On-demand firms may be leaking customers
To get around companies’ fees, some contractors and consumers work to eliminate the middleman
Carl Mueller worked as a “high-end handyman” through TaskRabbit for the first six months of last year, “going gangbusters” with assignments, he said. He stopped using it in part because the company changed its business model. But there was another reason.
“I also quit because so many of my previous TaskRabbit clients were contacting me directly, and still do,” he said. “Once people found me, they would just call me direct. I had more than enough work.”
His story encapsulates a significant flaw in the business model of TaskRabbit, as well as HomeJoy, Handy.com and Amazon Home Services, which make money by collecting a cut whenever they dispatch workers to do housecleaning, repairs or other odd jobs.
Some workers for these services say that they use them almost as a tip sheet, taking initial gigs and then making direct deals with clients for future jobs — cutting out the middleman that arranged the first job. The practice could stymie growth for the new crop of companies providing on-demand workers to mop floors, walk dogs, install flat-screen TVs and fix plumbing.
“It is a great way to connect with clients, otherwise you’d have to do your own advertising,” said a San Francisco handyman who finds work through TaskRabbit.
The on-demand companies say this kind of leakage is uncommon.
“We actually don’t see this as a significant issue, and rarely see users take things off-site,” said TaskRabbit spokesman Aaron Gannon. TaskRabbit features, including $1 million insurance, 24/7 customer support and a secure payment system, “must provide enough value for both clients and Taskers to maintain their relationship here,” he said.
But Juliet Schor, a sociology professor at Boston College who studies economic behavior on platforms like TaskRabbit, said her research revealed a different story.
Worker poaching of TaskRabbit customers “is very prevalent,” she said. Workers
told her that they consider the 20 percent commission TaskRabbit collects as a kind of finder’s fee for a first appointment, “but once the relationship with the client is established, they don’t feel like TaskRabbit should take such a high fee.”
Homejoy and Handy said their markets provide incentives for customers and workers to stay put. Amazon did not respond to requests for comment.
Customer incentives
At Handy, CEO and founder Oisin Hanrahan said, “The vast majority of Handy customers are recurring and make multiple bookings through the platform.” He cited incentives for customers such as cashless transactions and easy booking, and pluses for workers such as flexible, consistently available work.
“While disintermediation can happen, it’s rare, as our customers and partners value the many benefits offered by the Homejoy platform,” spokeswoman Nathaly Arriola said.
But the on-demand companies can’t tell when customers hire directly. And a spate of lawsuits from workers seeking to be classified as employees may mean the companies have fewer tools to curtail the practice, since they can’t risk being too controlling of independent contractors.
Meanwhile, rival marketplaces that arrange home services via a different business model said the phenomenon of the middlemen losing repeat business is very real.
“The reason people go around these companies and there is so much leakage is that they haven’t created the right solution for the space,” said Marco Zappacosta, co-founder and CEO of Thumbtack.com, which sees itself as more of a matchmaker. It makes money by charging home-service professionals for client introductions. Customers seeking a carpenter, for instance, answer questions on the site about their specific project. Workers can browse these requests for free and then pay $1.50 to $20 (with a median of $7) to contact the customer directly and bid on the job.
“We don’t believe it’s our role to be the cleaner, plumber or caterer,” he said.
The home-services market is so gargantuan and untapped that the leakage problem may take a while to catch up with the middleman companies, as they can continue finding new customers.
U.S. customers spend anywhere from $500 billion to $1 trillion annually on local services, Zappacosta said.
That’s why a behemoth like Amazon jumped into the market, starting its Home Services late last month. And Google reportedly is preparing it own home-services business — despite having led a $100 million investment round in Thumbtack.
Meeting range of needs
Angie’s List, the grandmommy of the space, started two decades ago as a printed directory and now offers several business models online. Customers can pay annual membership fees for access to its vetted professionals, or can directly buy packaged services of a plumber or window cleaner, or can describe a project and have Angie’s List provide someone to do it.
“Consumers’ desire to go around the system becomes smaller because we have options that meet a range of demands,” said founder Angie Hicks. She pegs the market size as $800 million and says the entry of Amazon and Google validates the space.
Ryan Stewart, president of Stewart Heating, Air and Plumbing, listed services on Angie’s List and Amazon Home Services at a time when plumbing business was slow. He sent out plumbers to do $89 toilet installations, for instance, although the plumbing rate is $140 an hour for people who book directly.
“It gets you into the door of people’s homes,” he said. “It’s a great opportunity if you can retain them as a customer and do more business with them. The service business is a lot about getting repeat business and customer retention.”
‘On your own’
An East Bay handyman walked through the math. “A lot of people who initially hired me through Homejoy have mentioned that they could hire me outside,” he said. Homejoy charges clients $60 an hour for his labor and takes a $25 an hour cut, leaving him with $35 an hour. “When I work directly, I bill people at $40,” he said. “It saves the homeowners money, and I make a little more too.”
He didn’t feel Homejoy’s protections were enough to warrant loyalty. “There’s limited liability (insurance) through the company when working on someone’s home, but you’re pretty much on your own,” he said.
For jobs with lots of hours, almost every single client asked him to work directly, he said. There was just one exception.
“A Homejoy executive asked me to work on his house,” he said. “He didn’t want to hire me directly, but I think he got a discount from the company on their price.”
“The reason people go around these companies and there is so much leakage is that they haven’t created the right solution for the space.” Marco Zappacosta, co-founder and CEO of Thumbtack.com, which sees itself as more of a matchmaker