The Thumbtack Business Model – How Does Thumbtack Make Money?

Executive Summary:

Thumbtack is a platform that matches customers with service professionals from over 1,000 categories like plumbing or renovation.

Thumbtack makes money from service providers who pay for every lead that the company sends them.

Founded in 2008, the company has grown to become one of the leading platforms for facilitating on-demand work. It is currently being valued at $1.7 billion.

What Is Thumbtack?

Thumbtack is an online marketplace that connects local service providers with people in need of those services.

Customers can get matched with a variety of professionals from fields such as handymen, house cleaners, massage therapists, yoga instructors, and dozens more.

The platform is extremely simple to use. First, the client enters the type of job that they would need to be done as well as their ZIP code.

Clients can then choose from a list of contractors that fulfill that request. If needed, the search query can be filtered down by date, number of reviews, price, or the estimated time it would take to complete the job.

Contractors on Thumbtack have their own profiles comprised of verified user reviews as well as their average rating. This allows customers to make more educated decisions about their purchases.

The client and contractor then negotiate on a rate. If they agree to move forward, all contract matters are handled outside of the platform.

Thumbtack also offers a variety of resources to aid clients in their search. For instance, their blog section offers a variety of how-to guides.

Additionally, Thumbtack ensures that the work done is of the highest quality (through its Thumbtack Guarantee program). Customers are given money-back (up to $1,000) as well as property damage guarantees should anything go wrong during the process.

People can access Thumbtack via the firm’s website as well as by downloading its mobile apps (available on Android and iOS devices).

Thumbtack Company History

Thumbtack, headquartered in San Francisco, California, was founded in 2008 by Marco Zappacosta (CEO), Jeremy Tunnell, Jonathan Swanson, and Sander Daniels.

Entrepreneurship is, in all likeliness, running through Zappacosta’s blood. His parents were the co-founders of Logitech, a Swiss-American electronics hardware manufacturer.

As a result, Zappacosta began dabbling in various venture ideas from an early age. His first idea became a pension reform business, which he launched while attending Columbia where he pursued his college degree.

Unfortunately, that business quickly unfolded. His next idea was to build an aggregator for financial accounts. In this case, Mint.com was already offering similar services.

Eventually, during their weekly brainstorming calls, Zappacosta, Tunnell, Swanson, and Daniels began to openly wonder why it was still so hard to hire a plumber. The process involved a ton of calls, noting down quotes, and then hoping that the service is of high quality.

Internet businesses like Citysearch have tried to digitize the service business as early as the 1990s – without much success. Even the advent of companies like Angie’s List and Yelp made the founders feel that there was more to be done in the space.

The team began working on the platform somewhere in 2008. To make it happen, some of its founders quit high-profile jobs (Swanson, for instance, was working for the National Economic Council under George W. Bush). Others, such as Zappacosta, had just graduated college.

They raised a small angel round of funding ($500,000) to survive. In those days, the team was mainly working out of Zappacosta’s childhood home in San Francisco since money was tight. In the first year, they focused on coding the website as well as onboarding service providers on the platform.

thumbtack company history
Wayback Machine

Thumbtack officially launched in late 2009 with close to 10,000 service providers on its platform. To differentiate itself against the likes of Craigslist, all of its providers were personally vetted by the founding team. They, furthermore, conducted background checks to ensure interactions were safe.

Being an online marketplace, Thumbtack’s early efforts were primarily focused on acquiring as many service providers as possible. After all, one of the worst experiences a user can have is that they don’t get a result for their search query – and, as a result, never return.

The team also struggled to find a fitting business model in those early days. They first offered the service for free and then experimented with subscriptions, commissions, and a few more revenue streams until they landed on a winning formula (more on that later).

After almost running out of money, Thumbtack was eventually able to convince venture investors to pour money into the company. Its first ‘official’ round, a $1.2 million seed round, was raised in June 2010 with contributions from Jason Calacanis, Mark Goines, Joshua Schachter, and a few other super angels.

Despite the funding announcement, Thumbtack continued to operate behind the scenes. By June 2013, when the company announced its $12.5 million Series B (led by Sequoia), more than 250,000 service professionals were part of the platform.

In 2014 alone, Thumbtack raised two more rounds of funding worth $30 million (Series C) and $100 million (Series D), respectively. The Series D round was led by no other than Google Capital.

Interestingly enough, a few months after the funding announcement, Google itself launched a similar product. Other tech giants, like Facebook and Amazon (via its Home Services product), launched similar offerings soon after.

Despite the massive increase in competition, Thumbtack’s team remained unfazed. They simply kept focused on growing their supplier base while adding more features to the platform. As opposed to other on-demand platforms like Uber or DoorDash, Thumbtack prided itself in doing everything it could to help its service providers.

For instance, the company invited some of those providers into their own offices to shoot better profile pictures and help them with their sales copy. In February 2019, Thumbtack announced a partnership with Alia, a portable benefits platform, which enabled Thumbtack customers to contribute to their house cleaner’s benefits.

Nevertheless, the firm faced a major setback during the beginning of 2020. Orders in different categories and cities had fallen by over 50 percent due to lockdown measures as a result of COVID-19. Thumbtack had to lay off 250 people from its staff.

Luckily, order volumes eventually rebounded. This even allowed Thumbtack to make its second major acquisition when it bought Setter, a home improvement platform connecting individuals to service professionals via video, for an undisclosed amount.

Today, over 1,000 people are employed by Thumbtack which operates offices in the United States, Canada, and the Philippines.

How Does Thumbtack Make Money?

Thumbtack makes money from service providers who pay for every lead that the company sends them.

Leads are new customers that reach out to a service provider and inquire about a job that needs to be done.

The price for a lead can substantially differ, depending on a variety of factors. These include the type of job requested, geography, existing competition, and more.

Similar to platforms like Google AdWords, service providers on Thumbtack buy credit upfront. This allows them to set up weekly budgets and automatically bid on upcoming projects.

In late 2017, Thumbtack introduced its so-called Instant Match technology, which algorithmically pairs service providers with potential customers.

Prior to that, those business owners had to manually bid on projects that customers uploaded, which oftentimes resulted in missed opportunities (as they weren’t online).

Nevertheless, the automated matching technology has also led to plenty of criticism. Service providers complain that they get matched with leads that are extremely unlikely to convert or, in some cases, too far away to be economically viable.

To that extent, Thumbtack provides a so-called Opportunities section which shows potential leads that competitors engage with but which have not yet converted.

In 2021, Thumbtack launched another feature named Instant Book, which as the name suggests, allows customers to immediately book a service provider they like. The feature is primarily aimed at less complicated jobs.

Thumbtack Funding, Revenue & Valuation

According to Crunchbase, Thumbtack has raised a total of $423.2 million across seven rounds of venture capital funding.

Notable investors include Sequoia Capital, Baillie Gifford, Tiger Global Management, Javelin Venture Partners, CapitalG, and many more.

Thumbtack, according to the firm’s last round of funding (Series F announced in July 2019), is currently valued at $1.7 billion.

As a private company, Thumbtack is not obligated to disclose revenue figures to the public. These will be revealed should it ever decide to go public.

Who Owns Thumbtack?

Again, since Thumbtack is still in private hands, its ownership structure is not being disclosed to the public.

It can be assumed that the founding team still holds a significant number of shares, though. CEO Zappacosta, who is still heavily involved in the day-to-day operations, is most likely the largest private shareholder.

From an institutional perspective, both Javelin Venture Partners as well as Sequoia Capital would likely hold the most shares. Both investment firms led founding rounds and participated in successive rounds.

Viktor

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..