RedBeacon Poised for National Rollout, Growth

I was an early critic of RedBeacon when it first launched. I  thought the site’s founders had created an elegant platform but were naive about the small business market. Here’s what I wrote last year:

I’ve got nothing against RedBeacon and wish them well. But they will find, like many others before them, that the local space is much much harder to crack than it appears from a distance. There are many failed startups in local. In most cases they failed because they didn’t realize how tough it would be to get businesses to advertise or sign up.

Since that time there have been many changes at the site and it has evolved considerably. I’ve been impressed with these enhancements and the “sensitivity” to the market shown RedBeacon’s management. I also recently compared RedBeacon to other lead-gen type sites (including ServiceMagic) and found it, while imperfect, to be overall the best of the several sites I examined.

Today after several weeks of trying I spoke to Ethan Anderson, RedBeacon’s CEO. What I learned in that conversation convinces me that RedBeacon has Yelp-like potential in the market and, as it prepares to close a funding round and roll out nationally, is poised for tremendous growth.

IAC-owned competitor ServiceMagic is on track to do $150 million (or more) in revenue this year. I can imagine that RedBeacon could approach those numbers in three years.

Anderson told me that the site is going to shortly announce some major partnerships and a self-service widget strategy that will enable any publisher or developer to embed a contextually relevant widget/lead-gen form on its site.

RedBeacon currently has a very generous revenue share that comes out of a 10% commission on the value of jobs actually performed. There’s another model that charges a flat fee to up to three businesses when an on-site consultation or estimate is required, in more complex jobs.

One of the keys to RedBeacon’s model is that it doesn’t need to sign up that many businesses in each category to reach “liquidity.” The company qualifies 12-15 businesses in major categories that the site feels are the best in the group — they do this by looking at other sites. Then they reach out to these businesses with a CPA pitch: you only pay a commission on jobs actually performed. “You’re buying a customer not a click,” is the essence of the conversation. This is analogous to Groupon’s pitch and model but the SMB doesn’t pay 50%; in this case it pays 10%.

This relatively small number of businesses required to populate each category means that each job request will receive several bids. Anderson told me the average is five. In my two experiences with the site (landscaping and fencing) I received more than that.

Anderson also told me that 50% of consumer come back and use RedBeacon within a month after booking a previous job. The company is also considering a loyalty program.

There were several other roadmap features and developments that Anderson described, but I don’t want anyone visiting me in the middle of the night so I’ll restrain myself.

Regarding the issue of communication between SMB and customer — an area of particular skepticism about the model from me and others — RedBeacon recently implemented chat on the site. Anderson said that about 70% of consumers are utilizing it. There was obviously a need for more direct, real-time communication with service providers and RedBeacon has accommodated that need. In addition SMBs and customers can communicate through email facilitated via the site to ask and answer questions as well.

In terms of whether SMBs “get it” or are sophisticated enough to take advantage of this platform, clearly enough of them do. Right now it doesn’t matter if 80% of the market doesn’t utilize or can’t utilize the system. Anderson just cares that there are a savvy group in each category and city that can.

He even told me that some SMBs have gone out and bought iPhones or Android devices so they can respond to RFP request from the field. RedBeacon has SMS notifications but is also working on mobile apps.

As the tone of his post suggests, I’m no longer the skeptic I was when they launched. Had the site not changed and evolved my criticisms would have remained, but RedBeacon is rapidly improving the service in anticipation of the coming national roll out.

As a final matter I asked Anderson about use of the phone and call tracking: would they consider it? He said they wouldn’t totally rule it out but right now he didn’t think they needed to implement it. Despite the fact that defies conventional wisdom, he may be right.

I would all but guarantee that a year from now (or in less time) the site will have several suitors hoping to buy it.

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26 Responses to “RedBeacon Poised for National Rollout, Growth”

  1. Jeff Ferguson Says:

    Plus, they were wise enough to register the domain “redBACON.com” as well… clearly some shrewd thinking going over there… ;-)

  2. Hiding Startup Says:

    Not to be a bummer, but the real-time bids method is suboptimal for lots of projects (probably the vast majority) — especially since many projects practically require voice communications or in-person meetings to bid on…making the cost-per-lead sales model much more sensible because the contact info makes it possible to easily bid the job, and many contractors just frankly aren’t good at typing, let alone in the volumes necessary to bid a job.

    Also there are many established lead sales sites in existence already online across like every vertical (SitterCity.com, DesignQuote.net, Care.com, etc.)…sites with lots of traffic and good SEO / arbitrage, while RedBeacon is only at like 12,000 unique visits a month, and has practically no SEO in their site architecture, probably making RedBeacon’s lead cost even more impractically expensive and unsustainable.

    http://siteanalytics.compete.com/redbeacon.com/

    Seems mostly like a solution in search of a problem, with the only apparent IP value *perhaps* being that it lets you just type a description of what you need instead of putting in a search term or tag or category selection (i.e. plumber).

    So I still don’t see this one going anywhere largely due to their lead costs, and have already seen a startup or two like this struggle / fail for the same reasons…that sites like these don’t tend to generate much word of mouth or virality, and competing with Barry Diller or Angieslist to drive leads from old media or PPC is just an enormous, entrenched obstacle.

    I don’t see anybody substantial buying yet another < 12,000 uniques leadgen site unless they showed you some IP coming…perhaps somebody big might buy their IP, but it doesn't look like a sustainable business to me any time soon. Sounds like Webvan 2.0 for services to me.

  3. Greg Sterling Says:

    Hiding Startup . . . we’ll see; I think they’re in a position over time to be quite successful. Most of the lead-gen businesses out there are pure arbitrage with no real consumer proposition. These guys are trying to build consumer awareness.

    Agree that many have failed but they’re being very smart.

  4. Zilla Says:

    At 10% take, you really think that RedBeacon will have over $1.5B worth of documented (the key word) transactions flowing through its system in 3 years?That seems to be pretty aggressive, to say the least.

    How do they plan to make sure that every job that results from a lead sourced through their system actually gets paid through Red Beacon? Is someone really going to cut Red Beacon in for 2k on a 20k remodeling job? Seems like an awful lot of personal trainer appointments to get to $1.5B.

  5. Greg Sterling Says:

    Yes . . . perhaps I’m being a bit aggressive with the financial forecast there. The larger point is that the model does have the capacity to grow dramatically and there is no known consumer leader in the space.

    • Zilla Says:

      True. I’m actually shocked at the lack of direct copies of Red Beacon after all the buzz surrounding them from last year’s Tech Crunch 50.

      I still think that the actual documentation of transactions could be a problem for them.

  6. Dirk Moreno Says:

    Interesting. There a two major european players currently planning to roll out in the US. http://www.myhammer.com, http://www.mybuilder.com...

    Looking at their websites and how long they exist, it looks like redbeacon
    has copied their methode. Still clever and i believe it has potential.

    it all started with myhammer.de a german website a few years ago.

  7. Chris Says:

    I like RedBeacon for a number of reasons: they are former “googlers”, obviously have good PR, won the TechCrunch… For these and other reasons they may be attractive to investors and if they can secure significant funding, with heavy smart advertising they may succeed. But ultimately the product is not that great. For businesses: pay-per-lead concept is not very attractive, too much paper work, high commissions, and they are not also listed in an easy to access directory. For users: they don’t have the opportunity to pre-select companies they want to contact for the job. For RedBeacon itself: lots of headaches with collecting the fees, etc… The business model itself is a bit complicated. There are other startup gems out there ready to emerge on the market, some with a truly original and superior concept. In 10-20 years we’ll see who replaces the old yellow book…

  8. Evangelos Diavolitsis Says:

    I’ve gone to Red Beacon a few times to research a few professional services but often find that what comes up on my screen is a service that does not quite match what I am looking for. For example, I could not find a painter near my home in Calgary that was able to come and do some work quickly. A blank screen came up. Surely in this market there is a painter that would want some work on short notice. What I’ve noticed is that there a few companies that seem to be working out their kinks but am not sure how long this will take some of these newer companies. I’ve noticed that Pinbud.com is also working out some kinks but what makes them different is how quickly they respond when I ask their customer support a question.

    In this age of computer voices, it’s refreshing that a live person can respond to a query.

    E.D.

  9. Evangelos Diavolitsis Says:

    I’ve gone to Red Beacon a few times to research a few professional services but often find that what comes up on my screen is a service that does not quite match what I am looking for. For example, I could not find a painter near my home in Calgary that was able to come and do some work quickly. A blank screen came up. Surely in this market there is a painter that would want some work on short notice. What I’ve noticed is that there a few companies that seem to be working out their kinks but am not sure how long this will take some of these newer companies. I’ve noticed that Pinbud.com is also working out some kinks but what makes them different is how quickly they respond when I ask their customer support a question.

  10. pro-Bids.com Says:

    Well, you all make some interesting observations.

    However, pro-Bids.com has been around since 2008, actually shows you the bids, the service provider (250,000+), keeps your identity anonymous through our proprietary messaging, has reputations (eg yelp and angies list) and is free.

    Open competitive bidding can work without channeling leads to paying subscribers. I wouldn’t want to give up 10% of my job for a lead, and as a consumer, I wouldn’t want it wrapped in the cost. (That’s why I created it)

  11. Eric Says:

    It surprised me how Redbeacon won the competition with a mediocre idea.

    Here is a company with innovative concept: http://www.questbid.com. Not only they push the customer request out to local providers, they did it by automatic phone call, thus removing any pre-registration requirement on the provider. Any valid request can be push to matched providers on yellow page or from Craigslist.

    I’ve look at many similar sites like thumbtack, mineeds etc. All of these players have the classic chicken and egg problem to get enough providers to server consumer request.

  12. Dirk Says:

    looks like questbid is out of business already…
    here is another one easycontractor.com although its not started yet it seems.

  13. andrew Says:

    I would really like to know how the plan to chase people up to pay the commission? of course a smart service provider would pay it knowing that they will be cut off from future jobs but there’s always the opportunist who try anyway.

    on top of this a service provider could ask the consumer to just say they didn’t use anyone from red beacon. they could do this 2 times out of 10 or more which means lost revenue for red beacon.

    this would mean red beacon would have to put resources into chasing up payments as well as contacting consuming to see who they chose for their project

  14. Harold Vaan Says:

    How does Redbeacon prevent service providers from contacting leads outside their website? I can imagine service providers giving clients discount if they do the job outside the system in order to save money. Sounds like a strange businessmodel to me.

  15. Greg Sterling Says:

    They facilitate most contacts. Otherwise honor system

  16. Harold Vaan Says:

    I understand, but I can imagine that in order to save the comission a service provider would try to share a discount with a prospect/client. That leaves Redbeacon with nothing.

  17. Greg Sterling Says:

    Yes, there is some vulnerability to merchant deception/fraud but as a practical matter it’s not going to be very widespread and RB has thought about this issue at length.

  18. Harold Vaan Says:

    So what solution do they have then? I couldn’t find anything listed on their website. The Servicemagic businessmodel with subscription is less vulnerable to this then a commission based service like RB offers.

  19. Greg Sterling Says:

    You might want to contact them directly with your questions.

  20. Matt Cien Says:

    I have a perfect solution for the “vulnerability to merchant deception/fraud” problem all these sites have. It’s one of our competitive advantages but contact me directly my site is http://www.QuoteQuality.com and I will be happy to tell you. I am looking to partner-up with another startup or … hopefully get funding! :)

    It’s a win, win, win. We get our cut, the provider gets the job, and the consumer picks one provider from the many.
    Similar to the “pay per lead” system, so it is efficient and the provider does NOT pay unless they get the job.

  21. TS Says:

    I am not impressed with Redbeacon. First time I used it, I only get 1 bid while they are working on others. The contractor they recommended to me desipite talking with them directly never bothered to call me back. Now Redbeacon wants to spam me to death asking how I liked the contractor. Sounds really good up front but execution is key and ability to use good contractors that undertand customer service.

  22. Zilla Says:

    How are these guys doing now? I heard that their CEO is leaving.

  23. Greg Sterling Says:

    Haven’t heard anything in a long time from them.

  24. vksheilds Says:

    There are lots of solutions to have recommended plumber for your home renovation jobs. for that you need to search for top rated plumber that can be found at tradestool.co.uk an local directory in united kingdom

  25. Plumbers in Newcastle Says:

    There are lots of these firms around at the moment its a debate on who to choose. Personally I think local firms which cover a large area such as Plumbers in Newcastle seem to be a better choice. The large “comparison” trades people sites dont really background check the trademen so you are still taking a risk!

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