Enough has been written (and spoken) about $ANGI and I would let you read it at the below blogs.
- Yet Another Value Blog (First, Second, Third)
- MIndset Value (First, Second)
- Invest like the best (podcast)
My main interest with this post is to address the question of whether a platform/aggregator makes sense here and address the main controversies.
I am a little late in writing this as it got pushed behind while I had to work on something else. But I am still publishing it, even if it is just for me putting down thoughts for my own reference.
A platform that brokers trust
Typical HomeServices are not something that you require every week or every month. Per $ANGI, a household uses such services 6-8 a year and typically spends $2,000 per job. I do not live in the US or in a house, so that already sounds too much for me. But let’s put my experience aside and assume this is so.
Even if a house requires these services 6-8 times a year, it is unlikely it is the same service every time. This means that at most, a household uses a service provider once a year. This means there is little opportunity for a relationship to develop or repeat business, that is assuming the service was good. Still, if you are old school, like me, perhaps you take their number so that you can use their services off the platform and that’s ANGI’s loss. If that is the case, ANGI loses some business. But, because you found the service professional on the platform, you use the platform for other services. You might even tell a few other friends about it. At this point when ANGI barely penetrates 4% of the market, these viral effects probably offset or outweigh any leakage of business. Longer-term, I think that the leakage will reduce due to generational behavior changes and the fixed price business model.
One proof in favor of that is the house cleaning business, Handy, where there is more repeat business and the leakage should be high. Yet, Handy continues to do well. COVID of course has been a supply disruption (not many people wanted to have a member of another household in their house), but even that is now behind us with demand coming back to 2019 levels (I am using the search trends as a proxy for demand).
The fixed price offer is a very interesting model because it makes $ANGI own the customer relationship. ANGI (like uber) today becomes the face of the service, not the service provider. Just like you uber a ride, at some point in the future, you might “angi a service”. While someone may argue that this means the SP has lost the customer relationship, and are perhaps commoditized (their brands surely are), it also improves their productivity, discourages transactional behaviour, and incentivizes good quality workmanship.
Of course, there is some risk here because that platform takes “reputation risk”. Poor workmanship reflects poorly on the platform if you commoditize your supply. This is clearly something to watch out for. However, selective onboarding (based on the quality of work) and leveraging existing data should help ANGI price that risks well enough to balance – owning the customer relationship vs the risk of rework.
Another thought worth considering is that most business models that moved from marketplace to “taking risk” have been well rewarded by the market, mostly for a better customer experience they product. (Case in point – Zillow, OpenDoor)
Supply is unlikely the bottleneck
This is one of the bear arguments that there is a limited supply of service providers, plumbers really. This is unlikely a constraint for a platform that is only 5% penetrated in its market. In fact, online penetration of home services is 10-20%, i.e. 80% of the market is offline. Moreover, the supply bottleneck is mostly cited for plumbers, who are just one of the types of service professionals on the platform.
The controversy is best illustrated by the gap below! This chart is amazing because you can make it mean there is excess demand or you can make it to mean there is poor supply.
Currently, of course, there is a supply disruption due to COVID, but I don’t think it is a scarcity of service professionals. The gap didn’t exist in its current state prior to COVID.
In my view, for ANGI, the real bottleneck is not the availability of supply, it is the physical and time-consuming effort of signing the service professionals up to the platform. ANGI is still under 10% penetrated. For them, it is a story of taking share from offline. They are such a tiny part of the market that the supply constraints of the overall market shouldn’t affect them.
Perhaps, the service providers are a) not very technology savvy, b) too busy to answer the phone, or c) not interested in paying a 10% take rate to ANGI. Now either of them is reasonable possibilities, but these are issues a business can solve. It just takes a lot of time to sign up supply and that is the nature of the market.
There is possibly an opportunity in ANGI today because the answer is likely a combination of all that has been written. Also, it reflects the difficulty of creating an aggregator in this hyper-local market with multiple service options. This means liquidity is not built overnight, it is built one city at a time. While painful and time-consuming, it is also a very strong moat if they were to succeed.
I will stop here, but happy to discuss this below.