Amazon's fourth unlock
A look at Amazon’s Roomba acquisition and why the “data” angle is misguided/incorrect.
Amazon acquiring Roomba has led to a lot of crazy speculation which I’m going to try and tease out today. There are 40MM Roomba’s today and just as many hot takes on why Amazon would want to acquire Roomba. For the uninitiated, Roombas are autonomous robotic vacuum cleaners. They’ve been around for 20+ years now. They can navigate around your home and manage to not fall down the stairs. Cool stuff.
There are several possible reasons for this acquisition that might not all tie up cleanly. I’ll call it now I don’t think this will be an instrumental acquisition for Amazon. Amazon is known for selling its devices for a lower price. Oh and I’m definitely one of those that has scored a fire tablet for under $30. The simple idea is to get a device in my hands and make money from me elsewhere. As I wrote in Building Moats, this is an example of a counterposition. Using this device or a Fire Stick perhaps I’d buy more stuff or watch more Amazon Prime and the same with Alexa right? Maybe I’d order something but given the most common commands, it does not seem like much of that is happening. While Alexa is a cool product it might just not be great for business (at least today). Yes, they are collecting a lot of data and voices which can be used for some purpose that is not clear.
So why is Amazon vacuuming up Roomba? (assuming from a regulatory perspective that they will be allowed to buy Roomba given FTC wanting to block Facebook’s acquisition of Within)
Data
So Amazon will now own maps of 40MM houses. Interesting but not so interesting in and of itself. Amazon already has the Astro Robot that could do the same thing. Astro is a “cooler” Roomba and Roombas’ can be expensive, too!
Keep home closer with Astro, the household robot for home monitoring, with Alexa. When you're away, use the Astro app to see a live view of your home, check in on specific rooms and viewpoints, and get activity alerts. When you're home, Astro can follow you from room to room playing your favorite music, podcasts, or shows, and find you to deliver calls, reminders, alarms, and timers set with Alexa.
Perhaps Roomba’s mapping is better? But what will they use this data for? There are a couple of options:
One they can understand how large a place you live in (even if they can’t see above the 2-inch ground level). This might help them personalize products. They’d be able to tell your location today so they can target specific products even today.
Amazon could use this data to sell to other customers after their own “best first customer”
Think of a Home Depot or Lowes that could use this data to decide how much carpet you need.
Home Sharing (eg Airbnb) to predict more accurate rents based on location + size + square footage.
Use Roomba’s superior mapping capabilities, throw on a head, make it an Astro and sell you more
shit…stuff you need. This is the predatory pricing strategy that didn’t work well for Alexa or Fire (tablets/sticks)
I’m not convinced that the data play makes sense on its own
Smart Home
Amazon owns Ring which is a smart home device. At the time that acquisition made sense. It prevented robberies and alerted you who is at your door. In addition to that, the ability of a delivery driver to be able to “enter your home” and drop stuff off was somewhat plausible. But I haven’t seen much traction with deliveries via a smart doorbell.
The one thing that is confusing here is what is the collective strategy for Smart Home devices. This is an important question to understand. Alexa wants to be the voice OS of choice everywhere (not necessarily just the house) but on mobile, its relegated to “just an app” and so we have Amazon hardware such as Echo, Show, Dot (and god knows how many other devices) that can control (using voice) the Smart Home. But... I am quite unclear (and I'm not a smart device so thats that) as to what is the strategic value of Alexa (not as a standalone product but to Amazon overall)
Ultimately owing “smart devices” or “data” or “home” so far has not yielded much value (other than Fire Stick and that's because Prime Video is part of the Prime Bundle and if it's inaccessible because a Roku or an Apple TV messes with Amazon they have their own hardware). This also explains the pricing of the Fire device. Would you really pay a lot for a piece of hardware just to watch Amazon Prime Video? Probably not.
If you’re as confused as me at this point we’re on the same page. Let's step back and look at how Amazon makes $. So we have AWS, Amazon Prime Membership, and Amazon Marketplace (FBA, Amazon Ads)
Amazon has been trying to unlock a 4th revenue pillar. AWS is profitable, and Prime is, too. The Marketplace business is at risk due to antitrust scrutiny. In my profile on Andy Jassy, I wrote that “Amazon will be a very different company in the next decade; way different than the Amazon we know now because Jassy is not just sharp as a knife but also because he has a ton of empathy. A quintessential human. Jassy will run Andy Jassy’s Amazon not Jeff Bezos’ Amazon. Bezos had three decades to get used to the idea and ultimately handed the reins to the best person for the job. To be sure, Jassy sure has his work cut out for him but is the right leader to run the new Amazon.”
Amazon has tried (is trying) a bunch of things to unlock a new revenue source. This has been the case for the past 7-10 years with a variety of attempts that might never work or have failed:
Haven Healthcare (Shutdown)
WholeFoods acquisition
Alexa & Smart Home devices
One Medical acquisition
PillPack (acquisition) & Amazon Care
In service of OR unlock strategy?
Amazon’s expensive “experimentation” has been in service of either one of the existing revenue sources or unlocking a new revenue source. Whole foods could be both (Prime membership and/or unlocking groceries). Alexa is likely to unlock a new source (not working well so far) so it's being combined with their Smart Home Strategy in the hope that the combination will unlock a revenue source.
So.. it seems like the two key contenders for the 4th revenue unlock are Amazon Health (which is a longer-term unlock) and Smart Homes (shorter term but revenue models are iffy today)
Healthcare is the most promising but riddled with regulation and failure and a lot of costs! However, acquiring One Medical will give them both a foothold as well as the expertise rather than trying to hire for folks with expertise in healthcare. Additionally, they could use these facilities to augment Prime (returns? Lol, Hello Doctor, I'm not well oh, and by the way, I’d like to return this order I no longer need)
Smart Homes are much less risky but they haven’t exactly gone anywhere in a decade. Take this with a pinch of salt but if you squint hard enough you can see how this might tie up with HealthCare way in the future.
Imagine that you have an Astro monitoring your home for life signs and is then able to identify a potential mishap and get you immediate medical care (via One Medical). Natural language understanding is a huge part of making this happen.
This sounds crazy to me and I’m pretty crazy! Perhaps the acquisition is much simpler and tied to improving capabilities in warehouses (in addition to that sweet extra consumer revenue). Amazon acquired Kiva a decade ago
Talk is cheap, of course. Strategy is easier than execution whichever direction Amazon decides to go in. Even if Amazon ultimately cares about the layout of your house (which I wager they do not) they won’t be able to unlock a new revenue source. Not one as large as healthcare in a country like the United States. Apple has a device-based strategy (Apple Watch) for health and perhaps health1care is ultimately where Amazon and Apple become head-to-head competitors.
All those hot takes about Amazon wanting your “house data” are daft and misguided! Check back in a decade and prove me wrong ;)
Your essays always make me think. Deeply. More.