Google vs. Amazon – Battle for the smart home pt. XIV.

Amazon goes vertical.

• Amazon has moved to cement its grip on the smart home with the purchase of the WiFi router company Eero that should make the smart home much simpler as long as the user sticks with Amazon.
• Amazon has agreed to acquire Eero for an undisclosed sum which leads me to suspect that Eero has been a bit of financial difficulty recently.
• Eero is a mesh Wifi router company and competes most directly against Google WiFi product but also against similar products from Linksys and Netgear.
• Eero has raised about $90m to date meaning that if all was going swimmingly, Amazon would have had to pay a high enough price to force it to disclose the purchase price.
• Eero fares very well against its peers when it comes to ease of use and set up but does not offer as much WiFi horsepower as Netgear or Linksys.
• This is reasonably easily solved by having more mesh access points around the house, but this requires a greater outlay by the user for more units.
• This brings Amazon into line with what Google is offering but I think that this move increases Amazon’s current advantage over Google.
• The main problem with the smart home today is fragmentation where getting the different devices and radio standards to work together is a nightmare.
• This is the main reason why I suspect that while there are lots of devices available, revenues from the smart home have been weak.
• Amazon has already acquired doorbell and home security company Ring which combined with its line of Echo products now puts it in a good position to create an end to end solution.
• Furthermore, because most smart home products will now work with Alexa, if Amazon integrates Zigbee and Z wave radios into Eero and makes them available at its usual excellent price, Amazon has the possibility to become the one place where everything just works.
• The big question, of course, is how does being the hub of the smart home help Amazon’s business?
• There is no simple answer.
• Amazon Echo and Ring made sense from the point of view of making Amazon’s core e-commerce offering more compelling and easy to use, but how enabling the lights to be switched on or the blinds closed helps Amazon make money is a mystery.
• One possibility is Amazon’s fast-growing advertising business which is running at an annualised rate of about $12bn, growing at 95% in Q4 18.
• In controlling the smart home, Amazon can have a better idea of what its users prefer and thereby offer to sell them products that are more targeted to their tastes.
• The other possibility is that Amazon intends to restart its failed attempt to become a digital ecosystem and encourage its users to spend more of their digital time within its services.
• Enticing users to use Amazon in the digital home could be a good starting point adding to its already reasonable Media Consumption service, Amazon Prime.
• Amazon has over 100m Amazon Prime members giving it a stable and large enough user base to re-launch its ecosystem.
• Amazon is emerging as a challenger to Google but it has a very long way to go before it can really challenge Google’s mighty advertising cash machine or its best in class AI.
• Google still has the better product (Google Assistant), but Amazon’s presence in retail and its 70% share in smart speakers is more than making up the difference.
• Google had a very disappointing 2018 where it failed to close the gap on Amazon, leaving it as the also-ran in the smart home.
• A repeat of VHS vs. Betamax looks increasingly likely.