How do you build an online marketplace from scratch?
Thumbtack, an online marketplace for local services, yesterday announced a $100M funding round led by Google Ventures.
Building a local services marketplace is a notoriously difficult problem that has beaten many entrepreneurs. So how did Thumbtack get where they are? What tactics are behind their apparent success?
The founder of Thumbtack, Marco Zappacosta, was interviewed by Andrew Warner of Mixergy.com earlier in the year and covered some of the tactics that Thumbtack used to build its marketplace. You can read the transcript of their interview here.
Here’s a summary of the tactics and approaches Marco described:
1. Built Supply Side Using Scraping and Customised Mass Emails
- Recognising the chicken-and-egg problem of all marketplaces, Thumbtack saw the supply side as easier to get in place and focused on that first.
- They used web scraping to compile data on local service providers and developed software to process and organise it.
- They used the extracted information to bulk send customised emails to service providers inviting them to create profiles on the site.
- They were concerned about being blocked by email service providers so were careful about monitoring the relevance of their emails.*
- Their technology wasn’t limited to a specific category or part of the country, so they covered a broad range of categories and the whole US from the start.**
- With their first $6M of funding, they had listed hundreds of thousands of service pros.
* Here‘s an example of an email Thumbtack reportedly sent in 2012. What do you think: was this spam?
** It’s interesting to see that Thumbtack succeeded despite going against the common wisdom of focusing on a single city and/or category.
2. Built Demand Side Using SEO (Based on Unique Content of Service Provider Profiles)
- Service providers creating their own profiles resulted in lots of unique content.
- As the service provider profiles were crawled by search engines, this resulted in lots of organic search traffic.
- More and more customers now coming from word-of-mouth and direct.
- Have started running search and display ads, including retargeting.
3. Tried Different Revenue Models (Commission -> Subscription -> Per-Quote)
- Initially, tried commission-based model. But had collection issues (hard to tell if an introduction resulted in paid work, lots of providers didn’t pay).
- Next, tried subscription model. Worked okay, but wasn’t well aligned with marginal value of each introduction.
- Currently charging providers to respond to quotes. (They can pay per response or buy credits in bulk.)
4. Off-shored Labour-Intensive Tasks
- 75 of 200 employees are in the Philippines.
- Main tasks for these employees are: responding to support inquiries (from customers and providers) and helping to onboard service providers.
In summary, then, in terms of building up their marketplace, Thumbtack’s use of mass emails to contacts scraped from the web seems to have been key. Another important decision was to keep their supplier profiles accessible to search engines. This allowed them to grow their demand side through SEO.
At Thumbtack’s current scale and with a large amount of money to spend, it will be interesting to see whether other paid acquisition channels will now start to pay off for them.
What other tactics have you seen used to successfully establish marketplaces? Do leave a comment below.
If you’re interested in tactics for building marketplaces, you make like to read my posts on Getting to Critical Mass: How to Start a Marketplace Business and Skillshare: How to Build a Marketplace for Online Education.
Photo by kellee_g
Also published on Medium.
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