Posted: October 01, 2009
Q4 Tech Report: match game
Companies that connect customers with contractors and service providers on the web are fighting for turf in Colorado and beyondBy Eric Peterson
Sometimes finding a plumber or other service provider can be akin to pulling a marble out of a jar. You can just pluck it out and hope it's not a bad one. But there are too many different marbles to be sure.
However, consumers can also hop on the Web to do a little bit of research before making a decision. Plenty of businesses and other organizations want to help by vetting the plumbers and other service providers before you pull one out of the figurative jar, from the nonprofit Better Business Bureau to numerous for-profit companies, including Golden-based ServiceMagic, Indianapolis-based Angie's List, and numerous others that see this space as a lucrative - and growing - market.
Consumers considering their options might feel they're merely picking another marble out of a jar to help them better select that initial marble. For the plumbers and other service providers who may well have to pay a fee to get vetted, choosing one of these organizations as a marketing tool can be something of a guessing game as well. Who vets the vetters?
So far, that task has fallen to consumers, who have been turning to these sites to help simplify their search for the right person for the job.
GOLDEN COMPANY SEES BOOM IN REFERRALS
At ServiceMagic, business is booming. "We're hiring 200 employees by year's end," says ServiceMagic CEO Craig Smith. "We've continued to grow the business in spite of the economy."
Smith says the new hires will be in sales and tech support, and the lion's share - 170 of the 200 - will be in Colorado.
Smith touts ServiceMagic's network of 60,000 service providers in the U.S., as well as "a few thousand" in France, the United Kingdom and Canada. The nearest competitors' networks are in the neighborhood of 1,500 to 2,500, he adds - "orders of magnitude" smaller.
(One former ServiceMagic employee points out that many companies start similar businesses with the hope of selling out to the online contractor referral industry's 800-pound gorilla once they accumulate a network of a few thousand vetted professionals.)
ServiceMagic's business model is based on contractors in the network paying a fee per referral. The fee varies from $5 to $75 based on the size of the job and other factors. This differs from the model of Angie's List, which charges consumers a nominal monthly fee to access customer reviews. Service providers - which include home professionals as well as doctors and mechanics - cannot become members, but companies with positive reviews can advertise on the site in the form of a discount to the site's members.
Smith attributes ServiceMagic's continued growth during the economic downturn to several factors. First, more people are turning to the Web when they're in need of a home-improvement professional, he says. "The pie has shrunk 10 to 15 percent in the past year, but our market has actually grown."
Smith says people have shifted their priorities since the onset of the recession last year. "People are spending less (in 2009) on home remodels, but they're still spending, and we cover over 500 categories. It's not a quick-turn investment anymore, so they're doing things they might not have done in the past, a lot of maintenance and repairs."
Also catalyzing ServiceMagic's growth is the value of finding contractors on the Web.
"It's really a superior way to find good people," Smith says. "The Web enables a high-quality referral-based model to work. You can identify and aggregate the best providers in each market." Smith notes this is especially important in the home-improvement world, where customer complaints are more often the rule than the exception. "You can't do that with a static yellow pages."
Beyond the 10-point screening ServiceMagic subjects its contractors to, Smith points to the half-million ratings customers have left on the website. "That's by far the most valuable asset we have," he says. "We'll kick somebody out if they're not doing a good job."
Smith says future growth of ServiceMagic will outstrip that of like-minded businesses and organizations like the Better Business Bureau, pointing to a network of 10 million registered homeowners.
"It's a marketplace we've created that allows ServiceMagic to be highly effective - the first place to go when you're looking for a home professional. But I don't think the Better Business Bureau is going to go away.
"But more businesses are competing for the homeowner's mindshare," he says. "That's a good thing for the homeowner. We represent 2 to 3 percent of the market - there's plenty of space for others."
ENTREPRENEUR TEAMS UP WITH TV
One such other is Haystack Colorado. Founder and TV host Chris Kane says the company connects consumers and service providers via both TV and the Web with a show on Denver's CBS 4 and HaystackColorado.com.
"It's a free website for people to find companies we've done background checks on to make sure everybody's above the line," Kane says. Haystack Colorado - a joint venture between Kane and CBS 4 Denver - covers other industries besides home improvement, including attorneys, mechanics, doctors, dentists and financial advisers.
"Consumers can do it themselves, but it takes a lot of time and effort," he says.
"We start out with companies initially that are in good standing with the Better Business Bureau." Haystack Colorado invites them to be on the site if their background check comes up clean. The service professionals pay Haystack Colorado an undisclosed fee to be on the site.
Kane also hosts five-minute segments with service professionals that run on CBS 4 several times a day and a 30-minute show that airs at 7:30 on Saturday mornings and are archived on the website. Kane owns the company Haystack Colorado, and CBS 4 owns the domain www.HaystackColorado.com. Kane also pays the station for air time.
Kane points to longevity in the Denver market as his key selling point. "I've been in this line of business since 1991," he says. He says he recently switched from a business model where the consumers paid a fee to access the network. "It's been going very well. Consumers who catch our program are very receptive to it."
But Kane has only done "a few hundred" checks, which means its network is considerably smaller than that of ServiceMagic or Angie's List. And customer feedback is in a nascent stage.
Nonetheless, Kane sees value in his approach. "The reality is there are other places people could go to, the phone book or just do a Google search, but you don't know what you're getting. You'll get millions of possible selections. What do you do with that? Are you going to call the first result? It's kind of scary. You want to know that a contractor coming to your home is accountable.
"There are other services like ours out there - we have to be the most accountable," he says. "If there are any problems, we get directly involved. The biggest thing is to take care of the problems on the front end so it doesn't trickle down to the consumer. We work only with top-quality companies."
LOGAN FORMS NEW ‘TEAM'
Local radio personality Dave Logan is involved in a new entry into the online referral arena with TeamDaveLogan.com, launched earlier this year. While TeamDaveLogan.com is advertising on Logan's 850 KOA show "The Ride Home," that is the only crossover, says Lori Grey, the company's general sales manager. "They're totally separate businesses."
Logan and Grey were sitting in a coffee shop in November when the idea for the company emerged.
"His mother had a leak in her house's roof, and he said, ‘I'm not even sure where to go,' Grey said. "If you search Google for ‘electrician,' you don't know any of those electricians from Adam. It's like picking a name out of a hat."
So the pair decided to launch TeamDaveLogan.com with a similar model to ServiceMagic except charging contractors a variable fee, rather than a referral-based model. Higher-level packages include banner ads on the website and involvement in segments of Denver KUSA 9's weekday morning show "Colorado & Company."
Service providers are subjected to a 15-point background check. As of August, about 40 service providers had been vetted, Grey says. "We're still filling in categories and will be filling in categories for a while." Like most of its competitors, TeamDaveLogan.com is free to the consumer.
"It's going really well," Grey says. "Consumers have been making calls. People trust Dave and really want his recommendations. We have to be especially careful, because he has a very good reputation. We're really picky - we've turned away a lot of people who wanted to be on the site."
Beyond Logan's name recognition and reputation, the company's key differentiator is its strategy of building a team of home professionals. "Our hope is they will refer other team members to homeowners," Grey says. They hope to foster camaraderie through quarterly vendors' meetings.
Grey says the BBB "does a lot of the same things," but is much broader in scope and therefore unable to dig as deep. "Any referral service should be used as a guide, not a rule. You want to check as many things as you can. It's a way for consumers to make themselves feel safe. You want to try to make yourself as safe as possible."
BBB KNOWS A THING OR TWO
The Denver/Boulder Better Business Bureau has been in this line of work for longer than Angie's List, ServiceMagic, Haystack Colorado and TeamDaveLogan.com, combined.
"We've been here in Denver since 1951," says Dale Mingilton, president and CEO. "Because there have been a lot more scams in recent years, that's probably why there are more businesses trying to get into the same general field."
With 7,600 accredited members, the Denver/Boulder BBB is a "large association," Mingilton says. Nationwide, there are about 400,000 businesses that are BBB members. Unlike its peers, the Denver/Boulder BBB is a nonprofit, charging businesses $375 to $900 for accreditation.
"Every dollar goes back into the organization," Mingilton says.
Besides the nonprofit status, Mingilton points to its policy of not making referrals as a key to the BBB's effectiveness. "We don't refer - we say, ‘Here's a list of businesses. Take a look and research all of them, then make a decision. And always get three bids.' We really push consumers and businesses, before they make that decision, call us first."
Mingilton also fiercely touts the BBB's vetting as the best in the space. "We dig more than the Angie's Lists and ServiceMagics," he says. "To become an accredited company with the Better Business Bureau, first off you have to be in business for at least a year. Other folks don't require that. You also have to go through a compliance gig with us. If an organization requires a license, we're going to look it up and make sure it's current. We review all of your advertising and make sure it's factually correct. We look at your website and all of your other advertising."
Mingilton, who joined the Better Business Bureau in January after a 22-year career with FirstBank, says he's passionate about what the organization is doing.
"I'm not knocking any organization," he says. "I just think people should know what they're getting before they buy. ServiceMagic and Angie's List offer a great advertising opportunity for a lot of people. But they don't do a lot of the back-room work that we do."
For the record, of the companies mentioned in this article, only Angie's List is accredited by the BBB. ServiceMagic representatives "stopped by and talked to us a few years ago, but I think they were too young to be accredited," says Mingilton, noting that the Denver/Boulder BBB has yet to field a complaint about the company. "I don't think they've re-applied."
Denver-based writer Eric Peterson is the author of Frommer's Colorado, Frommer's Montana & Wyoming, Frommer's Yellowstone & Grand Teton National Parks and the Ramble series of guidebooks, featuring first-person travelogues covering everything from atomic landmarks in New Mexico to celebrity gone wrong in Hollywood. Peterson has also recently written about backpacking in Yosemite, cross-country skiing in Yellowstone and downhill skiing in Colorado for such publications as Denver's Westword and The New York Daily News. He can be reached at Eptcb126@msn.com