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TheStreet Open House

Angie's List: Is It Good for Small Businesses?

Stocks in this article: ANGIYHOOGOOGAMZNGRPNYELP

The premise that the higher your company is rated, the more customers you will acquire, should be appealing to businesses, Angie's List says. The service is an "effective way for reputable local service providers to shine," according to the company's S-1 registration filing with the Securities and Exchange Commission.

"The customer experience is becoming the new marketing. It's a good thing if the experiences are positive because it can spread much faster than old-fashioned marketing can, but if something goes wrong it can spread as well," says Micah Solomon, a customer service and marketing speaker, strategist, and author of High-Tech, High-Touch Customer Service. "The old rule that you can never win an argument with a customer is true times a million online. If you're arguing in public you can also lose the affection of everyone else who is watching the exchange."

Angie's List is a part of the crop of social online companies capitalizing on the trend toward customer-driven recommendations at the local level. Angie's List is competing in a space with Yelp (YELP), Yahoo! (YHOO) and Google (GOOG), among other names, which essentially offer the same services for free. (Yelp tends to be more for restaurants, leisure and hospitality.)

Yet the site has been getting some negative press lately. Stock critics complain that its business model is "unsustainable." Highly rated businesses on the site are encouraged to advertise. Currently, this is the larger source of revenue for the company compared with the member fees. Angie's List only allows businesses that are B-rated or higher to advertise. They cannot buy their way to raise their ratings or search listing. Higher-rated companies are also able to offer members discounted promotions such as the Groupon (GRPN)-like "The Big Deal."

More recently, the company found itself embroiled in controversy over its decision to resume advertising with Rush Limbaugh last month, according to reports, even after the radio host made offensive comments about women in March that led to a defection of advertisers.

Angie's List declined to comment for this story, with a spokesperson saying it was in a quiet period due to the SEC filing. (The company announced Tuesday in the S-1 filing that it plans to raise $10 million from a sale of secondary equity. The proceeds would be used to fund further marketing efforts to drive membership growth as well as working capital, the filing says.)

Mario D. Vaden, a certified landscaper and certified arborist, who runs his business in the Portland, Ore. area, has been on Angie's list since 2010. While he has gotten some business from the site, he says what concerns him is that he may actually be losing business based on reviewers giving companies higher ratings than they actually deserve.

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