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

  1. Jeff Ferguson says at

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

  2. Hiding Startup says at

    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 at

    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

    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 at

    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.

  6. Zilla says at

    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.

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