For those of us who follow pricing strategy in two-sided markets, last week was a milestone. Angie’s List, which invented the home services marketplace (in 1995) announced it would drop its “paywall”. The paywall charged buyers to search its directory and reviews before communicating with contractors. Angie’s List will now offer a freemium model for homeowners (buyers) and will continue to offer a freemium model to contractors/service providers.
The Original Angie’s List Business Model
Angie’s list business model from the start was to charge $40 or more for homeowners to access its vaunted reviews. Angie’s list advertised to buyers the credibility of these reviews as what made Angie’s List unique. As with Costco or Consumer Reports, the idea was that the content was so good buyers would pay a membership fee to access it and then transact. For a while it worked okay–though never great. Buyer renewal rates were never outstanding and the business model on the contractor/supplier side has always been ad-based, rather than commerce-based. It was early, so it was a little old-school in that way.
The Beginning of the End
Angie’s problems accelerated when competitors came out of the woodwork (pun intended): Thumbtack, HomeAdvisor, Home Depot, Amazon Home Services, Porch, to name just a few. Making matters worse, these competitors all had a one-sided business model–free to the buyers, only suppliers paid.
Angie’s List had been reducing buyer fees over time as you can see in the chart below. I signed up a couple of weeks ago for just $9.99 for a year. (I should have known that when I finally signed up Angie’s List would announce a change to their business model! I bet I will not get a refund either.)
Over time, the cost to Angie to get buyers on the platform rose, while the value of getting buyers fell (CAC up and LTV down if you like SaaS jargon). And so last week’s announcement represents the end of the buyer “pays to play” model in the home services market.
I’m going to miss the “Gated Community”
Even though the move to eliminate the buyer fee was a long time coming, I was sad to finally see it happen.
Many of the other marketplaces without paywalls are becoming filled with trash:
- Everything on OpenTable and Yelp seems to be 4 stars!
- LinkedIn is filled with quizzes, inside sales reps, and content from Jack Welch (so ’90s).
- Don’t get me started on Facebook.
The contractor who recently did the waterproofing on my basement told me that Angie’s List leads are still by far the best which did not surprise me given the paywall. And their reviews were much better than those elsewhere.
I’m going to miss the “walled garden” that was Angie’s List, but I helped force its demise by not paying to keep it up–and so did my contractor who probably did not pay enough of a premium for Angie’s leads! I hope Angie can now figure out a way to monetize those reviews without ruining the site. I want to live in a gated community, but won’t pay to do so!