Amazon.com, Inc. AMZN has already released several smart devices, including multiple tablets and one smartphone. Now, the company is rumored to be developing its own technology for the home.
Little is known about the venture, but experts are mixed about its potential.
"I kind of think it's an Apple Inc.AAPL versus Google race," Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, told Benzinga.
"Or maybe it's a three-horse race -- Apple versus Google versus the venture capital startup segment. I don't really think Amazon is going to have much of a place in the smart home area."
Udall noted that the Fire Phone (which recently dropped in price from $200 to $0.99) seems to be "dying a pretty quick death." That may be a sign Amazon should reconsider its plans to enter new product markets.
Fire TV Could Lead The Way
If Amazon intends to push ahead with its unconfirmed smart home initiative, Fire TV could prove to be an essential part of those plans.
"Having their own [smart home] line would be consistent with what they've done with Fire TV," Rob Enderle, principal analyst at Enderle Group, told Benzinga. "It seems like the console TV business is a stepping stone to home automation because you can use the console as a natural hub."
Enderle thinks the home would be a "natural place" for Amazon to build, "but they don't have to because they've got quite a portfolio of third-party home automation products right now.
"The only reason they would brand their own is to be even more tightly focused on solutions for the home," he added.
Recent Cuts
Amazon may be looking to new areas for growth, but the company is also trying to squeeze greater profits from its existing services.
Earlier this year, Amazon increased the annual rate of Amazon Prime from $79 to $99 per year. Last month, the company reduced the member benefits for Amazon Mom.
Consumers may not be happy with these changes, but tech industry expert and analyst Jeff Kagan isn't worried. "As part of that bigger Amazon story…they have to choose which areas to keep and which areas to prune," Kagan said of the Amazon Mom changes.
"Google [does] the same thing," he added.
Kagan pointed to Google Health, which was expected to be a big search engine and a "big mover" in the healthcare space. "While the healthcare industry loved it, it just wasn't making money, so they eventually closed it," he said.
"Now maybe they closed it too soon -- maybe it would have become big five years from now. But as a business Google had to decide to close it. Google throws all kinds of stuff against the wall and tries to decide what sticks and builds it. Amazon does the same thing."
Meanwhile, Enderle thinks Amazon initially offered more Mom benefits to buy its way into the market.
"The [benefits] made the service relatively unprofitable, but it was to get people into the habit of using them for these purposes," said Enderle.
"Once folks are in the habit, they're trying to wean them off the heavy subsidies so that the service can be profitable. Amazon is under a lot of pressure to become profitable. They've been running at or slightly below break-even point for a long period of time. At some point every company needs to drift over into the dark side and start making money."
Other Smart Home Entrants
Udall wonders if Microsoft Corporation should develop a smart home platform and/or smart home products. "They could because they have the deep pockets and they theoretically have the software expertise," he noted.
"But what you really need is money and you need to buy the new technologies coming out, like what Google did with Nest. [Or] you need to either be able to develop the technology and work it into their current ecosystem, which is what Apple does and they're really good at."
Aside from Microsoft, Udall said it could be "tough" for anyone else to make the necessary investment.
"I'm not sure who else will be willing to take those economic risks for the future payoff," he concluded.
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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