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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