Is This the Next Multi-billion Dollar Business for Amazon.com, Inc?

By Fool.com

Amazon 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 apress release.

Continue Reading Below

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 asAngie'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:

The service launched in major U.S. metropolitan areas includingNew York City,Los Angeles,San Francisco,andSeattle, 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 worksAmazon 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:

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.

Source: Screenshot

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.

The article Is This the Next Multi-billion Dollar Business for Amazon.com, Inc? originally appeared on Fool.com.

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.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.