Photo: Bob Oliver / Getty Images
Angie’s List purports to be a membership-driven site but in reality it’s an advertising business, and that, it turns out, is why it doesn’t make money, and won’t anytime soon.
Before it went public on Nov. 17, Angie’s spent $48 million on marketing, of which $35 million was on national TV ads, according to its S-1 filing with the SEC. That makes Angie’s a fairly big hitter in the U.S. ad business. The problem is that Angie’s only took in $24 million in consumer membership fees as a result — not enough to cover its outlay.
Angie’s also sells advertising to the plumbers, electricians and handymen who want to get customers from the site. The company made $38 million from those sales so far this year. Its selling costs — the cost of a call centre full of sales persons pitching merchants for new business — was $22 million in the same period. (Those costs are rising, too, but at least Angie’s spends less than it makes to acquire new merchants.)
All that suggests Angie’s might be better off if it abandoned its unprofitable membership side and made its site free, and then simply sold ads to plumbers. But that is not what the company is doing. Instead, marketing and selling are founder Angie Hicks’ two main operating costs and they are killing the company. Here’s a chart showing Angie’s recent revenues vs. its total operating expenses, and its marketing and selling costs:
Note that the total costs are rising faster than Angie’s revenues. That’s a bad sign. Note also that marketing costs are accelerating faster than revenues — Angie’s is having to step harder and harder on the gas to get its growth. The trend is long-term, too:
Photo: Angie’s List Blog
That’s why Angie’s cost to acquire each new member was just $77 in 2008 and is $86 now (see page 9 of the S-1). This is especially bad news because founder Angie Hicks’ other costs have held steady.Angie’s actually warns that its business model is currently dysfunctional on page 4 of the S-1:
“We have incurred net losses since inception, and we expect to continue to incur net losses as we continue to invest aggressively to grow and penetrate our markets.”
What Angie’s doesn’t disclose is its plan to get out of this mess.
(Bonus points: if you noticed that Groupon and Yelp have exactly the same problem.)
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