Amazon wants to own your home; Ring’s IP gives it the opportunity to do just that
By now, everyone has heard the news of Amazon’s $1+ billion acquisition of smart-home startup Ring, most famous for its video-enabled doorbell and “failed” Shark Tank appearance.
It’s become apparent that the $50 billion home security market is the first real use case or potential “killer app” for the smart home. With the Ring purchase and its recent purchase of another smart home startup, Blink, Amazon is positioning itself to win the space. But for Amazon, “winning” a space doesn’t simply mean gaining a few customers and selling them a bunch of stuff. Time and time again, they’ve executed against a very specific strategy:
- Invest in a market with massive fixed costs but the potential to benefit from economies of scale
- Build an integrated solution, justified by the fact that Amazon itself will use it
- Open up the integrated solution to third parties, providing the “primitives” for continued development on top of the Amazon platform
The Amazon Marketplace (the core ecommerce offering) and Amazon Web Services are the two most prominent and realized exercises of this strategy, but it is actively pursuing the strategy in logistics, food services, and now, the smart home. Notably, Amazon’s moves into all of these markets feed off each other. For instance, its moves into logistics—particularly its goal to solve the “last mile problem”—is directly strengthened by its effort to own the smart home, particularly the home security system.
Amazon’s next platform play
Amazon’s smart home strategy is buoyed by its IP portfolio (trade secrets, patents, copyright, trademarks), which is only strengthened with the Ring acquisition.
Ring had been embroiled in a trade secrets lawsuit with home security competitor ADT, but recently reached a settlement, reportedly to the tune of $25 million. Importantly, trade secrets, not patents, were at issue in the ADT lawsuit. Specifically, the trade secrets related to a $36 million investment ADT had made in now-defunct Zonoff to develop a smart home as a service platform (SHaaS). The solution never materialized, and as Zonoff went bankrupt and shutdown, it made a $1.2 million deal with Ring to sell off the R&D that went into developing the platform; ADT didn’t take too kindly to that and sued.
Currently, Alarm.com is the leading SHaaS platform provider; for example, ADT is one of its largest customers, providing its security services on top of Alarm.com’s platform. Building an integrated SHaaS platform is different than simply selling smart home or IoT devices; Alarm.com describes itself this way on its website:
“More than a smart app or a cool thermostat, Alarm.com seamlessly connects the key devices in your home on one platform — so they work together and work smarter.”
Listen, Ring makes a nice doorbell, and the ADT settlement will allow it to begin selling a new product, Ring Alarm this spring. But in the long run Amazon couldn’t care less about selling doorbells. It wants to own the smart home platform, and it sounds like this is what Ring acquired from Zonoff and that’s why ADT sued. When it became apparent Ring owns protectable IP related to building out this platform to compete with Alarm.com, Amazon swooped in. If the Uber–Waymo trade secret lawsuit taught us anything, it’s the value of trade secrets in this new anything-as-a-service world. Currently, the smart home platform space is fragmented, with any number of companies building their own “standards” for devices to communicate with each other. Amazon wants to be the one to consolidate this space, building an integrated SHaaS platform, with its Echo serving as the linchpin.
But, Ring and its various smart home patents also provide an important stepping stone for building out this SHaaS platform. Remember Amazon’s playbook: it invests heavily (trade secrets are often the IP result of this) and builds an integrated solution at first, making it easy for the customer to adopt. In the smart home, this will mean buying a bundle of devices (Echo, Cloud Cam, Ring Doorbell, Amazon Key services) and selling access to the platform and monitoring services for a monthly subscription fee. Customers will even have the option to have someone come out and setup everything for them, as they do now when they purchase a Ring Doorbell.
While customers stand to benefit from the simplicity of a fully integrated solution, Amazon itself may benefit the most. First, owning the home security system provides Amazon the most direct method to solve the well-documented problem of package theft. In addition, the FAQ page for the new Amazon Key service warns that the service doesn’t integrate with any home security systems, an obviously lacking feature for a service designed to ensure the security of your home.
Interestingly, a batch of patents from Ring was just published by the USPTO in mid-February, including one that was granted for a “Wireless entrance communication device.”
It turns out Ring is also involved in a lawsuit with SkyBell, another maker of smart video doorbells, which has claimed that Ring is infringing on its patents. Guess who SkyBell has a distribution partnership with? If you guessed Alarm.com, Amazon’s primary competition in the SHaaS platform space it’s entering, you’d be correct. Amazon is arming itself for the type of scorched-Earth competition it brings to ever to every market it enters. In addition to the IP it has collected (trade secrets from Ring’s Zonoff deal, patents from Ring), Amazon will also offer absurdly low prices, attracting new customers to the platform. Ring Protect, the startup’s new monitoring and video service, is offered for just $10/month, well below; ADT starts at $37/ month. No wonder ADT and Alarm.com stocks dropped as much as 10% on the news of Amazon’s acquisition.
The future, delivered by Amazon
Amazon’s move into any particular market has greatly benefitted from flywheel and network effects. For example, as AWS gains more customers, it attracts more developers onto the platform, which makes AWS even better, attracting even more customers. Home security will benefit from a similar dynamic.
The USPTO published a patent application from Ring earlier this year for “Verification and Membership to Neighborhoods for Sharing of Video Footage from Audio/Video Recording and Communication Devices”; essentially, a patent describing a way for an entire neighborhood to share video footage from their security systems. If that isn’t network effects, I don’t know what is. “Carol and Dick don’t have Ring Protect? They’re not invited to play Bridge this weekend! Her mayonnaise cake is always dry anyway!”
Once enough people have adopted Amazon’s integrated solution, they’ll open up the SHaaS platform for third parties to build their own home security and monitoring systems on top of it. ADT and co. will go from competitors to customers. Dozens of other businesses could benefit from technology-enabled security systems that allow selective entry to properties; Airbnb is perhaps the first that comes to mind (and, since Airbnb uses AWS, surely Amazon will make the technology integration easy on the backend!).
Meanwhile, Amazon has big plans of its own to leverage its “ownership of the home.” Recently, the USPTO issued Amazon a patent for “Predictive Restaurant Ordering.” It’s described as:
“a meal ordering service configured to receive takeout and delivery orders from customers and to place the orders with selected restaurants….On any given day, the predictive model may be used, in light of the current and scheduled status of the customer, to predict a time of day that the customer may want to receive a meal and to also determine a restaurant from which the customer may want to receive the meal.”
So, your calendar is integrated with Alexa; from there, Amazon uses its predictive restaurant ordering to guess when you’ll get home from work and orders you dinner; your Ring security system is disabled for the delivery person, who delivers your favorite takeout order just before you get home from work. By the way, it could also do this with groceries or other items; just wait until Amazon puts a camera in your fridge.
This is the most amazing thing. Not only does Amazon enter a market and then proceed to dominate it, but the markets it enters actually reinforce Amazon’s dominance in others. If/when Amazon dominates the home security space, this makes their logistics business that much better; Amazon isn’t just solving the “last-mile problem,” it’s solving the “last-ten-feet problem,” ensuring packages make it inside the home. But, this is also the scariest thing: how can we even stop a company like this, and should we?
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