The next frontier for Amazon is service and installation.

By Mohanbir Sawhney
July 11, 2017

There is a new front in the ongoing battle between Amazon and retailers, especially its rival Best Buy: Amazon appears to be readying a siege on the in-home installation and service market, which was a competitive edge for Best Buy with its Geek Squad.

It was reported Monday that the company is now offering free consultations for its Alexa device, and installations for a fee. But if Amazon rolls out its installation service beyond “select cities,” as listed on its website, it could have a distinct advantage: Best Buy has built its business around computers, while the future belongs to artificial intelligence and smart devices. Thus, Alexa, Amazon’s virtual assistant, could be the “Trojan horse” that gets the company off the doorstep where packages are delivered and into consumers’ homes.

Amazon is already promoting Alexa as the brain of the smart home. Alexa not only powers several Amazon products, such as the Echo, but Amazon is also pushing connectivity with third-party goods, such as lighting and appliances. Now, to provide an end-to-end customer experience, Amazon knows it needs to go beyond merely delivering a smartphone, television, or an Alexa-powered device, and also offer installation and setup, which can be beyond the capability of consumers.

Should Amazon go after Best Buy’s Geek Squad, it would be a major upset in the battle between the two retailers. A 6% decline in Best Buy’s stock price on Monday was attributed to reports of Amazon’s new competitive threat.

Under pressure for years from Amazon, Best Buy BBY has turned itself around with its “Renew Blue” strategy, which combines physical stores and a robust website, allowing customers to experience products in person while choosing how they want to shop.

But one of the assets Best Buy BBY has garnered in its fight against Amazon has been the Geek Squad, which offers a full-range of installation and maintenance services. Amazon’s experience in this area to date has been limited to a third-party “hire a handyman” service. But now, smart-home installation services appear to be Amazon’s next big idea.

Amazon states on its smart-home setup site that its “experts are Amazon AMZN employees, not contractors.” It would make sense that the company would build this model with a core group of employees for consistency. But as it scales, the company would likely need to turn to independent contractors located in local markets. The analogy here would be McDonald’s in its early days of expansion, of owning some company stores and franchising the rest, in order to find the optimal balance.

But while McDonald’s was able to deliver a consistent product and experience no matter if a restaurant was company-owned or franchised, Amazon will have to manage its marketplace carefully to guard against inconsistency. This will require Amazon to curate a marketplace of independent installers, contractors, and other service professionals, much like it does in the marketplace for products.

The model here is Uber, with its network of independent drivers. In much the same way, Amazon would be able to utilize contractors, which would be cheaper than hiring employees.

While Amazon doesn’t have a critical mass or a reputation as yet in installation and service, it is relentless when starting a new business. For example, the company has shown that it can absorb losses for an extended period of time while it builds new capabilities, such as its free delivery or expansive network of warehouses and shipping facilities. Given this track record, it would be no surprise if Amazon was aggressive in its rollout of installation and service. Even if it only achieves breakeven on installation and service, Amazon would benefit by driving market share for Amazon products.

 

By its recent actions, it is clear that Amazon is examining retailing, category by category, in order to devise and adopt strategies that will enable it to expand its market share. In grocery, the key is home delivery, which it may further leverage with its purchase of Whole Foods WFM . In clothing, Amazon is seeking to disrupt the model with its patented technology to produce goods on-demand quickly, after a customer places an order.

Now, in electronics, the next frontier for Amazon is service and installation. The more Amazon can push into the smart home, the more Alexa can become the center of gravity—a hub for integrating HVAC systems, lighting, and security, as well as entertainment and sound systems. What remains to be seen is whether Amazon will make an even deeper push. Will one day the Samsung television bought at Best Buy be serviced by an Amazon contractor who is connecting it to Alexa? This does not seem out of the realm of possibility.

Mohanbir Sawhney is the McCormick Tribune Foundation professor of technology at the Kellogg School of Management at Northwestern University.

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