Why Did Amazon Buy a Wireless Camera Start-up?

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Amazon.com (NASDAQ: AMZN) recently acquired Blink, a start-up that makes wireless cameras, for an undisclosed sum. Blink's wireless home-security systems are powered by batteries instead of electrical outlets. Blink sells its cameras on Amazon -- a one-camera unit costs $99, while a three-camera set costs $229. It also recently introduced a video doorbell.

A press release stated that Blink will "continue to operate under the Amazon umbrella" while "selling and supporting the same great products you know and love." It didn't say anything about integrating its cameras into Amazon's ecosystem, but Amazon likely has big plans for its little cameras.

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Understanding Amazon's smart-home strategy

The global smart-home market, which includes connected appliances and other home-automation products, could grow from $24.1 billion in 2016 to $53.5 billion in 2022, according to Zion Market Research.

Amazon established early footholds in that market with its Dash buttons, which automatically reorder consumables with a single push; Dash appliances, which automatically reorder consumables like detergent and water filters; and its Echo smart speakers -- which reorder products, stream music, answer questions, and control smart-home devices.

The Echo has a major lead in the smart-speaker market against challengers like Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Home, Microsoft (NASDAQ: MSFT) and Harman Kardon's Cortana-powered Invoke, and Apple's (NASDAQ: AAPL) upcoming HomePod.

Back in October, Strategy Analytics estimated that the Echo and other Alexa-powered devices accounted for 68% of the entire smart-speaker market. Amazon also recently disclosed that the Echo Dot was its best-selling product over the holidays.

It's all about taking over your home

Amazon is also creeping into homes with other devices, like its Kindle tablets and Fire TV streaming devices. These products all tether customers to its Prime ecosystem, which reaches 90 million subscribers in the U.S., according to research firm CIRP. The expansion of that ecosystem is crucial for Amazon, since the average Prime customer spends about $1,300 annually, compared to $700 for the non-Prime customer.

Its ever-expanding Prime bundle -- which includes exclusive discounts, free shipping on select products, streaming media, e-books from the lending library, and cloud storage -- is tough to resist for regular Amazon shoppers at $99 per year.

That's why Amazon introduced Amazon Key in late October. That delivery service allows Amazon's couriers to open your front door via a smart lock and place your packages inside. Amazon syncs the smart lock to its Alexa-enabled Cloud Cam for security purposes.

Privacy advocates raised a series of privacy and safety concerns about the service, claiming that "rogue deliverymen" could disable the Cloud Cam, and that letting Amazon constantly peer into homes crossed a line between retailers and customers.

But it's only a matter of time...

Amazon Key might seem creepy, but privacy advocates have expressed similar concerns about Echo. Yet customers now willingly let the always-on speakers "listen in."

Customers are willing to let Amazon into their homes because the benefits of "frictionless" e-commerce transactions are easy to see. Amazon is also considered less of a data miner than Google, and offers users of its smart-home products users unrivaled e-commerce benefits.

That's arguably a flaw that Google, Microsoft, and Apple's smart-speaker and smart-home efforts all share -- their ecosystems simply can't match Amazon's blend of e-commerce benefits, streaming media, and other perks.

So what will happen with Blink?

Amazon likely bought Blink's cameras to complement its Cloud Cam, since that camera's introduction was overshadowed by the controversies about Amazon Key. Blink already added Alexa support to its cameras in mid-October, so tethering its devices to other Amazon Alexa-powered devices should be simple.

Blink's cameras aren't the only Alexa-compatible cameras on the market. Chk-In, Homeboy, KUNA, SkyBell, Arlo, Ring, and even Google's Nest Cam -- the Cloud Cam's biggest rival -- all work with Echo devices.

Amazon likely realized that Key was ahead of its time, but it knew that security cameras were still a crucial segment of the smart-home market. Looking ahead, Amazon might acquire additional third-party smart-home device makers to guarantee the continued growth of its Alexa ecosystem -- which should terrify rivals like Google, Microsoft, and Apple.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.