital, he returned the favor and hosted a family dinner. Reclining in his dining table chair, the bearded, thick-eyebrowed son of immigrants from Abruzzo in southern Italy could only grin, his uncle to his left chatting in a Roman accent into a cellphone, his in-laws to his right and his mother across from him looking awestruck at the converted warehouse in San Francisco that the startup now calls home.
Five years on, Thumbtack has far outgrown Zappacosta’s family and, thanks to the startup’s newly lined pockets and clever business model, is poised to join some of the biggest names in local commerce, such as Yelp and Angie’s List, and beat back the advances of giants such as Amazon and eBay.
Despite its size of $400 billion to $800 billion, local commerce is still a horrifically inefficient market that is still reliant on phone calls, the Yellow Pages, blind faith and small claims court. Yelp and Angie’s List have spent a decade improving the way we find plumbers and wedding DJs, but they still mainly offer souped-up directories. “They give you information, and then you have to do all the work,” says Thumbtack cofounder Jonathan Swanson.
Thumbtack is more of a marketplace, like HomeAdvisor and Redbeacon, but has a far wider variety of services than all of them. And on Thumbtack the providers bid on you. If you need a DUI attorney or a belly dancing instructor, you fill out an extensive questionnaire–is that Raqs Sharqi- or Baladi-style dancing?–and Thumbtack’s software distributes your request to relevant and nearby pros, who then respond with a price and description of their services. The average job request on Thumbtack is $600, and businesses are charged anywhere from $3 to $25 for the leads, what Swanson likens to a “marketing cost” that they could have spent on a Google or Yelp ad. Every year professionals drop about $64.6 billion on localized ads to generate business leads, according to estimates from research firm BIA/Kelsey.
With more than 70,000 paying professionals and 3 million successful job leads a year, Thumbtack sent $1.8 billion worth of potential business to local firms in the U.S. It has almost as many paying pros as Yelp has advertisers, and almost half of Thumbtack’s activity comes from a mobile device. “It’s the Yellow Pages reimagined for the world we live in,” says Zappacosta.
Plenty of bigger firms would challenge that statement, among them eBay and Amazon, which are both testing out service marketplaces. Yelp celebrated a decade of existence in August, while Angie’s List’s chief marketing officer and namesake, Angie Hicks, points to the fact that her company has been cataloguing reviews and relationships for 19 years and has “seen [startups] come and go.”
But if Thumbtack’s fundraising is any indication, the company won’t be disappearing anytime soon, unless it gets swallowed up. The company took on $30 million from Sequoia Capital and Tiger Global in late May and that $100 million from Google in August. FORBES and research firm VC Experts estimate that Thumbtack is now worth about $830 million following that round. “I’ve been looking at the local providers’ space for a long time,” says Google Capital’s David Lawee. “This is really the first company that I found that cracked it.”
Zappacosta, 29, and Swanson, 31, would be the first to admit that Thumbtack wasn’t a result of some personal epiphany after searching in vain for a television repairman. The two have been scheming about starting some kind of big business almost from the moment they met as college policy wonks. (Zappacosta comes with entrepreneurial genes: His father cofounded Logitech.) They first united to start a political advocacy group to push Social Security reform. They both took leaves of absence from school–Zappacosta from Columbia and Swanson from Yale–to move to Washington, D.C. and further their nonprofit. The two eventually landed gigs as West Wing aides to George W. Bush’s economic advisors but spent their nights dreaming up ideas that could be compelling enough to enable them to quit their day jobs. One idea for a personal-finance management tool attracted potential investors, but the September 2007 debut of Mint.com sunk their plans.
Undeterred, the pair pushed on, eventually stumbling on to the local services industry by scoping out why it wasn’t working. Says Swanson: “I’d see a mover putting a flyer on a light pole with his phone number that you can pull off. Why were they still doing this?” Confident they could have an impact in a multibillion-dollar market, they and fellow cofounders Sander Daniels and Jeremy Tunnell created TimeStrapped (later changing the name to Thumbtack after coughing up $36,000 for the domain name) and moved to San Francisco in the spring of 2009.
In the early days Zappacosta and Swanson faced the chicken-egg dilemma of any budding marketplace: How do you get enough supply (local pros) on the site to attract demand (consumers in need)? Shunning the traditional method of cold-calling, Thumbtack’s engineers scraped billions of Web pages to create a database of information on local pros. That helped them figure out where service providers looked online for new business. They bought targeted Web ads on those pages (Google, Facebook, Bing) to get them to sign up for Thumbtack. To this day the company has yet to employ a dedicated sales team to go after new businesses.
What Thumbtack couldn’t figure out was how to get paid. It tried charging fees upon completion of projects, but that relied on businesses to self-report on the honor system. Not a success. It tried a subscription model in which pros would pay a set price for an unlimited amount of introductions. That led to consumers getting spammed. Not a good user experience. More than 40 VC firms turned Thumbtack down until Javelin Venture Partners led a $4.5 million round in early 2012. “We were about to let everyone go,” Swanson says.
That gave Thumbtack a year of breathing room to find its solution, which came in early 2013 with its current pay-per-lead model, which ensured the professionals would bid only on projects they could complete. “The real genius is that it’s pay-for-performance, and that elegantly aligns the incentives of the service providers with Thumbtack,” says Sequoia Capital’s Bryan Schreier, who met with the company half a dozen times before investing $12.5 million in June 2013. The new business model has led to a fivefold increase in revenue this year, putting the company at a current $30 million annual run rate, according to sources.
Giliane Mansfeldt, who runs a photography studio in St. Paul, Minn., says she’s tried different online ads to attract customers but wasn’t getting the return she expected because “Minnesota is saturated with photographers.” On Thumbtack she pays about $4.50 a lead and knows that about one in five will result in a real job that averages about $250. Mansfeldt estimates that she has spent $75 a month on Google ads for the same result. Keith Bishop, a personal trainer in St. Petersburg, Fla., allocates about $1,000 a month on Thumbtack because he can see the returns of his marketing “investment” as opposed to the “giant slot machines” of Facebook and Google ads.
But other pros have set up anti-Thumbtack groups on Facebook to decry what they see as scam leads they end up paying for and unqualified providers challenging them for business. Yelp CEO Jeremy Stoppelman feels like consumers are treated like “shark bait” on the service, as it lacks the rating and review data they need to make more informed decisions. “The truth is,” says Zappacosta, “if we didn’t have enough people hiring, our pros would have already left.” Still, he acknowledges the shortcomings, which the company hopes to address by building upon its 485-person quality control team in the Philippines to weed out spam requests and verify credentials for service professionals. Thumbtack is also experimenting with showing average pricing data on the site so consumers can see how much a job should cost in their area.
Thumbtack has to make steady improvements–and spend much of that $100 million it just raised on consumer marketing–to stand out from the big boys circling the space. For the last nine months eBay has been toying with eBay Hire, allowing consumers to book soccer lessons when buying soccer cleats. Amazon is pursuing a similar model with Amazon Local Services, testing out electronics installation and repair in Seattle, Los Angeles and New York, according to reports.
“Amazon is intimidating because it’s a big, powerful company,” says Zappacosta, who has had numerous talks with Amazon as it canvassed the market. “But it’s competing with basically every company on Earth. We’re focused on our one thing, and we’re going to outexecute anybody.”
