By David Scheller
Thumbtack is an online service that pairs customers with local professionals. Founded in 2009, the website/app combo now boasts more than 10 million customers and 250 thousand professionals. It is currently valued at approximately $1.3 billion!
Thumbtack sounds like a success story on paper. What contractor wouldn’t want to join a service that passively pairs them with new clients? But if that’s the case, why did two thirds of contractors polled in our recent Twitter survey say that they hate Thumbtack? Why is contractors’ overwhelming opinion that Thumbtack is a scam?
The Law of Supply and Demand
When a new service like Thumbtack hits the marketplace, it can generate a lot of buzz. Its service might be entirely novel, and people see their tech savvy friends using it and must have it for themselves. I remember the first time I saw Uber in action. My colleague summoning a car and driver right to where we stood — without so much as a phone call — seemed like magic. I downloaded the app during the ride.
New apps are popular. Thumbtack was no exception, and right out of the gate it attracted a larger customer base than it did contractors able to serve them. While many skeptical contractors held off on joining Thumbtack until it had proven itself as a marketing platform, the early adopters did especially well for themselves.
This demonstrated the simple law of supply and demand. The relative few contractors who joined Thumbtack early on constituted a very limited supply to customers’ overwhelming demand, and Thumbtack valued their work accordingly.
We saw the same early trend with similar online services such as Angie’s List, HomeAdvisor, and Nextdoor. But like those services, as Thumbtack aged its profitability for contractors began to decline.
Why? Because the law of supply and demand works both ways. As more contractors wishing to mirror their peers’ success joined Thumbtack, the more they began competing with one another for the same static customer base. Eager to monetize, Thumbtack started charging contractors more and more per request — to the point where it wasn’t worth it.
And what do contractors call a service like Thumbtack once they’ve decided it costs more money than it’s worth? A scam, which is a word that popped up a lot in our Twitter survey’s comments. We must belive those comments: No one appreciates value like a contractor, and no one likes being ripped off less. So can we make of all this?
Four of Thumbtack’s Biggest Lessons
- Early adopters win. Whenever a new lead generation app creates a major stir, the first contractors to embrace it wind up doing best. My own business did very well on sites like Angie’s List, Nextdoor, and Porch when they first hit the scene, but the more we had to compete with other contractors who had joined, the more we saw our results vanish. Today none of them are worth our time and money, and Thumbtack has joined that same elephant’s graveyard.
- Long-term results are unpredictable. You can never tell whether a company like Thumbtack is going to continually dominate the market or simply prove a flash in the pan. (If you could, you would have bought Tesla stock back when it was $20 a share.) Had Thumbtack risen to the same level of success as Google, then this post would have an entirely different tone. Hindsight is always 20/20, sadly, and Thumbtack ultimately floundered.
- Some business models are untenable. We can’t blame Thumbtack for trying to make a lot of money. Aren’t we all? But their business model depends entirely on charging contractors. What’s worse, the price that contractors must pay for a lead has spiked dramatically over recent years — often to as high as $65! Combine that unattractive price tag with the overwhelming number of bogus leads infesting Thumbtack, as well as Thumbtack’s tendency to side with implacable customers during disputes, and you’ve got a service that just isn’t worthwhile.
- Don’t overinvest while establishing a reputation on a new platform. Many contractors spent a lot of time and money optimizing their reputations on Thumbtack. Now that the service has fallen flat, those investments are not providing as great a return as they could have if they were spent on a proven platform like Google. Those contractors are held hostage, in a sense. Starting and growing a business is a huge risk. You’re not doing it because you’re faint of heart! But taking too big a gamble on an platform like Thumbtack is not advisable when there are demonstrably better paths to success.
The Takeaway
Any new service that promises to grow your business with new leads is going to seem like a no-brainer. That same novelty which makes a service so appealing, however, is liable to be its downfall. Early adopters may do well, but as competition grows their returns on investment will diminish.
Your business is too precious to stake its success on a service that is unproven, is monetized by your efforts, and may even cease to exist one day. Consider any service like Thumbtack with a grain of salt. Otherwise you may become very salty one day!
