Why Home Services Marketplaces Offer More Than Just Renovations

June 16, 2015 | By Neil Howe

This editorial originally appeared in Forbes.

Amazon CEO Jeff Bezos recently named his company’s three cash cows, one being the company’s well-known third-party marketplace. What’s lesser known is one of the new platforms driving its success: Amazon Home Services (AHS), a one-stop shop where consumers connect with certified contractors. After being revolutionized by Amazon, it’s clear just how far the concept of home services has come from the early days of the Yellow Pages.

It’s not just Amazon, either: Companies from Angie’s List to Home Depot have rolled out home services “marketplaces” to the delight of consumers. With these marketplaces, Boomers can easily schedule their home renovations, while Generation Xers can use all available information to drive a hard bargain between thrift and quality. As for Millennials, Web-based home services could in time entirely redefine their lives.

Amazon CEO Jeff Bezos walks on stage in Seattle. (Credit: AP Photo/Ted S. Warren)

The home services industry has evolved from simple home remodeling to include nontraditional tasks like dog walking. Estimates of total industry revenue range from $400 billion all the way to $800 billion. Based on these figures, we can estimate the income of marketplace providers themselves. First, we must consider that Amazon takes between a 10% and 20% cut of each transaction depending on the type of job. Assuming a 15% average cut for all services (which may be too high for smaller companies—but these companies also have marketing and advertising revenue), marketplace providers could account for as much as $120 billion of this total revenue.

In the last two decades, Angie’s List has revolutionized the way customers interact with contractors.In 1886, the first Yellow Pages directory was created, and for a century, this low-tech, low-accountability format was the default model for finding a contractor. But that all changed in 1995, when Angie’s List was formed, providing a digital forum for customer-generated business reviews. The company eventually expanded from a simple review-garnering site to a marketplace where subscribers could compare (and eventually hire) contractors.

And since then, companies large and small have jumped into home services. Most of the recent entrants into the field have been small tech startups, which each offer their own unique twist on home services: Thumbtack touts its ease of use; TaskRabbit specializes in low-skill services like housecleaning, party planning, and shopping; and Redbeacon offers free professional consults.

Tech giants like Amazon, though late to the market, have quickly become the industry gold standard. According to Peter Faricy, vice president of Amazon Marketplace, AHS already has 2.4 million service offers covering more than 700 types of services. And AHS’s growth potential is enormous, considering the 85 million Amazon customers who bought things last year that could have been installed through the marketplace. Though Google has not yet rolled out its own version, the company last year invested $100 million in Thumbtack, and many analysts believe Google is a unique fit for a home services marketplace.

Meanwhile, home repair giants like Home Depot, Lowe’s, and Sears have started their own home services platforms, relying on pedigree rather than scale. Home Depot and Lowe’s both use teams of licensed local professionals to help customers with their household projects, and Sears Home Services claims a fleet of technicians 6,800 strong. These retailers use their industry expertise—something that their larger competitors lack—to attract customers. They also have a hands-on advantage: Customers can come into a store’s physical location to speak to a professional or choose their own materials.

In the immediate future, the profitability for all of these companies lies in home remodeling. Fully 36% of homeowners plan to spend $5,000 or more on home renovations this year, and total spending on home improvements could reach a post-recession high of $300 billion in 2015. Today’s retiring Boomers, who are remodeling their existing homes rather than downsizing, have countless options to choose from—no matter what they deem important. They can choose between pricy, concierge services offering 24/7 access to a professional and low-cost, easy-to-use platforms. Or they can choose between big, do-it-all companies like Amazon and specialized remodeling outfits with industry expertise.

However, the real visionaries in this field see something much bigger than home remodeling. For Jeff Bezos and Larry Page, entry into the home services market is part of a larger goal: to build an all-encompassing in-home “ambient intelligence” system. These CEOs see a future in which Amazon or Google smart sensors are always whizzing in the background, compiling vast databases of information about a homeowner’s purchasing habits, daily routine, and psychological state. These sensors would then be able to anticipate consumers’ desires and even recommend a certain product based on their mood. With services like AHS, tech companies can garner the kind of implicit trust necessary to make this future become reality.

Boomers and Gen Xers may never fully embrace this grand vision. Boomers like home services marketplaces largely for their convenience. Before these marketplaces, consumers had to spend hours sifting through reviews on multiple websites—and even then, were still not truly sure who they were hiring. But the marketplace model streamlines this process, putting every step on a single webpage. And with this model, the DIY Xer can choose to outsource certain remodeling tasks to a professional: They may decide to install new kitchen cabinets themselves, and find a certified electrician to add the lighting fixtures, getting them the most bang for their buck.

But Millennials may be the ones who will live this vision. Bezos and Page don’t mind that they won’t reap the immediate profitability of home services—they’re more concerned with becoming the industry standard for a young generation of consumers. For these executives, initiatives like AHS and the Amazon Dash Button are the first step toward a future filled with smart sensors and automatic product recommendations—a future in which one company is the go-to option for consumers. Millennials could easily treat whichever marketplace wins out as a pre-budgeted expense, giving it about as much of a second thought as their monthly utility bill.