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The Local On Demand Economy. Who's making money in local? Where's the money going?

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I have been around local, a long long time, and there is a fundamental question that has been bothering me – who’ s making money in local? It used to be easy to answer this question - consumers used the newspapers and yellow pages to find local businesses.  Margins were monopoly like and the newspapers and yellow pages were printing cash in the billions.  Today consumers have a plethora of choices from Google to Yelp and increasingly verticalised mobile first on demand local services.  Investors are pouring in.  Thumbtack and Porch have raised $100M+; Handy $60M; Washio $17M; DogVacay $47M.  And now Amazon, Google and newbies such as Curbside are trying to figure out the last mile of same day home delivery and pickup.  Integrated local marketing agencies such as ReachLocal, Yodle, Web and Godaddy are fighting for the small local SMB marketing wallets.  So who is really making the money today and who will make it tomorrow?

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The Local On Demand Economy. Who's making money in local? Where's the money going?

  1. 1. The local landscape Who’s making money in local? Where’s the money going?
  2. 2. Simon Greenman CEO ServiceMagic Europe London / Luxembourg • Career highlights: • CEO, ServiceMagic Europe • MD Online, European Directories • Head of Digital, Dex Media & R.H. Donnelley • Co-founded MapQuest.com • Also held positions or consulted with Accenture, AOL, Charles Schwab, Merkel Direct Marketing. • Investing: – Advisor and former Venture Partner DN Capital – Angel investor and director 20+ years of international local digital management and investment
  3. 3. So many new companies in local. But who’s making money? Courtesy BIA / Kelsey
  4. 4. Where’s the money gone? The precipitous decline of the yellow pages in just six years… 2006 • $12B revenue • $6B ebitda • 10x EV / EBITDA http://www.prnewswire.com/news-releases/worldwide-yellow-pages-revenues-surpass- 31-billion-latest-simba-market-research-says-58546972.htmll various Kelsey research 2012 • $6B revenue • $2B ebitda • 1.75x EV / EBITDA
  5. 5. 2000s Online Directories 1990s Print Directories The past ten+ years consumers have moved to new online directories and increasingly vertical directories and services
  6. 6. 2000s Marketing services agencies 1990s Print Directories SMEs have many new choices for their marketing needs…the rise of the integrated digital marketing agencies.
  7. 7. 2014 revenues of $544M, +10.5% YoY Operating income +$9M GM 51% 2014 revenues of $475M, -8% YoY Operating income - $45M GM 43% ReachLocal and Web.com are $0.5B revenue marketing services companies, but little money
  8. 8. 2013 $160M +22% YoY revenues and -$13M operating income…2014 growth accelerating 30%+ Go Daddy is a billion dollar revenue company and Yodle is likely $200M+. But still no profits. 2013 $1.1B +15% YoY revenues and operating income of -$200M Vs - $279M in ‘12
  9. 9. 2014 revenues of $315, +28% YoY Operating income -$12M vs -$33M PY GM 83% 2014 revenues of $378M, +62% YoY Operating income -$9.2M vs -$19M PY GM 89% So what about the new consumer directories? Are they just about to starting make lots of money?
  10. 10. 2014 H1 revenues £70M, 60%+ YoY Operating income £16M Operating margin 22% HomeAdvisor is a $200M+ revenue business, profitable and growing 20%+ YoY* 2013 revenues of $190M, +18% YoY Operating income $46M vs $37M PY Operating margin 25% But there are a few vertical starting to make serious money. OpenTable has 25%+ margins and was acquired by Priceline. 2014 revenues £238M Operating income £100M Operating margin 42% IAC Q4 ’14 earnings announcement
  11. 11. So who’s really making the money in local? • In 2014 Google had total of $62B in revenue, growing 20% YoY • Operating income of $16.5B • Gross margin of 62% • And how much of this is local? – Todd Rowe heads up Google’s $5B reseller channel focused on SMBs across 25 countries – So could argue they are making as much as $3B in SME profit globally • And Google has minimal sales costs! Others pay for the sales channel. • And don’t forget the yellow pages. • Nor Facebook.
  12. 12. Good margin lead generation High margin transacting verticals High margin search & directory Low margin marketing agencies So how do you make money in local? Need scale…get vertical, get the transaction and own the branded media Vertical and Transaction Horizontal and No Transaction Don’t own the consumer Own the consumer brand “Picks & Shovels” – margin at scale?
  13. 13. OpenTable and JustEat points to the future of where the money is going…the “uberfication of the world” Yesterday Based on ppt from @schlaf and RRE Ventures The value chain is being dis-intermediated and reassembled by the on-demand economy Tomorrow
  14. 14. Everything seems to being “uberfied” at the moment Transportation, dining, delivery, events, home services, healthy & beauty, food, travel…Everything On Demand Steve Schlafman, Principal Transportation Health & BeautyDining + Drinks Delivery & Logistics Food & BeverageHome Services Travel / Hospitality Events
  15. 15. The money is pouring into the On Demand Economy (ODE)! • “Instant, pervasive access to goods and services without the burden of ownership or long-term commitment” http://www.slideshare.net/ZachNoorani/2014-ode-report
  16. 16. Uber has raised $5.9B at a $40B+ valuation. Airbnb has raised $0.8b at $13B valuation. • These companies are only five years old but yet have massive international scale and valuations.
  17. 17. In 2013 $1B+ invested in car services alone. And in 2014 Uber raised $3B and in 2015 alone $1B. http://www.slideshare.net/ZachNoorani/2014-ode-report
  18. 18. Home Services marketplaces are really hot…$100Ms invested in new names… • Thumbtack has raised $148,200,000 including Google Ventures. Why? Porch raised $100M.
  19. 19. And Serviz has raised $20M to go beyond the marketplace to its own “fair price” network of tradesmen
  20. 20. HomeServices is being sliced and diced into verticals, with the cleaning vertical raising $100M+ Handy has raised $45,700,000 in four rounds
  21. 21. And want someone to look after your dog? DogVacay has raised $67,000,000…
  22. 22. And can’t be bothered to do your laundry Washio has raised $16,800,000
  23. 23. The ODE economy is happening not just in America! • UrbanMassage is offering massages brought to your home in London • Many ODE companies in Germany – Quandoo just bought for $219M, Book a Tiger…
  24. 24. If its bookable online its getting money! Booker has raised $77,000,000 in just one round!
  25. 25. You will never have to leave your home again! • Can book pretty much any local service or product! http://www.slideshare.net/ZachNoorani/2014-ode-report
  26. 26. So where’s the money going? • The race is on for the On Demand Economy – first mover advantage exists • Google is concerned that the front door to local is no longer its search, but the app (and Amazon) • If you are going to make really good money, you need to ensure you scale really fast… – Get lots of investment! – Get branded! – Get into that transaction!
  27. 27. Questions

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