In an article published in October by Thumbtack.com titled, “That daily deal you bought? Maybe not so great a deal after all”, Thumbtack compares the deal prices from local service providers with an average price quoted by service providers on their website. Thumbtack concludes that daily deals are overpriced and that in 5 out of 5 deals they looked at, the average rates of local service providers are lower than the discounted rates offered by daily deal websites.
There are several factors that Thumbtack’s article doesn’t address which are contributing to the discrepancy in the prices they used for their “study”.
1. How did Thumbtack calculate the industry average?
One of the major things to consider is how Thumbtack calculated the average price of a local service for the industry. Thumbtack obtained the averages they used in their article from the hourly rate of service providers that have listed on their website. Is this representative of the industry as a whole? When you consider the business model of Thumbtack and the types of service providers that typically post on Thumbtack, the answer is: No.
2. What type of service providers typically post on Thumbtack?
For those of you who are not familiar with Thumbtack.com, they allow individuals to post a local service that they require and allow service providers to bid on the contract. They also allow any service provider to list their service on Thumbtack for free. An environment where service providers bid on local service contracts creates a race to the bottom. There is significant pressure on service providers to submit a relatively low bid in an effort to “win” the contract. This squeezes the margins and favours local service providers with the lowest overhead. Consequently many service providers can’t compete with small, one or two-man service providers, or companies that use inexpensive (and potentially less skilled) labourers, so many service providers don’t list on websites like Thumbtack.
3. What is the real value of a deal
When comparing prices it is important to consider the value of a given service. As a service provider grows in scale, overhead increases and the price that they need to charge to stay profitable increases. Consumers choose to pay the higher prices to premium priced service providers because of the reputation and value of these service providers. Sure, a consumer could find someone who would offer to do the same service for less but the quality and consistency of the service is important and worth the additional expense for many consumers.
Groupon, LivingSocial and the other top daily deal websites are selective in the service providers that they partner with and feature on their website. They frequently turn down small and medium sized businesses that don’t meet their standards. If they offer a deal for a business or service provider that can’t meet the demand while providing a high quality service, daily deal subscribers will be turned off of their daily deal offerings. There is the occasional time where a service provider doesn’t set a reasonable cap on the number of deals sold (i.e. The Butchers fiasco) but daily deal sites are enforcing stricter review processes to ensure that both their consumers and the businesses they partner with are happy with the results and interested in repeat business.
The service providers on Thumbtack and those that are featured on daily deal sites are often focusing on different target markets and so it is reasonable to expect a discrepancy in price. Thumbtack favours low-cost providers with low overhead and so it is reasonable to expect that the average quote for services on their website is below the industry average. Groupon and LivingSocial selectively choose reputable companies with a high capacity that can handle the demand of a daily deal offering. These service providers may have higher margins and may be priced at a premium, but the level of consistency, the quality of the job and the overall value of the service is higher than the average provider on Thumbtack.
Regardless of the source, it is important to educate yourself as a consumer prior to making any purchase. You should research any service provider before you buy. One great resource for this is Yelp.com (which recently filed an S-1 to IPO). Yelp is a large community of internet users who rate and review their experiences with local businesses. It has a large following in the US and it is growing in Canada. Yelp.com reviews exist for most, if not all of the service providers that are featured on Groupon, LivingSocial and the other top daily deal sites. If you use The Deal Pages website to browse daily deal offerings, you can see the Yelp ratings for each offer. Before you use the Yelp review to evaluate a business you should consider the number of ratings and the content of the reviews that have been provided.
Are the prices of the services offered on Groupon, LivingSocial and the other top daily deal websites higher than the industry average? Most likely. This is a result of Groupon and LivingSocial selectively partnering with high quality, services that may have higher margins. Are the reputations and value that service providers on Groupon and LivingSocial higher than the average provider on Thumbtack (which favours low-cost providers)? Definitely. Yelp.com and other review sites provide a great litmus test when evaluating a company you are unfamiliar with. This minimizes the risk of entering a contract with a low quality service provider. Many of the Thumbtack providers cannot be found on online consumer review websites and there is currently no consumer rating system on Thumbtack so the risk of a bad customer experience is relatively high.
This is the second article from Thumbtack that I have reviewed. Both articles I have reviewed to date were direct attempts to undermine the daily deal industry which provides competition for Thumbtack.com. The “studies” that Thumbtack has used to back up its claims are based on small and biased samples and the conclusions and implications that they make must be taken with a grain of salt. I might come across as defensive in my writing but my intention is to provide a more objective overview of the issues as a daily deal industry follower. If you have any questions, comments or opinions, please leave them in the comment section below.