Thumbtack is a local services marketplace that helps people (customers) accomplish personal projects by hiring experienced professionals in the area. The six-year-old startup delivers custom, project-specific quotes from qualified and available professionals, and empowers the customer to select and hire the professional who is right for the specific project.
The process is simple:
- Customers provide detailed posts for potential jobs (e.g. home remodeling, tutoring, dog walking, seeking belly dancing or yoga instructors, seeking a DUI attorney, etc.)
- Interested professionals use the platform to bid on those jobs by detailing a price and description of their services
- Customers then compare professionals based on price, customer reviews, and other elements of the bids
- Customers hire the right professional for the job
Thumbtack has over five million projects requested every year in over 1,000 different categories. The company operates in all 50 states and has over 200,000 paying professionals on its platform. While the company is still unprofitable, it claims to generate over $1B in revenue for independent, small businesses on an annual basis.
Industry experts estimate a market size of $400-800B for the local services space. Despite this impressive scale, local commerce is still incredibly inefficient and mostly reliant on phone calls and Yellow Pages. The local services space is also incredibly crowded with players ranging from Yelp and Angie’s List to Amazon (Amazon Local Services) and eBay (eBay Hire). Even Google, which has invested in Thumbtack, has recently experimented with local professional offerings.
I believe that Thumbtack’s unique business model creates stickiness on both sides of the crowdsourced platform, and will allow it to become a leader in the space. The growth potential of this business is huge, considering Thumbtack only generates $1B out of a potential $800B market.
Thumbtack creates value for customers by sourcing relevant and qualified local professionals to help with projects in a timely and efficient way. Thumbtack also creates a source of valuable leads for local professionals looking for jobs. While competitors like Yelp and Angie’s List tend to offer “directories” of services that are time-consuming to sift through, Thumbtack has taken a different approach and considers itself more of a matchmaking “dating app” than a typical e-commerce platform.
With Thumbtack, customers specify what they’re looking for, and this data is plugged into a proprietary matching algorithm. Then, Thumbtack shows local professionals only the job posts that are relevant to them. In this way, Thumbtack is looking to recreate and streamline the entire job lifecycle for both customers and professionals.
Value capture / incentivizing participation
Thumbtack makes money by having professionals pay to contact customers through Thumbtack credits. Professionals use these credits to send bids/quotes to customers. A single credit costs professionals $1.50, but a single bid/quote can cost many credits depending on how much potential revenue could be generated from the project. Thumbtack believes that charging professionals for introductions to customers improves the quality of the product because professionals only bid on projects where they would be a good fit, and would essentially qualify themselves.
This business model was only developed after two other failed models:
- Charging a transaction fee: abandoned because it was difficult to know the full transaction amount of real-life interactions (e.g. a plumber could get paid in cash on the spot)
- Subscription model charging $24/month to customers: abandoned because revenue would not scale with job activity in the marketplace
While the current business model incentivizes participation on both sides of the platform, a key challenge going forward will be category management. With 1,000+ categories already, Thumbtack will eventually need scale and adequate data in all category verticals to ensure consistently high quality and performance.
Latest funding and future plans
To date, the company has raised ~$270M in six rounds of funding from the likes of Google Capital, Javelin Venture Partners, Sequoia Capital, and Tiger Global. Less than a month ago, Thumbtack raised $125M, which gave the company a $1.3B valuation and made Thumbtack Silicon Valley’s latest “unicorn.” Since then, Thumbtack has recruited heavy hitter former executives from Airbnb (new lead in-house counsel, Katie Biber) and Elance (new CFO, Servaes Tholen).
In terms of future plans, Thumbtack CEO Marco Zappacosta plans to use the latest funding to improve Thumbtack’s ability to match the right customer with the right professional, and build more marketplace tools to assist with a project’s entire lifecycle (e.g. payments, scheduling invoicing, and business management). Both initiatives will increase value creation, user engagement, and stickiness for both sides of the platform.