Amazon's New Echo Show Undermines Its Partner Ecosystem

By Evan Niu, CFA Markets Fool.com

Nearly two years ago, Amazon.com (NASDAQ: AMZN) recognized the important role that third-party partners would play in spurring adoption of its then-new Echo speaker, which is powered by its virtual assistant Alexa. Those partners include both software developers and hardware manufacturers. The e-commerce giant then pledged $100 million into a newly created Alexa Fund that would serve as a sort of start-up incubator for Alexa-related products.

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As of January 2017, Alexa Fund had invested in 23 different companies looking to create Alexa-powered products and services. One of those investments was Nucleus, which raised $5.6 million in a Series A funding round late last year -- led by Alexa Fund. Amazon's new Echo Show, which was unveiled yesterday and sells for $230, is a wholesale replica of Nucleus' product.

The new Echo Show. Image source: Amazon.

"They probably copied us"

Nucleus isn't all too happy about the new Echo Show. In addition to all of the typical Alexa skills, Amazon highlights that one of Echo Show's most important differentiating factors is communication; users can use the device to make hands-free video calls, communicate throughout the home like an intercom, or send messages. That's largely the same pitch that Nucleus made, positioning itself as an "Anywhere Intercom."

Nucleus co-founder and CEO Jonathan Frankel has spoken with both CNET and Recode since the Echo Show was unveiled yesterday, and Frankel doesn't pull any punches. "They probably copied us," Frankel told CNET. "Their thesis is what our thesis was: Communication is that Trojan horse to get those devices throughout the home and throughout the extended family's home," Frankel elaborated to Recode. Compare those comments to how Frankel felt immediately after scoring the Series A investment, according to Business Insider: "They've really been fantastic partners and just good people who are willing to roll up their sleeves and do anything possible."

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For what it's worth, Amazon responded to CNET and maintained that Amazon "didn't get the idea for Echo Show from Nucleus." Instead, Amazon says that it is just expanding the form factors that Alexa is available in. That claim may be untenable though, given how remarkably similar the two products are.

Furthermore, Frankel believes the episode should serve as a warning to other prospective partners, since Amazon has shown that it has no compunction stepping in and directly competing with these partners.

Look before you leap

In general, Alexa has made the most progress with third-party partners, which have helped empower the virtual assistant with over 10,000 "Skills," as Amazon calls them. Rivals have only recently begun broadly opening up their own respective virtual assistants to third-party developers.

With Amazon essentially copying one of its own partner's products, it undermines its entire partner ecosystem, since companies will now think twice before cooperating with the ruthless e-commerce giant.

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Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.