Amazon’s Billion-Dollar Bet on Delivery

Amazon recently announced that it is acquiring the smart-lock startup Ring. The deal comes at a substantial cost reported at $1 billion for Amazon, but it’s an investment that will likely pay off big time.

What’s Ring? It’s a six-year-old startup that offers a handful of connected home security devices, including doorbells and cameras. Ring says its mission as “to reduce crime in neighborhoods.” However, Amazon’s investment likely has little to do with this stated goal.

Smart locks have garnered adoption for a range of use cases from letting in guests at Airnbnb to simply improving the user experience by removing the need for an extra key. But Amazon is likely interested in one main thing: delivery.

Taking Ecommerce to the Next Level

Amazon wants to be able to deliver packages not just to your doorstep, but rather directly into your home. With a smart lock like Ring, Amazon’s delivery person can get temporary access to your home to drop off your package. Amazon has already trialed a similar service, called Amazon Key, but the Ring acquisition gives Amazon a leading smart lock competitor to help scale the service.

Amazon hopes that this experience will increase adoption for ecommerce by taking the hassle out of package delivery. No more waiting around for packages or worrying about if items left on your doorstep will be stolen before you can get home. Lost and stolen packages can be a huge cost to Amazon and a big source of customer satisfaction.

If Amazon can simplify the package delivery experience, it could drive a lot more consumer adoption for ecommerce, not to mention reducing logistics costs like missed delivery windows that mean a delivery person needs to be sent again the next day. Amazon has also trialed similar services to in-home delivery like “delivery to trunk” for the same reasons.

While Amazon itself has been growing at a steady clip, ecommerce still accounts for only about 9% of retail sales in the U.S. If Amazon nails in-home delivery, combined with ever-faster delivery times, it could bring that number much higher. The synergies with Amazon’s recent Whole Foods acquisition, for example, could be significant. With in-home delivery, shopping on Amazon could come to replace the post-work trip to the grocery store. Now your produce will be waiting for you at home – maybe even directly placed into your refrigerator.

The biggest outstanding concern for this program is obviously security. In Amazon Key, the company was addressing this issue by requiring consumers to use a connected camera that would enable them to record or monitor the package drop off. That requirement is unlikely to go away soon, but it will be interesting to see how Amazon integrates Ring’s products more directly into the program.

Fortifying Alex

The other motive for this acquisition is continuing to grow Amazon’s presence in the smart home. Amazon’s Alexa voice platform has been a big hit with both consumers and developers. Ring now adds another key home device to the Alexa ecosystem.

 For example, imagine being able to let guests into your home when you’re not there by asking Alexa to unlock the door. This capability would also remove the late-night calls to the locksmith that plague any renters who accidentally get locked out of their apartment. The use cases will vary depending on the environment, but Ring gives Alexa another core application that it can open up to developers.

While Amazon itself will likely be developer number one for this scenario, expect other ecommerce companies and app developers to also find innovative uses for smart locks via Alexa’s development platform.

For Amazon, the outcome is win/win. The more entrenched its devices become in the home, the more likely you will do more shopping on Amazon.

Like other successful platforms, Amazon is trying to build interlocking ecosystems between its multiple platform businesses. So far, its strategy seems sound. If it executes well, the $1 billion it’s paid for Ring could soon seem like a bargain.

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