Amazon(NASDAQ:AMZN) wants to move beyond selling physical and digital goods into marketing services.
The online retailer has launched Amazon Home Services, which "includes more than 2 million unique service offers across over 700 professional services," according to a press release.
It is a bold move that will add everything from guitar lessons to TV wall mounting to the existing retail offering. Home Services puts Amazon in competition with websites such as Angie's List, which offers vetted service professionals to paying members, and Craigslist, which is essentially an online classifieds listing.
Amazon's entry into the space probably deals yet another blow to newspapers, many of which offer special sections featuring ads from service providers. The company explained Home Services in the press release:
Amazon Home Services features handpicked pros offering upfront pricing on pre-packaged services with helpful reviews from customers that have made verified purchases. Amazon's Happiness Guarantee backs all service purchases, so customers know the job will get done right. With this expansion beyond physical and digital goods, Amazon is now making purchasing professional services as easy as buying products.
The service launched in major U.S. metropolitan areas including New York City, Los Angeles, San Francisco, and Seattle, though some services are being sold in smaller markets (my 06111 ZIP code outside of Hartford, Conn. shows some offers, along with many categories in which there is no provider).
How it works
Amazon puts potential service providers through extensive background checks that examine both finances and criminal records, requiring licensed personnel in fields where licenses are available. The company also keeps insurance information on file when appropriate. Amazon accepts applications from potential providers and also sends invitations to professionals the company has identified.
For consumers the process is just like buying anything else on Amazon. In addition to vetting the providers, the retailer makes some other guarantees. From its press release:
Happiness Guarantee: Amazon doesn't just refer customers to providers, but stays with them every step of the way. All services purchased are guaranteed. If customers are not satisfied at the end of the service, Amazon will work with customers and the pro to ensure the job gets done right or provide a refund.
Upfront Pricing: Service pros compete for a customer's business based on price, quality, and availability. If customers find a lower price for the same service and pro, we will match it. Customers can add pre-packaged services right to their cart with just a few clicks on Amazon and are only charged when the service is completed.
Verified Reviews: All Amazon Home Services reviews are from verified purchases, so customers know they are hearing from real customers. No special sign up or subscription is required to read reviews and ratings.
Essentially, Amazon is putting the weight of its brand behind the people performing the services on offer. That should give consumers confidence and encourage the providers to do a good job to maintain their status with the retailer.
How does Amazon make money here?
Amazon is taking a surprisingly small cut from the people selling services. The company has waived all fees for background checks through the end of the year and laid out the following fee structure that applies to any completed, paid orders.
The company has also waived its monthly service fees for businesses through the end of the year. It shows those charges as $50 per business and $40 per participating employees, which it defines as "employees performing in-home services."
Amazon deducts the fees as a percentage of the service price, excluding any taxes collected.
Will it work?
Home Services not only opens up a huge new area of business for Amazon, it also solves a problem for consumers. The company estimates that 85 million Amazon customers are shopping for products that require professional services (though it did not spell out the time frame for that statistic). The retailer has the ability to market services alongside products.
If you buy a TV, Amazon can now sell you mounting services. If you buy a piano, it can sell you lessons. The possibilities and revenue potential are massive.
Home Services takes the guesswork out of hiring people to provide services. It also offers a level of dispute resolution that is comforting if things do not go as planned.
It is hard to see how this will not become a significant business for Amazon, as the field is wide open. Craigslist is no more reliable than a business card pinned to a bulletin board in a local coffee shop, and Angie's List charges for a service that Amazon now offers for free.
This is a huge opportunity for the retailer to deliver something its customers need in an easy, intuitive fashion. Amazon has improved on the old model of relying on referrals or taking a shot with a provider based on an ad.
Home Services creates business for service providers, meets a need for Amazon customers, and enhances its bottom line without adding inventory or substantial costs. It is a rare win for all parties involved.
Daniel Kline has no position in any stocks mentioned. He once put a grill together and was left with a handful of extra parts. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.