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Amazon likes to cultivate its image as the "everything store," but there's a glaring absence from its offerings.
Nations measure their economic strength by gross domestic product, or GDP, a metric that takes into account both goods and services. But as Amazon aspires to serve as the primary storefront for countries across the globe, it still fails to address half of that equation. It sells hundreds of millions of goods, but services are almost impossible to find on the site. How can you really be the "everything store" when you leave one of the two basic categories of commerce out of the picture?
Cue the arrival of a potential new Amazon venture. In a few U.S. cities, the company has been quietly acting as a platform to connect customers with local businesses that offer what the company describes as "professional services for assembly, set-up, installation and repair work." According to Reuters, Amazon may be ramping up its local services offerings in the next few weeks as it seeks to break into everything from plumbing and electrical work to childcare. (Amazon declined to comment.)
>How can you really be the 'everything store' when you leave one of the two basic categories of commerce out of the picture?
Wall Street has been battering Amazon's stock recently as losses mount along with concern that the company is spreading itself too thin. Recent initiatives have reached well beyond its core retail mission into everything from the new Fire phone to Amazon-produced television shows. But if Amazon catches on as the go-to way to find a plumber or a television installer or a landscaper online, local services could be one new project that could truly help the world's largest online retailer regain its strength.
In a recent post headlined "Losing My Amazon Religion," tech writer and strategist Ben Thompson describes his worry over the rising costs Amazon is incurring by branching out in so many directions that lack a clear path to returns on those investments. "It's this focus on original and exclusive content---and devices that deliver it---that concerns me, and not because it's expensive. Rather, what exactly does this have to do with e-commerce?" he says.
He calls Amazon's push into original content and devices a convoluted "double bank shot" approach toward getting people to shop more on Amazon. Instead, he asks: why doesn't Amazon just focus straight-up on e-commerce?
To me, that's exactly what a big expansion into local services would represent. But wait, there's more: it would be an expansion that would carry very little balance-sheet risk to Amazon at all.
>Amazon can become a marketplace for services without building any new warehouses.
Throughout its history, expanding e-commerce at Amazon has typically meant adding new product categories. It started as a book store. Then electronics and toys. Now it's clothes, home and garden, and just about every other consumer good you can think of. With each new category came two costs to Amazon: inventory and a place to put it. Most of the drag on Amazon's bottom line over the past few years have been investments made in infrastructure to store its vast inventory, as well as the costs of shipping those items.
But Amazon can become a marketplace for services without building any new warehouses at all. It also doesn't need to sink any money into physical inventory that may or may not sell. The "inventory" such as it is are the services provided by third-party businesses that market and sell their offerings on Amazon. The company has already gone some way to shedding the sunk costs of holding physical inventory itself by opening up its site and warehouses to third-party sellers of goods in a big way. Third-party sellers of services is a next logical step.
What's more, the way Amazon's Local Services marketplace appears to be set up, at least in its testing phase, spares it many of the trust, vetting, and regulatory issues that have dogged more direct peer-to-peer services marketplaces such as Uber and TaskRabbit. According to the Reuters piece, citing cached versions of Amazon webpages, the company requires businesses to carry at least $1 million---and at least $2 million for some---in insurance. Service providers are also required to be licensed and background-checked, Amazon says on a help page for the pilot program, which describes Amazon Local Services as available in Seattle, Los Angeles, and New York. ("More locations and services launching soon," the page says.) In other words, these are the licensed and bonded plumbers and electricians you'd already find in the yellow pages, if you still used the yellow pages.
To that apparent security, Amazon can add its own substantial brand equity as a trusted source for finding and buying just about anything. Amazon already offers more than 2,000 products in its drain cleaning category alone. Why not just also offer the plumber who actually knows how to use it?
