Home Depot tries matchmaking business
By Arielle Kass
Cox Newspapers | August 23,2012
ATLANTA — Home Depot is conducting an experiment using a newly acquired online business.
Seeking tighter links with professional contractors in the hopes that they will come to its stores for more supplies, Atlanta-based Home Depot is using the new website to roll out a service that connects people who need improvement work done around their houses with experts who will do it.
Details of the online match-making service vary among the four markets where it’s being launched — Atlanta, San Francisco, Dallas and Austin, Texas. But the idea is to use Redbeacon.com, which Home Depot bought in January, to foster better connections with pros, who make up just 3 percent of Home Depot customers but are responsible for 35 percent of its sales.
“Our hope, plan, desire is that they’ll be more loyal to Home Depot in terms of shopping there,” said Anthony Rodio, Redbeacon’s CEO. “We want to drive pro loyalty through giving them their next job.”
Regardless of the city, Redbeacon works the same way for homeowners, who plug in the specifics of the job they want done and get about three referrals from contractors willing to do it. Redbeacon will do background checks and Home Depot says it stands behind the work, although customers deal directly with the contractors.
Redbeacon.com bears its own logo and does not mention its owner, although Home Depot plans to push the site in some advertising and in-store promotions.
It’s a variation on similar services offered by Angie’s List, which charges consumers a subscription fee, and Kudzu.com, which is free to consumers and lists service providers and customer reviews. Kudzu is owned by Cox Search Inc., a subsidiary of Cox Enterprises, owner of The Atlanta Journal-Constitution.
Redbeacon also is free to consumers, but Home Depot is still figuring out the best way to spur participation on the pro side, where Rodio said the buy-in has been “very positive.”
In Atlanta, contractors can offer quotes through the site for free, but those in Dallas pay a $19.99-a-month subscription to make offers for jobs. In San Francisco, Redbeacon gives pros points for every dollar they spend at Home Depot. The more they spend, the more points they have to bid on jobs. In Austin, the company is considering a model that combines the paid and points systems, lowering the cost of using the site as more points are accrued.
Redbeacon has yet to decide which system will be rolled out broadly.
Except in the points models, contractors who use Redbeacon have no obligation to spend money at Home Depot in exchange for using the service. But Rodio said the hope is that by providing contractors with their next job, Home Depot will engender loyalty among pros, who will do more shopping at its stores.
“Our desire would be to give this away on the pro side if it led to the behavior we wanted,” Rodio said. “If we get more share of their wallet, it’s better for the company.”
Though Redbeacon is small, and its four-city roll-out will not leave a huge mark on Home Depot’s bottom line, the eventual payoff to the company could be larger. In addition to simply buying Redbeacon, Home Depot gained the Silicon Valley expertise of its leaders, and the infrastructure to expand the program nationwide, said Wayne Hood, managing director for equity research at BMO Capital Markets.
“Logically, it makes sense,” he said. “It has the potential to be bigger.”
The Redbeacon experiment connects several elements that Home Depot has been working to improve. In addition to its push to get pros shopping at the store more often -- now, they stop in to Home Depot roughly 60 times a year, or 15 times more frequently than an average DIYer -- the company is updating its website and mobile shopping options, and improving its approach to e-commerce.
Online sales make up less than 2 percent of Home Depot’s total sales, but the company sees opportunities to grow those numbers. Redbeacon could strengthen Home Depot’s position online, said Peter Wahlstrom, a senior analyst with Morningstar Investment Research, though it could take years before the impact is visible.
Wahlstrom said he thinks Home Depot can win more loyal pro shoppers with the service. Redbeacon will benefit as shoppers are introduced to the site when they come in to Home Depot, and as more people use it, contractors will have more success on it.
The business of matching contractors to potential customers is huge, said Cheryl Reed, a spokeswoman for Angie’s List. In 2010, according to an Angie’s List filing, customers spent more than $400 billion on service providers that included remodeling and furniture and appliance repair. Reed said the amount of activity on Angie’s List related to home improvement has recently increased. The company lost $36.8 million in the first half of the year, vs. a loss of $25.8 million in the same period of 2011.
“Clearly, there’s always been this need to put together homeowners who need help with good service providers,” Reed said.
Even if Home Depot’s Redbeacon foray increases pro spending by a small amount, the impact can be tremendous because of the amount those customers have the potential to spend, Wahlstrom said.
Zahid Siddique, a research analyst with Gabelli & Co., said he doesn’t think the acquisition will be transformational. But he said Redbeacon could be effective as a marketing tool, and a way to increase foot traffic at stores.
Hood, with BMO Capital Markets, said while the impact will be small at the start, it has the potential to be much bigger.
“They’re throwing it up on a wall to see what sticks, what’s working,” he said. “It’s like going down to Georgia Tech in a lab, and seeing what comes out.”