The dust is finally settling on news that Amazon.com, Inc. (NASDAQ:AMZN) has acquired Ring, the maker of so-called smart doorbells.
The deal certainly sparked a wave of speculation as to why CEO Jeff Bezos was keen to make the purchase, and what it may ultimately mean for owners of Amazon stock. And, in that there can be more than one upside to adding Ring to the mix, none of those ideas were easy to mark as “wrong.”
Still, there are some explanations and possible outcomes that aren’t being discussed (at least not much) by the pundits and may be underestimated.
Keeping Competition in Check
Yes, I’m the same guy who regularly pans Amazon for spending time — and money — on silly, unproductive initiatives. For instance, just a few weeks ago, I said parking the e-commerce arm’s “Treasure Truck” in front of its Whole Foods grocery stores was a bit gimmicky and a little uncool.
But I’ve also lauded the company’s good decisions, calling the development of its own network of bookstores a brilliant idea if for no other reason than it helps bring customers deeper into its ecosystem.
I’m putting the acquisition of Ring into the “good idea” category, although not for the reason(s) you might think.
Yes, there’s the new revenue source thing. That can’t be dismissed. Ring drove $415 million in sales last year, making the $1.1 billion Amazon shelled out to own it a very reasonable price. Maybe it wasn’t even enough, given its pace of growth. Ring only did $170 million worth of business in 2016.
There’s also chatter that Ring is a natural extension of Amazon Key, an interesting and somewhat controversial business that allows an authorized person to enter your home and leave deliveries inside your door.
I contend that’s not even the underlying thinking here, however. Neither FedEx Corporation (NYSE:FDX) nor United Parcel Service, Inc. (NYSE:UPS) drivers are actually opening customers’ doors, and Amazon’s internal delivery network remains quite limited in scope.
No, I suspect Ring was added to Amazon’s wheelhouse above all else to ensure that Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) isn’t allowed to get the toehold in the smart-home market it looks like it’s trying to get, now that it’s turned the heat up on its Nest products.
It’s a smart move owners of Amazon stock should be cheering more than they are. Though Amazon may not even exactly know how the addition of Ring might allow it to build a better smart-home package, it does know that one of Nest’s newest security cameras can serve as a Google-powered personal assistant. Amazon’s got a good thing going with its Alexa-powered Echo and doesn’t want to start ceding ground now.
While Amazon CEO Jeff Bezos may not even know exactly how Ring can be integrated, he may know Amazon can market smart doorbells better than any other company.
Theoretically, anyone with even just a bit of technological know-how can install their own Ring doorbell/security systems. In reality, it can be a daunting job most consumers end up choosing not to take on. Sure, the Geek Squad from Best Buy Co Inc (NYSE:BBY) can be tapped to do the job, but not everybody knows it, and not everybody is a frequent patron of the electronics retailer.
To that end, don’t forget that in the middle of last year, Amazon got into the smart-home installation business itself. It was and still is a way for Amazon to put an Echo in your home and then show you everything else the company can do to automate your home and simplify your life. Thing is, it’s also a brilliant plan.
Amazon didn’t mention the use of its home installer network as a way of making it easier to purchase Ring products. But, in that Ring is already easily linked to Alexa, it’s a natural relationship, and one that could make the doorbell rather than the Echo the gateway to a deeper customer relationship.
Either way, with neither Ring nor Nest able to offer installation services on its own, Amazon adds a major distinguishing factor to Ring.
Bottom Line for Amazon Stock
On the off chance the message has yet to be received, let me be clear. While Ring doorbells may grow to become a billion-dollar business for Amazon, that’s not a huge deal for the company. Amazon has generated $178 billion worth of revenue over the course of the past four quarters, and its top line continues to grow at a brisk pace. It could take or leave Ring as a doorbell company.
This isn’t about doorbells, though. This is about finding yet another way to bring customers into the fold and then monetize those customers a dozen other ways once they’re in the fold.
From that perspective, owners of Amazon stock should be applauding the savvy move that just so happens to help keep Google’s Nest at bay.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.