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Thursday, April 24, 2014
Angie's List Proves Time And Time Again That Success Has Nothing To Do With Having A Sustainable Business Model
After nearly two decades in business, the only thing certain about the performance of Indianapolis-based Angie's List is its consistent losses year after year. When the company went public a couple of years ago, it basically had no other choice than to look for suckers in the public sector to continue operations since its private investors one after another over the years became convinced it could never turn a profit and unloaded their investment. Yesterday, the company's management reported yet another quarterly loss. How did the market react? Its stock price jumped over 12% in after-hours trading. Apparently, the expert investors on Wall Street playing with other people's money were impressed that, while the company continues its perfect losing streak, its losses were less than the so-called experts had anticipated. Its losses this quarter were $3.8 million compared to $7.9 million a year ago. At the same time, the company's marketing costs of acquiring each new paid membership soared from $72 to $82, but it relies on the advertising by businesses that its consumer members are supposedly rating for three-quarters of its revenues. On the brighter side, the company's co-founders, Bill Oesterle and Angie Hicks, and the corporate insiders have become multi-millionaires from their investments in the company, even if the company has never once made a profit. Something is seriously wrong with this picture. If someone can explain to me how the folks that are running this company are operating a business any differently than convicted Ponzi schemer Tim Durham, please share with me.
The problem with the business model is that there are other sources for reviews (yelp, BBB) that users can access w/o a paywall. Angie's List has a great product, but I don't believe it can be profitable in the long term given the low barriers to entry and no cost service provided by competitors.
ReplyDeleteIf ANGI can’t provide more accurate and impartial ratings, consumers have no reason to pay for their service.The company can try to claim that these advertisers don’t have any say in reviews, but there is quite a bit of evidence to the contrary. The NBC affiliate channel 12 in Richmond, Va., did a little digging into Angie’s List and found that lower rated companies can bump themselves up to the top of search results by paying extra money. In one case, the top rated heating & air company showed up 12th on a list of search results because they wouldn’t pay the $12,000 to $15,000 required to move up the list. Angie’s List refers to itself as a “consumer-driven organization”, but a quick look at its revenue breakdown reveals that is far from the truth. In 2012, 69% of ANGI’s revenue came from advertisers. Customers are taking notice of these misleading practices. For a company that offers customer reviews, ANGI has plenty of bad reviews of its own, including shareholder litigation accusing management of improper selling of personal stock at inflated prices just before it dropped.
ReplyDeleteHow about the fact that Bill Oesterle sold buildings that he was personally invested in to the Company, in a time when there is a critical cash need. What kind of Board oversight is there that would allow this to happen? It's incredible how much money the executives have made from selling their stock since the company went public. What's very telling is their "faith" in the future of this company -- there has not been a single insider buy transaction since the IPO.
ReplyDeleteI would be more concerned that the company's last CFO left abruptly after a little more than a year on the job. He must have had a conscience.
ReplyDelete