Show Accessibility Options

Hide Accessibility options

Amazon Home Services and the three steps to disruption

The long running speculation of Amazon’s expansion to home services in Europe has come to an end with the launch of ‘Amazon Home & Business Services’ in the UK last week. In simple terms, Amazon Home Services allows the purchase and scheduling of local professional services to help for example with the assembly of furniture, cleaning, or even the installation of a smart thermostat. 

Amazon has already been offering similar home services for a long time in the US and has even launched free in-home consultations to help customers get the right smart home solution for them. In that sense, the expansion to the UK home services market is just a small step in this continuing journey. That being said, the long-term implications of Amazon’s move to home services are anything but small!


Three steps to home services disruption

It’s amazing to think that a company with an annual revenue of $178 billion in 2017 began its journey a mere 24 years ago as a relatively simple online book retailer. Since 1994, Amazon has been at the forefront of digital disruption in several sectors. In retail, Amazon has expanded to sell anything from smartphones to cat food and just one year ago it made a big move towards everyday groceries by acquiring Whole Foods in the USA.

In addition to capturing almost half of all online retail in the USA, Amazon has introduced several disruptive technologies such as the Kindle e-reader for digital books and, most recently, the current best-selling connected home product: the Amazon Echo smart speaker. Amazon has also managed to establish an ongoing subscription relationship with tens of millions of customers with its Amazon Prime services offering not just fast shipping, but also exclusive TV shows and music streaming. At its peak last year, more than 4M people signed up in a single week!

With such an impressive resume of disruption, I think it is key to understand what Amazon might look to achieve through its expansion. As illustrated by the diagram below, I believe this can be broken down into three steps.

Figure 1: Predicted steps of Amazon’s market disruption through home services


Step 1 (short to medium term): Establishing a network of tradespeople

In Europe, Amazon is very much still on Step 1 having just launched its home services portfolio. It is entering a home services market that is very fragmented with much of work within the home today being done by independent plumbers, electricians and other tradespeople.

While there are several online platforms in the UK for searching for qualified tradespeople (e.g. ‘Check-a-trade’ in the UK), Amazon has a massive advantage over all these players – it also operates the largest online retail platform in Europe. Through its online store, Amazon can offer unrivalled customer convenience and ease for accessing qualified tradespeople. The image below illustrates what the customer sees when they are looking at a product that Amazon offers related services for – in this case a smart thermostat. For the customer, this installation service is just a single click away.

Figure 2: Home services a single click away – example of smart thermostat installation

Due to this unrivalled convenience and customer reach that Amazon has, we believe that Amazon will extend the visibility and appeal of home services to a broader audience. From our Delta-ee smart energy customer panel we have learned that only 50% of UK customers know a local plumber they could contact. While today some people are deciding against the hassle of searching for a plumber, I’m confident Amazon’s home services would be an appealing and convenient way to access home services. This should therefore also help grow the overall size of the home services market.


 

Step 2 (medium term): Challenge to ‘home services platforms’

Currently Amazon’s network of tradespeople is limited to just a few metropolitan areas in the UK such as the Greater London, Manchester, Bristol, Leeds and Newcastle areas. However, based on my research in at least some of these regions there are only a handful of home services available which suggest that Amazon still has work to do in building its network of tradespeople. Additionally, when conducting a quick online search, Amazon’s home services are barely visible to the customer. Once Amazon has expanded its network and gained some valuable experience from the market, it will likely look to raise its presence and ensure it appears at the top of any online search.

At this point, Amazon will mount a serious challenge to all online ‘home services brokers’. With its very strong customer brand and very simple and transparent pricing of home services, Amazon should be able to appeal to the customers that are foremost looking for a quick and easy way to get work done around the house. This means Amazon does not need to compete purely on price, but on ease of customer experience. If customers are willing to pay a (small) premium for convenience, this added revenue could allow Amazon to pay tradespeople more than they would be paid by another broker thus helping extend their network of tradespeople. This could prove crucial as this would allow Amazon to share enough of the value with its associated tradespeople, helping it attract a large enough number of skilled people to its network.

Therefore, any company active or looking to enter the home services market should acknowledge that the race for online ‘home services brokering’ is therefore already well under way.


 

Step 3 (medium-long term): Expansion to new subscription services or product categories

The strategic goal of Amazon Home Service is to establish an active human presence within the customer’s home. Amazon already has a strong digital presence in millions of homes with the Prime subscription and the Alexa voice assistant, but human interaction ends at delivery of parcels just outside the customer’s door. These final few metres are crucial for Amazon’s future expansion.

If Amazon is able to establish itself in the customer’s eyes as a reliable provider of home services, this would allow Amazon to further increase its share of the customer’s wallet. What would stop Amazon creating a ‘Prime Home Cover’ package that includes insurance or maintenance services? Naturally Amazon would not need to develop these propositions on its own but could partner with established players.

Prime subscription customers are clearly the most lucrative customer segment for Amazon as they also purchase more products through Amazon than non-Prime customers. Therefore, it would seem sensible for Amazon to continue expanding on the services offered via Prime, but also move to new product categories such as household appliances or renovation work that requires both hardware and skilled labour.

That also means Amazon wouldn’t be far off from potentially selling and installing heating systems. Over 1.5M boilers are sold annually in the UK and our research shows that there is an increasing customer appetite for purchasing boilers online and some start-ups have already set up digital heating system marketplaces (e.g. Boxt). The boiler market feels ripe for digital disruption and who better placed to do this than Amazon with its market leading online retail marketplace and a growing network of installers?


The energy sector is not immune to the home services disruption!

This means the battle for energy services within the home will be fought between companies like energy suppliers (incumbents and new entrants), assistance companies, home service providers, start-ups, potentially others like telcos, but also Amazon. As Amazon has already shown an amazing ability to stretch its brand to new areas, and as explained earlier, it is quite conceivable it could enter the energy sector through home services.

With margins on energy retail dropping, major energy companies are feverishly looking to move from a commodity market to securing recurring service revenue. Thus, energy companies also have their eyes on the very dynamic, competitive and potentially very lucrative home services market. While ‘generalists’ like Amazon will look to attack all aspect of the services market, there will also be ‘specialists’ looking to challenge for specific categories such as energy services. We have therefore started to work on a series of studies looking at the challenges of home services across Europe, and the implications these will have on the new energy markets.

Considering Amazon’s amazing history of disruption and innovation, I believe disruption of home services is inevitable and companies across the value chain need to have a strategy to prepare for this.  The energy sector is definitely not immune to this.

The time for strategic decisions is now. Amazon has already made its move.

Related posts

Webinars

Watch the webinar - The future of connected climate controls in Europe

Webinars

Register for 'The future of connected climate controls in Europe'

Whitepaper

Whitepaper - Connected heating to help the social housing sector fulfil its social mission

Blog

What will the energy transition look like in 2022? Predictions from the Delta-EE research team

Article

Article - Creating compelling customer propositions with remote diagnostics

Blog

Home energy management: a complex space where actors will need to act in synergy to make sure they are not left behind

Blog

2019: 0% annual sales growth in the Dutch Smart Thermostat Market

Blog

The wave of Connected Air Conditioning is coming to Europe

Whitepaper

Whitepaper - Accelerating the energy transition with Home Energy Management

Blog

The interactions between HEM, the electricity system and energy communities

Blog

The future of connectivity in Home Energy Management

Blog

What do customers think about smart thermostats?

Add yourself to our mailing list

Add yourself to our mailing list