Like Other Local Services Marketplaces, Amazon Will Have to Balance Competing Interests

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Anyone in the local services industry could be forgiven for worrying about Amazon as an intimidating competitor. With the recent launch of its Home Services vertical, the rest of us know how bookstores and retailers must have felt competing against the e-commerce giant.

Still, it may be my cynical hopes talking, but it seems that for all of Amazon’s Goliath brand dominance in retail, it faces the same complex challenges that the rest of us face when it comes to the services industry. And, it has chosen a business model that further limits, rather than liberates, its means of overcoming those challenges.

Here are 3 conflicting interests that local service startups big and small have to navigate.

Quantity vs. Security:
Every local search startup has a mechanism for ensuring quality. Common mechanisms include consumer reviews and ranking algorithms. But, security is a different animal because it does more than merely influence the consumer decision making process in favor of higher quality, it also serves to restrict it. The most powerful security method is the money back guarantee. Guarantees are the number one means for major brands to distinguish themselves from competitors — both rival tech startups and small businesses themselves — to quickly gain market share among consumers.

The guarantee is such a compelling and high-end value proposition that it would be a recipe for unstoppable success, if it weren’t for some substantial drawbacks — the biggest of which is the drag on scalability. Guarantees put a great deal of skin in the game for the startups, so companies that offer guarantees have an even greater incentive to more thoroughly vet business membership for the the purpose of reducing service pro malpractice hazards.

But while guarantees may very well be unsustainable if a startup brings on businesses that routinely cause refund requests, the lengthy and expensive background checks that ensure sustainability severely limits a startup’s ability to serve more consumers.

Brand Awareness vs. Brand Reputation for Reliability:
In theory, it’s possible for a hyperlocal platform to achieve universal renown and also universal reliability. As a result, rarely do local search startups dwell on the degree of mutual exclusivity inherent in these two concepts. It’s basic math: local renown minus local business network strength equals a startup’s power to inconvenience and disappoint.

Most startups can employ strategies to build brand awareness exclusively where there are strong payoffs for both business and/or customer satisfaction. Amazon, however, doesn’t quite have that freedom. Amazon visitors across the country saw the banner ad announcing Amazon Home Services; and, the number of active Amazon users whose zip code is unserved or under-served in many-to-all service categories quickly became legion.

Right now, Amazon has a greater power to disappoint than just about any local search solution in the history of web. As my business development chief told me, Amazon is a long way from being the one-stop-shop it aspires to be and will have to content itself with being one very disappointing first stop for many of its loyal customers. And, for any new local services platform, rebuilding that reputation once a disappointing experience is in the consumer memory will be a challenge.

Consumers vs. Businesses:
Every startup pays lip service to helping businesses and consumers without actually doing the work of sustaining a healthy balance between the interests of both. The most balanced companies are typically smaller, but overall, business models skew in favor of consumers with the realization that a sufficient consumer user-base can turn businesses into a captive audience.

For example, most local search companies are free for consumers to use. And, many of the biggest local search companies usurp control over service prices to attract customers and, in order to keep them, prohibit local pros from marketing their services to those users once they are served. It’s a practice that undermines both quantity and security/quality.

Such oppressive policies towards businesses couldn’t possibility attract the best and more successful local businesses, especially not early on. Unless a local search company truly does substantially dominate a space, the best such companies can hope for is to deny membership to the worst companies, and recruit those that are good enough companies into their ranks.

Every local search platform is a self-interested party serving two parties, businesses and consumers, with yet more competing interests for the startup to navigate. Amazon may have stepped onto our playing field like Shaq in his prime; but, local search is a game of H.O.R.S.E.  No one has a chance at a slam dunk right now. We’re still in the game; and, even for Amazon, has little more than a long shot at market dominance.

Manpreet-SinghManpreet Singh is Founder and President of TalkLocal a local startup with apps on iPhone and Android which help consumers find and speak to high quality local professionals in minutes. Follow him @MSinghCFA.