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Amazon (AMZN) Ecosystem: The Biggest Threat to AAPL Stock

The pieces are falling into place on a strategy that could ultimately undo Apple's dominance

Amazon.com, Inc. (AMZN) has long been thought of as the king of e-commerce, and for good reason. Wal-Mart Stores, Inc. (WMT) actually made headlines earlier this year, simply because it grew e-commerce sales at a faster rate than AMZN. Never mind the fact that the power-seller’s $67.8 billion in online sales was still more than six times Walmart’s online revenue.

amazon amzn ecosystem biggest threat aapl stock amazon echoIt’s hard to believe then that Amazon is also angling to be king of the hill at an area Apple Inc. (AAPL) traditionally dominates: the nebulous tech “ecosystem” Apple fanatics constantly rave about.

Well, don’t look now, but the Amazon ecosystem is in the early stages of making Apple’s famous ecosystem second-tier.

AAPL Is No Slouch (Nor Is It Invincible)

Apple has a laundry list of things going for itself: impeccable branding, an awe-inspiring history of innovation and first-mover advantages, the iTunes platform, loyal customers and a $155 billion cash pile that serves as a rainy-day fund Noah himself would envy.

For the sake of brevity, I’ll stop there. The folks in Cupertino know what they’re doing.

But Apple no longer has the explosive growth potential of yesteryear. It’s a dividend stock now. Ex-cash, AAPL stock trades at its highest multiple since 2011. But even putting metrics aside, it remains clear that the glory days for AAPL stock are over: the “Bendgate” controversy, the botched iOS 8 update and a troubling vulnerability to malware recently discovered by Palo Alto Networks Inc (PANW) are just a few of the ominous writings on the wall.

While this disastrous series of recent internal missteps surely has Steve Jobs rolling over in his grave, the single biggest threat to Apple’s empire has been quietly brewing for years outside of Cupertino.

Amazon.com CEO Jeff Bezos — who became famous by transforming an online bookstore into an e-commerce powerhouse — has been pivoting AMZN into the hardware and media sphere for years now.

AMZN now has tablets, e-readers, phones, digital media players, a streaming video service comparable to Netflix, Inc. (NFLX), a music platform, and Amazon Web Services, an enterprise-facing cloud computing platform that some analysts expect will rake in $20 billion by 2020.

Amazon Echo: A Tipping Point in the Ecosystem

The latest addition to the robust AMZN ecosystem is Amazon Echo, a voice-controlled speaker replete with Amazon’s own artificial intelligence technology. Aside from playing tunes you’ve stored on Amazon’s Cloud Player and its alarm and radio functions, Amazon Echo can also retrieve definitions, keep lists, offer reminders, tell jokes, be your weatherman and more.

A commercial for Echo brags that the device is “connected to the cloud, so it’s always getting smarter.”

But it’s not the way Amazon subtly implies the Echo is another conscious being that should have AAPL worrying. It’s the Echo’s price tag.

At $199, or just $99 with an Amazon Prime membership, the Echo is high-tech enough to pique the curiosity of early adopters, practical enough to be given a chance by the casual consumer and cheap enough to be affordable to the masses.

Its brilliant price point means that if you’re not already an Amazon Prime member, you might as well be: A $99 year-long Prime membership lets you pick up the Echo for $99 — or the same all-in cost a non-Prime member would pay for the device and nothing else.

I don’t know how the Echo will do this holiday season, and I suspect it won’t move the needle much for AMZN stock in the short-term. You’ve got to request an invite from Amazon to even be allowed to purchase the thing. But it lays Amazon’s mission of creating its own compelling ecosystem bare, as anyone with an Echo will be far more likely to actively use the benefits and services that come with an Amazon Prime account.

So watch out, Apple. The Echo just set a timer.

As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or on StockTwits at stocktwits.com/divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/12/amazon-ecosystem-echo-amzn-aapl-stock/.

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