Amazon Ramps Up Push Into Tough Local-Services Market
SAN FRANCISCO -- Seattle audio and video technician Todd Mueller showed up last year for what might have been a routine job except for one thing: Amazon.com (AMZN) was taking notes. As he mounted a flat-screen TV on the wall, an Amazon employee studied how he covered his shoes and used a blanket to protect the hardwood floor.
After at least two years of study, Amazon is ramping up efforts to offer repair, installation and other services online, tackling a fragmented but potentially rich U.S. market that may be worth an estimated $400 billion.
Amazon's experiment with services goes back to at least mid-2012 in its hometown of Seattle. It's now expanded the tests to New York and Los Angeles, six service providers who worked and talked with the company told Reuters.
More locations and services are coming soon. As soon as mid-August, Amazon will take as much as a 20 percent cut from services booked through its website, though timing and figures may change, according to providers and several hard-to-find pages on Amazon's website devoted to local services.
Providing services would be a new frontier for Amazon, which hopes to enter one of the few remaining consumer sectors yet to succumb to Internet commerce. Its foray into the area comes as investors worry about Amazon's growing spending on initiatives with uncertain pay back.
It's unclear how Amazon can create an online exchange for services where others like Angie's List (ANGI) have failed to gain traction for years. While services such as Yelp (YELP) and Craigslist show what's available, getting a job done still often involves an old-fashioned telephone call.
The biggest challenge would be attracting enough small businesses to the site, Wunderlich Securities' Blake Harper said. Angie's List's spending on marketing -- almost half its total revenue -- to attract customers and retain providers has kept it in the red, analysts said.
"While the company has impressive logistical capabilities, it is lacking the local business information, reviews, and sales force, among other attributes, to begin to compete in the market," Harper said in a June 11 note, of Amazon. "We have a healthy respect for Amazon's ruthless competitive nature, but expect the local market to be much more difficult for them to scale than the e-commerce business."
Amazon has a team of people that deal with local merchants. If its plan works, it may encourage loyalty by helping customers book well-regarded plumbers, auto mechanics and others, and develops a high-margin revenue stream.
In trials, Amazon has recommended services alongside relevant purchases online and providers are backed by its "A-to-Z" money-back guarantee.
"They're taking it from A-to-Z," said Alex Vyborg, owner of SpeakerGuy, a 15-person home theater and installation company based in Rancho Palos Verdes, California, that has been working with Amazon for about four months. "Instead of selling you a product and some guy installs it and it doesn't work, here you have a reputable seller and installer."
An Amazon spokesman declined to comment.
Like a Job Interview
Eventually, Amazon plans to build an online marketplace for services from plumbing to babysitting.
For now, it's focused on assembly, installation and repair in Seattle, New York and Los Angeles, such as installing toilets or adding speakers to a car, according to its website.
Building a local services marketplace has been Chief Executive Officer Jeff Bezos' vision for over a decade, three people familiar with the matter said. The Amazon founder was an early admirer of the OpenTable model of dinner reservations, according to one of the sources.
Amazon's efforts are aided by the ubiquity of the smartphone, which allows service providers to field calls and book appointments on the go.
Last year, Amazon invited Seattle-based providers to its downtown headquarters for demonstrations of how the pilot would work, including how appointments would be handled, said Mueller, owner of installation company More than Audio, and other providers.
Amazon also asked exhaustive questions, such as what plumbing services it could legally offer or what happens when faulty wiring or another complication prevents completion.
"They came in educated," said Stephen Brandeis, operations manager for the Electric Co. of Seattle, who likened the experience to a job interview. "They were doing problem-solving on very focused areas."
Amazon has stipulated that participating businesses carry liability insurance of at least $1 million and in some cases $2 million, according to cached versions of Amazon webpages advertising those services.
They must reply to customer service requests within 24 hours, and be subject to annual background checks.
Right Then, Right There
Service providers said Amazon has won them new clients, despite the lack of promotion. Raman Singh, owner of Seattle-based Drain Pro Plumbing, said he got close to 100 jobs, mostly from new clients, through Amazon.
But some worry they will have to raise prices once Amazon begins to take a cut. According to one internal website, Amazon intends to take a 20 percent cut of jobs under $1,000 by Aug. 14 and 15 percent for services over $1,000. This compares to the 15 percent to 30 percent cut taken by Angie's List, RBC analysts estimate.
The more than 20 jobs offered by Amazon found by Reuters all cost less than $400, far below the median $3,200 spent on a home repair projects between 2009 and 2011, according to U.S. government data.
Amazon has also required providers include parts in the cost of the service, say mounting brackets and cables for a TV installation. Supplies, fuel and labor required in an Amazon job add about $100 in expenses to a job that costs less than $300, said Vyborg.
In its pitch, Amazon emphasized its ability to help find new customers and cited data showing that its users spend more than $22 billion every month in offline purchases.
"Customers will see your services when they buy related products online," according to a page intended for providers. "They'll able to buy them right then, right there.