Boring air conditioner company Watsco (WSO 1.51%) is much more exciting these days. The company is transitioning its sales efforts to a new e-commerce platform, which allows its customers to work more efficiently and profitably. But the benefits to Watsco are even more significant. Here's how it works.

A whole new level

Over the last few years, Watsco has transformed itself from a traditional air conditioning distributor into a tech-enabled e-commerce platform. The company still sells its A/C components to the same repair and maintenance companies that get units back up and running, but its platform makes its entire supply chain run more smoothly than those of competing distributors.

Before installing Watsco's tech, technicians once needed to go to the job site, diagnose the problem, call or go to a distributor store for replacement parts, and then return to the job site and finish their repair. Now, the same technician can order components from a smartphone or tablet and have them waiting for them at the store or have them shipped faster.

A repair person completing service by shaking hands with a customer in their home.

Image source: Getty Images.

The system can be compared to ordering food from a mobile app or quickly receiving a package from Amazon. Instead of standing in line at the restaurant, you simply walk in, pick up your food, and leave, or Amazon will deliver your purchase in days rather than weeks.

The big difference is that technicians may complete several jobs over the course of a day or week. By skipping the line and getting orders delivered faster, the technicians work quicker and complete more jobs. Watsco's customers love the platform because its workforce automatically becomes more efficient, and their businesses become more profitable.

But what's in it for Watsco? First, customers are more loyal to the Watsco brand. Technicians could order their parts from any distributor in town, but Watsco's platform offers them something competitors can't. In addition to new customer acquisitions on the platform, Watsco sees 70% less attrition from its e-commerce users compared to its traditional customers.

The platform has attracted significant usage. In 2021, Watsco's e-commerce revenue grew by 26% to $2 billion, and orders on the platform increased by 18% to over 1.5 million orders. That, of course, demonstrates that customers are buying more from Watsco with each new order.

Perhaps the platform's most profound effect on the company is its ability to scale new acquisitions into Watsco's brand portfolio quickly. The company already has a rich history of efficiently tucking acquired companies into its distribution network. Since 2001, Watsco has invested $804 million in smaller targets. By incorporating new SKUs onto the platform, Watsco can quickly sell the newly acquired products to its expansive U.S. network.

Is Watsco stock a buy right now?

Watsco holds the industry's No. 1 market share position, and it's not even close. Watsco does more than twice the annual revenue as the No. 2 player. Market share is important in an industry where scale is a big differentiator. The company can continue its acquire-and-scale strategy thanks to its tech platform that competitors might not have the resources to duplicate.

Over the last 30 years, Watsco shareholders have enjoyed an annual total return of 21%. That's astonishing because there are only 29 stocks that have accomplished this feat. But investors are forward-looking. Watsco's innovation has put the company in a better position than in the past. Watsco shares should have a place in the portfolios of long-term investors.