$20 an hour. That’s the price of a HomeJoy housekeeping professional. How big can the market for these services reasonable grow? Will these on-demand companies grow without taking a major bite of the approximately $8.5 billion in revenue from the industries that provide housekeeping services today?

Using the methodology explained in our first Local On-Demand Economy market posting, which examined the market for unpaid household work that is currently performed by the householder, we estimate that the Housekeeping Services vertical represents $57.8 billion in addressable revenue in 2015. The growth of this market depends on increasing homeowners’ and renters’ ability to earn income from some of the labor they do to support their home while spending to have others do household work they want to avoid.

By lowering overhead using digital logistics to match housekeepers and clients, as well as to collect feedback about the customer and worker’s experience, HomeJoy hopes to prosper as less agile companies flounder in employee costs that the San Francisco-based LODE company eschews. This flexibility comes at a cost, as HomeJoy has much more limited control over individual cleaners that contract with it than a firm like Merry Maids, where uniforms and policies are enforced as part of the employment agreement. Regulatory changes at the municipal, state and federal levels will be necessary to resolve the ongoing questions about the legal status of a “1099 worker” with regard to their obligations to uphold corporate standards, but for the sake of this analysis we will simply point out that brand experience will turn on the on-demand company’s ability to engage laborers in delivering a consistent customer experience.

The Housekeeping Services Industry
Housekeeping services are lumped into a variety of labor categories, including janitorial services and traveler accommodations, by the Bureau of Labor Statistics. As of May 2014, more than 70 percent of “maids” worked in hotels, motels and medical facilities. Approximately 260,000 housekeepers work in the home services market and drive approximately $8.5 billion in revenue for themselves, their franchise or housekeeping company. The median hourly wage for a maid in the United States is $9.67 an hour, and the top 10 percent of earners bring in $15.74 an hour.

Existing housekeeping and services companies, such as ServiceMaster’s Merry Maids as well as the Molly Maids franchises, are long-established players who see an emerging fight for their lives as on-demand companies revise the economics of service delivery. The result will likely be the transition of all these companies to on-demand labor models over the next few years, as 86-year-old ServiceMaster has in Europe, where it has launched on-demand home cleaning. However, these on-demand services will compete with their existing franchisees, leading to potentially declining overall revenue. ServiceMaster reported declining revenue in 2014 in its Franchise Services Group, where Merry Maids revenue is reported, of $253 million, down 2.4 percent year-over-year. The trend continued in Q1 2015, when ServiceMaster reported an additional 1.9 percent year-over-year decline in quarterly revenue.

Existing home and commercial services businesses have combined far-flung service businesses to establish their profitable foundations. ServiceMaster, for example, provides home security and insect/pest control services through its American Home Shield and Terminix groups. We anticipate that each of these services can stand on their own in the on-demand market, if the provider masters the infrastructure, marketing and engagement challenges involved.

At $12 to $15 an hour, HomeJoy’s compensation is comparable to the employee-based model of the traditional housekeeping business and slightly higher than the median hourly wage for maids reported by PayScale, $10.73 an hour. These figures suggest HomeJoy runs a topline margin of about 40 percent, higher than the average on-demand company margins at, for example, Uber. This will enable HomeJoy to concentrate on quality experience, which is the keystone to building a competitive offering and growing its market.

Based on our model, the housekeeping industry has converted only 14.7 percent of the addressable market in 2015 — that is, the people who can access and afford on-demand housekeeping services. There is plenty of room for growth, but much of that growth is predicated on the exchange of on-demand labor among household laborers, not simply the existing housekeeping market.

Table stakes
HomeJoy, which has acquired one company, GetMaid, is purportedly in discussions about a merger with Handy. Both companies have anted up to play at the consolidation game, bringing strong logistical and demand-generation tools to potential business relationships. The enduring question for all LODE companies will be “How many services make a minimum viable offering?”

Based on the early M&A activity in the pure-play housekeeping business, which has attracted between $240 million and $290 million in venture investments, it is clear that the appropriate mix of services that will attract both sufficient labor interest and customer attention is still to be discovered. Thumbtack, which also offers cleaning and assistant-like services for the home, reaches far beyond the cleaning category, offering plumbing and yard services, among others may be better prepared to win the share of customer necessary to grow. A combination of HomeJoy and Handy, should it come to pass, would compete more directly with Thumbtack.

But then there is the specter of Amazon Home Services, which promises a wide variety of vetted in-home services and already delivers more goods to directly to American home than any other online source. The bet by Amazon is simple: They can transform consumer attention to products around the house into services revenue related to delivering and using those products, as well as services that were previously found through the paper and online directories. Amazon’s primary competition for labor will likely be the directories and marketing services companies seeking to aggregate services businesses, such as TalkLocal, ReachLocal, as well as individual businesses competing through tools such as BreezeWorks, FreshLime and the recently announced Prompt.ly.

We anticipate intense consolidation by home services companies seeking to find the ideal mix of services and market reach. With the transition to on-demand labor, which we view as a logical and inevitable consequence of network technology, automation and organizational change, existing home services companies will face tremendous margin pressure and a few will certainly die, but none is assured to die from the competition coming from LODE startups. There is ample upside available if the LODE scenario leads to higher incomes for household workers.

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Retail SMBs are more poised than their counterparts in other verticals to adopt sophisticated digital advertising and marketing. This is clearly shown by BIA/Kelsey’s Local Commerce Monitor ™ (Wave 18) survey of small businesses.

Retail SMBs are already highly oriented to digital media, with plans to spend 43 percent of their total ad budget on digital media in the next 12 months*. They rank social media marketing, SEM/SEO and email marketing as their top priorities for advertising and promotion in the next 12 months*.

There are multiple signals in the LCM data that we think point to big expansion into digital by Retail SMBs:

— They’re experienced in maintaining customer lists, with 71 percent having maintained a customer list for over a year. With 61 percent of their customer lists  in digital form, they’re well positioned to move into marketing automation services like CRM (where they’re still at a low utilization level of 21 percent).

— They’re big users of ecommerce, with 90 percent reporting ecommerce sales.

— They’re highly satisfied with the mobile advertising they’ve done so far, reporting high ROIs — although usage of mobile advertising and marketing is still modest.

— They’re big on customer loyalty programs, which are used by 43 percent of SMB retailers. Since only 30 percent of these programs have been digitized, we believe this too represents another growth opportunity.

— They’ve registered an interest in many advertising and marketing services, particularly ecommerce services, online satisfaction surveys, email marketing, and online leads management.

In sum, we believe local retailers will be upping their digital game on multiple fronts in the near term. Since they’re such a staple of their communities, this shift will reinforce the broad and rapid digitization of daily life.

*The 12 month period following the Local Commerce Monitor Wave 18 survey, conduced in Q3, 2014.

These were a few of the top-level findings of the latest cut of LCM 18, focusing on SMBs in the Retail vertical. Clients of BIA/Kelsey can access this report through our client portal. The report is also available for purchase, and more information on the LCM survey is here.

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SMBs in the entertainment vertical love video advertising. We’re talking movie theaters, event venues, catering, on-demand performers*, etc.. As is conducive to their craft, they’re big fans of online video, particularly website and YouTube videos. They’re also big on cable and broadcast TV.

This is according to BIA/Kelsey’s latest cut of SMB survey data (information below). On average, these Entertainment SMBs spend 12 percent of ad budget on video, much more than overall SMBs. When applied to their high ad spending, this notably produces an average annual video spend of $4,000.

This class of SMBs are also heavy users of social media of all types, and have a high interest level in advertising and marketing services. This is the wrap: Entertainment SMBs are good prospects for video and social media products. They use a lot, spend a lot, and they have their antennas out.

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These were a few of the top-level findings of the latest cut of LCM 18, focusing on SMBs in the Entertainment vertical. Clients of BIA/Kelsey can access this report through our client portal. The report is also available for purchase, and more information on the LCM survey is here.

*SMBs in Entertainment is a roll-up category that includes: Restaurants, Bars, Hospitality (Catering/Hotel), Music, and Entertainment – miscellaneous.

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Automotive will drive $15.13 billion in local advertising in 2015. That’s according to BIA/Kelsey’s 2015 Insights into Local Advertising report released today.

The Automotive industry, which has returned to strong growth on improved economic conditions, low fuel prices and the largely unanticipated transportation needs of Millennials, who have become the largest car-buying generational cadre in the past year. We project the segment will continue to grow at a three-percent compound annual rate through 2019.

The Automotive category includes: 1. Auto dealers & manufacturers 2. Other motor vehicle dealers 3. Auto parts & accessory stores 4. Tire dealers 5. Gas stations & auto repair. Collectively, these auto segments account for 11.1 percent of all local advertising in the United States.

Car and light-truck advertising remains heavily dependent on television advertising, with 33.9 percent of local ad spend going to television. However, digital advertising is the sole growth category in automotive, increasing by 12 percent annually. BIA/Kelsey estimates that digital, which represented $2.78 billion in local spending in 2015, will account for 30 percent of automotive advertising by 2019. All of the anticipated $2.3 billion in market growth over the next five years will come in digital channels.

The report also examines the growing importance of Millennials to automotive industry growth, despite their long-reported indifference to driving. As they age into parenthood, Millennials are buying more cars than any other generation and can be expected to drive the industry’s transition to low- or no-carbon emissions and digital in-car entertainment and marketing.

“The auto industry and television came of age together as keystones of Twentieth-Century American culture,” said Dr. Mark Fratrik, report co-author, senior vice president and chief economist at BIA/Kelsey. “The two industries remain closely tied, with the auto industry being dependent on over-the-air television advertising, and all auto vertical subcategories relying heavily on traditional media to get their message to their audience. Looking forward though, digital is going to be very important by 2019, representing nearly one-third of automotive local ad spending.”

We also offer our guidance on preparing to use vehicle-generated data and in-dash displays, mobile and PC marketing, which will be responsible for much of the digital growth as the fleet turns over to a generation of digital-enabled cars and trucks. Location, personalization and programmatic advertising will be critical to connecting the in-car experience to marketing messages.

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The report is available for purchase in the BIA/Kelsey store. Advisory clients with portal access can login to download the report.

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Not only are SMBs in the Professional Services vertical heavy users of Social Media for advertising and promotion, they are highly engaged on social media, according to LCM. 3/4 reported that they track “likes” in social media, while 57.4% monitor customer comments online.

There is a big opportunity with this group to offer CRM solutions because Professional Services SMBs stay connected with their customers but only 20% say they use a CRM system. 88.0% have maintained a customer list for a year or more, while an additional 6.4% have maintained a customer list for less than a year.

The full report can be viewed and downloaded by clients of BIA/Kelsey here. This report is one of a series of drill-down reports on the findings from Wave 18 of BIA/Kelsey’s Local Commerce Monitor? survey. In the coming weeks we will be looking at SMBs by additional vertical categories. Our Home and Trade Services SMB report is already available. To learn more about our LCM survey of small and medium-sized businesses, click here.

Click here to purchase the Professional Services SMBs — LCM Wave 18. To purchase any of our other Local Commerce Monitor drill-down reports, check out our new BIA/Kelsey Shop.

*Professional Services vertical includes consulting, legal, architecture, and computer software. Financial Services SMBs are not included, but will be profiled in their own vertical report.

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The local on-demand economy (LODE) was the largest recipient of VC funding in 2014. And you can’t throw a stone in the tech blogosphere these days without hitting scores of daily posts about milestones or new funding rounds for LODE startups. We’re even doing a full conference on the topic.

As explored in our LODE white paper, its unit economics, supply chain compression and other advantages are growing into every vertical imaginable. This “uberfication” as its known is taking over everything from drug delivery to doggie day care. See our “LODE verticals” conference session.

But in addition to moving laterally across local service verticals, it’s also making an interesting move up the ladder. In other words, it’s not just for driving and dry cleaning, but it’s beginning to apply to higher-end professional services like designers, doctors and lawyers.

Lawyer Up

The latter is where Avvo lives. For a flat $39 you get 15 minutes with a lawyer to ask them anything. So I decided to try it. After choosing my legal category, I got a confirmation that a lawyer would be calling. Within 2 minutes my phone rang… bonus points for speediness at 5:45 pm on a Friday.

I can’t legally discuss the content of the call, but I can say that it was a good substitution for typical legal consultations that are more costly and time consuming. Though limiting, 15 minutes allows you to ask questions to determine if and what type of legal firepower you might need longer term.

Sometimes the answer is none, or very little and this is a cheap way to find that out. The 15 minutes can also be spent going deeper if the caller is inclined. Bottom line, it’s a good first step in any legal matter and the price is right considering that an hour with a lawyer is usually $300 – $400.

What Avvo has essentially done is brought the LODE model of monetizing remnant inventory to legal. Lawyers have pockets of unmonetized time throughout their day, but it’s not worth their while to schedule those smaller chunks, due to the fixed costs of their time, scheduling and overhead.

But a low-friction tool that lets them deploy that time easily has resonated with Avvo’s extensive network. And because Avvo takes care of the customer acquisition, scheduling and billing, lawyers are willing to charge much less than their standard rates. It’s textbook LODE.

Anything for Hire

Panning back, this shift to higher-end professionals will not only expand LODE from a user perspective but from a provider perspective. As is the case with any two sided marketplace, both need to grow in-step. And it usually starts with the supply side (i.e. enough Uber drivers).

Professional services will be no different. There will need to be adequate supply to reach network effect — a challenge heightened by the fragmentation in areas of specialty (maritime law anyone?). Aggregating supply and creating liquidity will be the name of the game for Avvo and others.

Meanwhile the shift to higher-end professions is underway, which will have wider reaching societal impact in what’s become known as the “1099 economy.” LODE’s overall opportunity grows as the model expands both vertically and horizontally. As we examined in our recent white paper:

High unemployment has created a steady supply of service providers to fill the ranks of LODE’s workforce. Millennials — in addition to being avid consumers of LODE services — also possess work habits that are conducive to the flexibility that LODE service providers enjoy. These factors will further accelerate as LODE services move up market to higher-end professions, such as professional, creative and technical fields.

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Brand advertisers find that striking a balance between traditional and digital media advertising is key to their success at the local level.

During a panel at BIA/Kelsey NATIONAL in Dallas today, brand marketers from across different business categories described on how they manage their localized marketing and advertising activities. The conversation focused on the unique challenges that emerge when blending efforts to gain new customers with promoting brand awareness. In Short: customer acquisition is a common theme for service-oriented businesses, brand awareness is a secondary concern.

Driving more customers to local businesses is the most important goal, said Dave Moody, Director of Field Marketing at Service Experts Heating & Air Conditioning. Online marketing is only as useful as the actual revenue it drives back to local service branches, he said. “A click doesn’t mean much to me. The end goal for us is to get into a customer’s home, and we’ve worked on our SEO and search marketing efforts to drive more calls and requests for appointments.”

Service Experts has shifted their online strategy from search marketing (SEM) spending to direct-response offerings.

“We’re not paying for a lot of ads, we’re more invested in a pay-per-call advertising, including yellow pages and direct mail,” Moody said. That sentiment was echoed by Keith Dailey, Director of Internet Marketing for UniGroup, the parent company of United Van Lines. He added that in addition to creating a channel for driving more leads to local locations, an objective that guides marketing strategy for UniGroup is ensuring that location listings are consistently maintained and always accurate.

UniGroup works with an outside agency to manage the hundreds of local United Van Lines branches across the country, as well as managing where listings information appears online.

“We work with an agency to manage our listings across the board,” Daily said. “The majority of UniGroup’s listing management is automated, but they run into [data and customer preference] inconsistencies that drive the need to make manual changes on the fly.” He added that the need to manage listings manually is driven by where they are hosted: “It also depends on where the listings are located — some services like FourSquare and Yelp require more manual review to ensure accuracy and consistency.”

When asked about whether digital marketing accounts for the majority of their companies’ focus, all the panelists noted that they still rely on a mix of traditional and digital media. There was general agreement that the combination of old and new media drives the most impactful ROI for their brands. For Service Experts, the split leads to 35 percent to 40 percent of marketing spend going to digital, with the remainder focused on traditional pay-per-call offerings like direct mail and the yellow pages.

One brand advertiser offered a very different perspective from the service-oriented companies on stage. Brooks Brothers, a global retailer of men’s and women’s clothing, noted that for their business SEO drives brand awareness and e-commerce engagement. The company, which celebrated their 197th anniversary this year, has established a digital brand that is well known across markets, and it focuses their marketing efforts on keeping their brand top of mind with its consumer base online.

Mike Walker, SEO Specialist for Brooks Brothers, noted that a unique challenge his company faces relates to how it markets their multiple sub-brands, such as the recently launched Black Fleece. Using digital channels, Brooks Brothers aims for brand segmentation even in markets where the core Black Fleece audience is nearly the same as their Brooks Brothers brand.

“From an SEO standpoint it can be a challenge,” Walker said. “We offer a similar product across our entire Black Fleece sub-brand that we offer within our primary brand, and it lends to our brands almost competing with each other.” He noted that when managing multiple brands in a single market, cannibalization of audience share has to be constantly monitored.

The conversation was one of many that will take place this week at BIA/Kelsey NATIONAL, with more brand advertisers, their vendors and marketers scheduled to talk about the current state of marketing at the local level.

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Interestingly, traditional local media has a disproportionate share of 2015 spending (87.2 percent). Yet, the online/digital local will grow substantially in the next few years, reaching 20 percent by 2019. This online/digital will be with pure plays, as well as the traditional media that have expanded their services and see the opportunities with this group of advertisers. These health care providers will be extremely interested in greater integration of digital marketing services.

More information on this vertical advertising spending is now available in the recently released report, Insights in Local Advertising – Health Care Vertical, which examines traditional and digital spending trends, profiles the market ad share by media, and details the advertising trends of small and medium-sized businesses (SMBs).

To read the executive summary of this report, just click on “Insights in Local Advertising – Health Care Vertical.“

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Yelp is acquiring Eat24, the online delivery and pickup service that competes with GrubHub, Delivery.com and other national and regional players for order-taking, food search and discovery. The service is being acquired for the equivalent of $134 million ($75 million in cash and 1.4 million Class A shares).

Eat24 currently provides menus, order-taking and tracking services for more than 20,000 restaurants in 1,500 cities — 10,000 fewer than GrubHub. Like GrubHub, its revenue model is based on commissions (industry standards are typically 10-12 percent per order.) The service is free to the consumer, although restaurants can charge their own delivery fees.

The service is largely dependent on customer pick up at restaurant locations, but delivery is becoming a larger factor. In several California cities, for instance, Eat24 will soon be providing delivery via SideCar, the shared-car service.

Founded in 2008, Eat24 has been integrated with Yelp’s mobile app since 2013. By bringing Eat24 in-house, Yelp can strengthen its platform of services, which have grown beyond advertising and now includes scheduling, reservations/booking and offers. Yelp reports that it has over 93,000 active local accounts.

While Eat24 currently lags behind GrubHub, online delivery is still a nascent category. Moreover, it is ripe for cross-over activity with other food-related segments, including rating/reviews (i.e Yelp and Zomato, which just acquired IAC’s UrbanSpoon); online reservations (i.e. Priceline’s OpenTable); and eventually even grocery delivery (i.e. Amazon, WalMart and Google.)

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A sea change in home repair habits is occurring, as consumer segments begin to shift from Do It Yourself to Do it For Me models where people are seeking professionals to do everything from changing light bulbs to building decks. As Home Depot Silicon Valley head Anthony Roddio noted at our ILM 2014 event in December, “The market is ripe but no one is there yet.”

To date, Angie’s List and HomeAdvisor (formerly ServiceMagic) have been the ones to beat in the home repair online marketplace. But relative newcomers such as Home Depot (Red Beacon), Pro.com, Handy, HomeJoy, Serviz and Thumbtack are also revving it up. Looming in the background are skunkworks from giant “directory” players such as Amazon.

Home Advisor and Serviz have recently talked to us about their respective approaches. In fact, HomeAdvisor has just formally announced its entry into on demand scheduling for contractors; a new model that will complement its traditional model of providing several referrals in which consumers have to pick and choose, schedule and call themselves.

To HomeAdvisor CEO Chris Terrill, the demand for scheduling vetted professionals at pre-set prices is something that may develop over a period of time. It won’t cause a sudden change in business models. But it will serve two key functions: attracting new customers outside of the company’s traditional 35-60 year old customer set; and begin the process of repositioning the company as a comprehensive provider of information and services for home repair.

“We are building a robust marketplace,” he says. “We have tools that work for pros. If pros want to pay the company to book services for them, fine. If they want to pay for advertising, fine.”

Terrill notes that On Demand scheduling has been in a test mode in several cities. It will now be rolled out nationwide, but won’t receive dedicated marketing – at least, at first. It will mostly remain under the radar in pilot/learn model for three or four months. “We’ll expose people to it as they come in,” he says.

He also expresses confidence that the company’s ability to scale scheduled services will prove to be its ace in the hole. As a longtime leader in the space, HomeAdvisor has the most robust cost guide with real prices for each geo market, he said . It is not survey data. We do it at scale. A lot of people are introducing similar services, but they are not very satisfactory because they can’t meet the demands in each market, he says.

Serviz CEO Zorik Gordon — who formerly served as CEO of ReachLocal — notes that his focus is entirely on creative on demand home services, rather than a marketplace.Serviz, which has 20 plus employees at headquarters, in addition to about 100 technicians, has recently raised a $12.5 Million Series B equity financing round led by PointGuard Ventures.  With the money, Serviz will expand beyond its five core categories. More critically, it will also expand its operations beyond its home base of the Los Angeles and Orange County markets.

The key to its success will be to provide super-efficient, mobile-based services that allow booking and buying to be completed in 30 seconds, says Gordon. Another key: focus on the transparency of pricing, enabling independents to lower their pricing for high-end services in return for more business. Under the Serviz model, Gordon claims that all prices are “substantially lower” than existing home service companies.

“We are taking an Amazon-like approach of being a real price disruptor,” says Gordon. “We are building a horizontal platform around higher end home services such as HVAC and electrical work.”

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