Wharton's Daniel Raff and Syracuse's Amanda Nicholson discuss Amazon Local Services

For a company focused on deepening its reach into consumer wallets, Amazon made the logical next move in November by introducing ads of handymen and other local service providers along with listings of relevant products. Under the new program, called Amazon Local Services, consumers in Amazon’s test markets of New York City, Los Angeles and Seattle looking to buy an appliance, for example, will see ad listings for electricians, plumbers and other professionals who could help install or troubleshoot those products.

“This idea is part of [Amazon’s] broader effort to compete more directly with the brick and mortar stores,” according to Amanda Nicholson, professor of retail practice at Syracuse University’s Whitman School of Management. While it could help some local service providers attract more business, the best people in the trade are “always busy,” she added.

Wharton management professor Daniel Raff agreed: “Among other things, it might make you wonder whether the local providers [advertising on Amazon] desperate for extra business are the best people.”

The two experts dissected Amazon’s strategy with this new offering on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

“This idea is part of [Amazon’s] broader effort to compete more directly with the brick and mortar stores.”–Amanda Nicholson

Businesses that want to sell their services through Amazon will have to pay the company monthly subscription fees and background check fees, in addition to a share of up to 20% of their service charges, according to a company note. As a promotional step, Amazon has waived the fees for subscription and background checks through June 30, 2015, and January 31, 2015, respectively.

Taking on Brick and Mortar Stores

Amazon’s move will allow it to turn up the competition with local brick and mortar stores, according to Nicholson. “One of the ways brick and mortar stores get their reputation in that area is by their service, delivery and installation,” she noted.

Raff added that the deep discounts brick and mortar stores are offering in the current holiday season reveal their insecurity. “They are expecting a kind of titanic struggle with Amazon this year … and are going at it tooth and claw.” However, local service providers like plumbers or electricians may find in Amazon a way to add to their local word-of-mouth reputations, he said.

Nicholson pointed out that local brick and mortar stores may be already using the same service providers with whom Amazon could sign contracts, but the consumer experience may be different, because the Amazon service is missing a crucial piece. “You’ve taken out that personal connection that you have when you walk into a Lowe’s or a Home Depot or a Best Buy and talk to somebody [named] Jim or Dan, and he organizes it and even tells you [which] person is going to come.”

Brick and mortar stores “are expecting a kind of titanic struggle with Amazon this year.”— Daniel Raff

Will the Best Providers Show Up?

Trust and credibility may become the test areas for Amazon with its new offering. Nicholson noted the concerns a consumer may have “when you are letting somebody into your home based on a few clicks of a mouse rather than a conversation on the store floor.” Raff agreed that the vetting process would be crucial for the service providers that advertise on Amazon. “It would be catastrophic for [Amazon] in any particular geography if they hire people who are incompetent or worse; surely, it would get a lot of local press play,” he said. “That would just be a disaster. They would want to take pains to avoid that.”

Nicholson also pointed out the potential consequences of Amazon charging a subscription fee from service providers. Other service finders like Angie’s List, which provides a crowd-sourced reviews site, require consumers to pay membership fees. Raff noted that the best providers might not necessarily show up in a business model where service providers have to pay to get their offerings listed.

Nicholson agreed with Raff. “Anyone who is good … is always very busy. So who is going to pay for these services — people who are not very busy?” she said. “My first thought was: Can you buy your way on to this list?”

The stakes will get higher for Amazon as it expands its offering to include service providers such as babysitters, fitness instructors and music teachers, the two experts said. “People could plant false recommendations,” Nicholson said.

“Anyone who is good … is always very busy. So who is going to pay for these services — people who are not very busy?”–Amanda Nicholson

Connecting with Millennials

Amazon’s new program could face other hurdles in connecting with both the younger generation and others used to informal resources, such as their local church or synagogue listservs. “I’m not sure if Foursquare and Facebook [users] are so enamored by the traditional review sites in social media,” said Nicholson. “Their way of doing things seems to be slightly different. They are more enamored by personal recommendations and ‘likes’ rather than believing necessarily what Angie’s List says or what Amazon’s list says.”

Amazon will find it difficult to replace established informal networks, Raff predicted. “One of the big activities on these listservs is passing on recommendations about who is good [and] who is reliable,” he said.

On the upside, Amazon’s new offering could help drum up new business for local service providers suffering the after-effects of the recession, Raff noted. “It would not be shocking to discover that there are actually highly competent people who don’t have the volume of work that they like right now,” he said. “Many, many people and firms in the economy are functioning under capacity.”