In terms of Silicon Valley hype, Thumbtack has flown a bit under the radar since it was founded five years ago in 2009. But with the announcement today that it’s landed a whopping $100 million investment led by Google Capital, Thumbtack’s days of relative tech press anonymity are almost certainly over.
For the uninitiated, Thumbtack is an online marketplace that helps connect all types of local service providers — think painters, wedding photographers, plumbers, tutors, therapists, and more — with potential clients. It works like this: People in need of a service provider provide Thumbtack with a summary of the work they need done or the type of service they’re looking for. Thumbtack then analyzes that request, and sources relevant local service providers who can then provide bids on the project. Thumbtack makes money by charging service providers a small fee for each bid.
I met with Thumbtack’s co-founder and CEO Marco Zappacosta today at the company’s San Francisco headquarters to talk to him more about this new funding round and his plans for the months ahead. Below is an edited transcript of our conversation.
Q: $100 million is a big round. What is it about Thumbtack that attracted this kind of attention?
A: The local marketplace space in general has gotten much hotter over the last 6 to 12 months. I think Uber is probably the reason for that. I think that traditionally, “local” was seen as a minefield for Internet companies — a place where you could lose a bunch of money. No one had made any serious money in local at all. I think what has changed is smartphones, and the distribution of connectivity, and a change in cultural disposition on the part of customers.
You’re not super satisfied anymore with an experience that ends with 10 blue links on Google, or ten links on Yelp. You want to be able to go a step further and hire the person, or book the restaurant, or have the car come pick you up. Uber has showed that is possible.
I think our investors saw the opportunity here for a local services marketplace that really worked, and saw that there’s really nobody else at our scale and momentum. We could be the category killer.
Q: It was only a few months ago, in May, that Thumbtack closed on a $30 million Series C round of funding. What made this new round come together so quickly?
A: The announcement of the last round precipitated this in a lot of ways. The news there generated a bunch of inbound interest [from potential investors.] In these conversations, we met Google Capital’s David Lawee. The thing that’s awesome is that he has extremely relevant domain experience. He’s thought hard about how to communicate to these local businesses.
We certainly didn’t need any more money yet. But after our conversations with Google Capital, we thought it was worth it to take a look into this investment. …They’re not taking a board seat. They just want to be a part of our growth. And they have a great network that we are able to tap into.
Q: Why Google Capital, as opposed to Google Ventures?
A: You know, I haven’t spoken much with the people at Google Ventures. But we’re certainly a growth stage investment at this point. We have more than 600 full-time staff across our offices in San Francisco, Salt Lake City, and the Philippines. We’re not a traditional early stage venture investment.
Q: What categories are seeing the most activity on Thumbtack?
A: Overall we divide things into four different types of categories: Home improvement and repair, event services, instruction like tutoring or music lessons, and wellness. Right now we see a lot of activity in intra-city moving services, interior painting, personal training, photography, catering services, chiropractors.
Q: Are more categories on the way?
Over time it will expand. But today, honestly, we’re supply constrained, so we’re not trying to make our lives harder by trying to add more categories just yet. But we think our model is highly scalable. Part of our ultimate value proposition is breadth. We are trying to build the Amazon for services: the one place to go to solve all the services needs you have. That’s the dream.
Q: How does your approach compare with other local-oriented platforms, like Yelp and Angie’s List?
A: I think Yelp is a great product, but I think it’s great for a different subset of questions and problems that we solve. It’s awesome when you’re trying to say, ‘Where should I go to get my hair cut, or eat Chinese food, or get cupcakes?’ The thing is, in all of those cases, pretty much any store is willing to have you. You can walk into the front door and get what you want.
Thumbtack solves a different problem. It’s about who can come to me. Say you need to hire a plumber. There are a lot of them in the San Francisco Bay Area, but only some are able to do the job, and available to come to your apartment and to the job this week. You have to match with someone who is interested. That matching problem is very different from what directories do.
We have surprisingly little overlap with Yelp. Only 8 percent of our providers are on Yelp. Yelp, by and large, is deep in restaurants and beauty services. They’re not super deep in the world of the local services. The folks we’re seeing just haven’t been online before. There’s no TripAdvisor for this space yet.
Q: What about other service marketplace startups like TaskRabbit? They recently changed their business model, and seem to be also focusing on the types of local services that Thumbtack deals in.
A: Well, they may have realized they needed to move in this direction. But it’s also a very different experience. They’re trying to make hiring a service provider like a product buying experience, something you buy off the shelf. We don’t think that works. The needs that we help solve are different for every customer.
Say you’re looking for someone to paint your apartment. Maybe your apartment has crowd moldings, maybe you’ve got 16 foot ceilings, maybe it has some funny angles. It’s unfair to the professional to ask them to sort of package “interior house painting” into one flat hourly rate per job. Our model presupposes that sort of uniqueness of demand, and solves specifically for that. I think that there are scenarios where TaskRabbit’s new model works, but by and large, I don’t think that it holds true.
Q: Speaking of painting, I actually did use Thumbtack to look for someone to repaint my apartment. I got a few bids on the service, and it was great, but I ultimately ended up hiring someone I found elsewhere. Does attrition like that happen a lot?
A: Our belief is that if we deliver you great options quickly and reliably, you’re going to keep using us, and one day hire from us. Hey, if someone you learned about through your next door neighbor ended up being available when you thought they wouldn’t be, that’s great. [Ed. note: Oddly this is pretty close to what happened.]
We’re not going to bat 1000. We don’t expect our providers to win every job, and they don’t expect to win every job either. It’s about making sure that they get their money’s worth and their time’s worth, that they’re getting more leads and making good bids.
Q: You’re not processing payments on Thumbtack. People can find a service provider once, and stick with them for 20 years, and never come back to your service. Is there really a lot of money to be made in just referrals?
A: What matters is origination, not collection. Google doesn’t process the payments from the business that their ads drive. That said, payment processing is a problem we’re going to solve, it’s just not the most important thing to solve. If i interviewed you about your apartment painting process, you’d probably say the hardest parts were finding the right person, and being confident you paid the right price. Payment is not the biggest pain point.
Often when companies introduce payments and other in-app services, it’s usually to solve their own problem, not the problem of the customer. It’s not in our best interest to force an interaction and make people stay within the confines of our platform.
Q: A lot of Silicon Valley and tech press articles seem to like to refer to Thumbtack as “the biggest startup you’ve never heard of.” Why do you think that is?
A: I think it’s by design. We have known what it takes to make our customers happy, we’ve just been hesitant to shout about it before we could ensure everyone has a great experience. We’ve been building this a long time. It’s hard. We’ve been growing so fast on the demand side: We’ve got more than a $1 billion worth of jobs going through our system to professionals each year. We have tens of thousands of professionals who are using our platform to help make their livelihood. We’re focusing on that.
Also, San Francisco is our 14th biggest city. Our biggest markets are New York, LA, Chicago, Dallas, and Atlanta. I actually think that’s part of what investors love. We haven’t had to put boots on the ground to make it work in, say, Boise. It can just work everywhere.
Q: What kind of retention are you seeing from service providers? How many of them churn out, and how many stick around?
A: What we find is that the professionals who invest in it upfront — build a great profile, encourage clients to give reviews, communicate and use messaging well — stick around, because they make money. Our challenge is helping everyone be successful, and educating them, saying, ‘This is what it takes to build a good profile. Clipart as a profile picture is probably not going to cut it.’
The main reason anyone churns out is because we haven’t educated them. They’re professionals at their trades — they work hard, they know how to be great plumbers, great tutors. They don’t need to know how to be great online marketers. It’s on us to help them with that part, to teach them how to be successful in this platform. Any churn we have is a product failure, and a support failure, and something we’re definitely focusing a lot on.
Q: Thumbtack is definitely a broad platform play. But right now, everything seems to be about specialized apps and “unbundling.” What do you…
A: [Interjecting] I don’t believe in that. I don’t believe in five years that you’re going to have an app for house cleaners, an app for electricians, an app for tutors, and on and on. No. You’re going to have one app to stay in touch with the professionals that you know and love.
Growing up, my parents had a drawer in our kitchen that had the Yellow Pages, and next to it was a stack of business cards for the local companies and guys and gals they would go to for all the stuff they needed done. That’s a “bundle.” That’s what Thumbtack wants to be.