Who will be the big (3) winner(s) in local?

[Note: This opinion piece originally appeared on Forbes.com]

 

After nearly twenty years of the Web affecting virtually all aspects of our lives, local search has stubbornly eluded much of the innovation seen in other industries. To be sure there have been major advances, particularly in the realm of location-aware services, maps and federated listings.

But broadly speaking, local search is still very much stuck in the past. Think back 20 years – 1994 – and try to remember how you found local information. Movie times were found in the newspaper (or for very advanced folks, by calling Moviefone); top restaurants were found in review guides like Zagat’s, and any kind of local service or store was located in the Yellow Pages.

Now think about what’s really changed today. Movies and show times are found on any number of directory sites, or on Google; Restaurants are often selected on review sites like Yelp, and local service providers can be found either in directories, or the “old-fashioned way” – referred by friends. So, with all the innovation of the past 20 years, what have we really achieved in local?

We’ve replaced the Yellow Pages with Google, Zagat’s with Yelp, and word of mouth with, well, we’ll get to that… So is that it? Are we simply replacing the old, offline model with online facsimiles (excuse the pun)? I’d like to put forward the proposition that local search is approaching a watershed moment, where the confluence of new mobile device capabilities, the maturing app market, along with the emergence of social media as a driving force in local, will finally push this laggard segment into the forefront of innovation. And within that context, I believe there will be three winners, each dominating a core part of the value chain, which I describe as: Find, choose, and transact. And who will those winners be? Well, read below for my take, and feel free to add comments or reply back if you believe there will be other dominant players.

 

Find (or, it’s all about the data…)

The basic layer for local search is data. This includes business listings, hours of operation, address, phone, email and website, along with more in-depth information, such as business description, years since founding, specialties, and coverage area. While these data may seem, well, basic, it turns out to be anything but. On average 20% of small businesses close every year, and another 15% change some basic data – phone, location, branch office move, etc – every year. That means that a full one third of all local data is changing on an annual basis. Consider that there are approximately 20 million local businesses in the US alone, and you can quickly see this is a non-trivial problem to keep all those listings updated.

Making the challenge even more complicated, there has been an explosion in local listings, directories and regional sites. Whereas in the old days only the Yellow Pages needed to be updated, today a small business that wants to be not just discovered, but properly and accurately represented, must be sure to regularly update listings on the major search engines (Google, Yahoo and Bing), Facebook, review sites – both horizontal (e.g. Yelp) and vertical (e.g. HomeAdvisor in the home services space), and dozens of other local sites.

Firms like Yext have emerged to try and plug this hole. Operating on a subscription model, they auto-update local business information on dozens of sites. While this approach is promising, and they have been lavishly funded ($116m! as of June 2014), it would appear this is a temporary anomaly in the market. Ultimately this data layer will be most robust and available if solved by a standards-oriented model. To a large degree, Google is fast becoming the go-to place for businesses to update their own information. Over a five to ten year period it is most likely that Google is best positioned to win this part of the local search space, for two reasons: first, they have a dominant share of the overall search market, and that requires local businesses to get their data accurate on Google. And second, Google Maps has a self-serve function that does not require a subscription to keep data updated. Despite the fact that Google today licenses a significant amount of data from Yellow Pages operators, they are very much on the way to becoming THE authoritative source for local info. Once achieved, Google will be in an enviable position as the go-to source for local data, and ultimately may license that data out to the myriad companies that simply need reliable listings information.

 

Choose (or ‘swimming in data, no information to be found…’)

Now assuming the first layer is solved, and users can easily find data on podiatrists, plumbers and photographers, the next task which faces real users is to choose between providers. In some cases this is simple – a dry cleaner which is good enough and close enough will satisfy 80%+ of the population. For commodity services such as an oil change, low price wins. However, for many categories – including doctors, home service professionals, auto-related providers – real people need help choosing between various alternatives. And this is a crucial part of the value chain precisely because it is the decision point – the place where users choose one deserving provider out of a typically very long list of potential options.

Indeed an insidious side effect of having so much data available today is the difficulty in sifting through all that noise. This is a problem that’s been around since the Yellow Pages days, and it’s why so many company names started with an “A,” since the top of the list seemed like as good a criterion as any for choosing a local electrician. (Little known fact – that’s why Jeff Bezos chose to name his little online book seller Amazon, since it would come up higher on Web directories. Just like the Yellow Pages.) But times have changed. People not only expect to have good data, real people are using apps, messaging, review sites, etc. to select great local service providers.

While there are dozens, if not hundreds of local review sites, the two biggest US names are: Yelp and  Angie’s List. This is a difficult space to get in to – it is extraordinarily expensive and complex to build a database of trusted opinions that can be used across hundreds of categories and thousands of cities. In addition, trust is becoming one of the most valued commodities in online reviews, as evidence mounts that most review sites are rife with manipulated data, creating even greater challenges for users in choosing quality providers.

So, given Yelp’s size and dominance in the restaurant review vertical, it is fair to say they are the odds-on favorite to win. But there are a host of emerging companies looking to disrupt the ‘choose’ portion of the value chain with a new value proposition: trust. The Web has made transparent so many industries – from finance to travel, products to real estate – hiding behind imperfect information has become a thing of the past. In local search, the winning platform for selecting providers will be the place that has the most authentic, useful and “decision-inducing” information. Some of the leading startups focused on social, local search include Knowzz, ByUs, Vouchd and WhoDoYou; only time will tell which of these candidates can muster the scale and quality to compete with the incumbents.

 

Transact (or, show me the money!)

And finally, there is the transaction. After searching and finding a local business, the next step is hiring or paying for service. While this sounds straightforward, there are a range of payment scenarios that make it anything but simple. Home service providers (contractors, gardeners, handymen) often need to see a job before providing a quote; professional services typically bill after the fact based on hours or procedures (accountants, doctors), and some businesses require ongoing negotiations (mechanics, movers, home IT services, etc). Unlike products, which have a discrete price point, few services can be booked and billed as a commodity.

Indeed the process of scheduling and paying for services has created a pain point that many startups are now trying to solve. In various vertical segments – from cleaners to handymen and beyond – their promise is to make finding and scheduling as easy as buying a product online. However, each vertical has its own unique requirements, and many of them do not require ongoing engagement with the vertical site. For these reasons, it is unlikely that a vertical solution, which only cover one or two categories, will be the platform winner.

Rather, there are a handful of horizontal players developing solutions that work across categories, gaining momentum largely as a result of the power of mobile devices. Today it is possible for both buyer and seller to get great information – about the job, location, timing, estimate, etc. in ways that would have taken multiple calls in the past. This trend has accelerated the growth of incumbents, including HomeAdvisor (formerly Service Magic) and Red Beacon, as well as more recent entrants such as TaskRabbit and Zaarly for tasks, Porch for home services, and even oDesk and eLance for professional and outsourcing.

But the company which seems best positioned right now to add value to both users and small businesses is Thumbtack. They have efficiently optimized the flow for users to get qualified estimates, and they are providing merchants with high quality leads that have a strong intent to purchase. With a recent round of funding bringing their total to more than $50m, Thumbtack has the capacity to continue building a great solution for service providers, including deeper capabilities such as scheduling, and calendaring, reputation management and more. While the space is still very much nascent, Thumbtack has so far proven itself capable of driving significant traffic, and effective in closing transactions between buyers and sellers.

 

Conclusion

The local search space has long lagged behind the rest of the online world by stubbornly resisting deep innovation. However, as mobile devices, apps and social have re-ordered the playing field, a new set of players are rapidly resetting the landscape for finding, choosing, and booking local businesses.

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