Amazon.com, Inc. (NASDAQ:AMZN) has conquered the e-commerce space and now it wants to conquer your home with one simple device. Amazon has big plans for this product and with AMZN stock having been beaten down 20% year-to-date, investors may want to take notice before the stock rebounds.
So why does Amazon want to be invited into your home? The “smart home” market is taking off and Amazon wants a piece of the action.
“Smart home” is the term used to define the connectivity and control of appliances and devices throughout the house from a central device. Your thermostat, lights, appliances, home entertainment devices, and security system, for example, could all be added to a home automation system that can be controlled from within the house or from afar with a smartphone.
The global smart home market was valued at just less than $20.4 billion in 2014 and it is expected to grow to nearly $58.7 billion by 2020. (Source: “Smart Homes Market worth $58.68 Billion by 2020,” Markets and Markets, last accessed February 17, 2016.) That’s an annual compound growth rate of 17%, so it’s no wonder that Amazon wants to get in early before competition starts to heat up.
Unlike Alphabet Inc’s (NASDAQ:GOOG) “Google Nest” product, which controls only your home’s thermostat, and other companies whose products control a single device or appliance, Amazon’s product wants to do it all.
I’m talking about the “Amazon Echo.”
When Amazon launched the Echo in late 2014, it was a device that did very little other than play music, get weather updates, or answer fact-based questions with voice commands. It was hard to see what its purpose was.
But last spring, Amazon opened up the software development kit (SDK) for “Alexa,” the personal assistant behind Echo, much like Apple Inc.’s (NASDAQ:AAPL) “Siri” on the “iPhone” or Microsoft Corporation’s (NASDAQ:MSFT) “Cortana.” Shortly after, Echo was able to deliver sports scores, news, traffic reports, and more.
But let’s be honest, why would anyone pay $179.99 for a device that performs a few simple tricks when a smartphone can do the same thing? Amazon realized this and in recent months, the company has focused on turning the Echo into a home management device that will ultimately control your entire home.
Now, with a smart home-compatible device, Echo can be used “to switch on the lamp before getting out of bed, turn on the fan or space heater while reading in your favorite chair, or dim the lights from the couch to watch a movie—all without lifting a finger…or even raising your voice.” (Source: “Amazon Echo,” Amazon.com, last accessed February 17, 2016.)
That’s all great, but the Echo is about to get a lot smarter, as a number of partnerships were announced earlier this month. Echo users will be able to order Domino’s Pizza, Inc. (NYSE:DPZ), play music through Spotify, or summon an Uber to their homes.
This is just the beginning of what the Echo can do and it reminds me of when smartphones just started to break ground with a limited number of apps. The more apps the Echo has at its disposal, the more people will buy one. Likewise, the more people there are who have an Echo, the more apps developers will create for the device.
The Bottom Line on AMZN Stock
Amazon is entering the smart home market in a big way with its Echo device, putting it well ahead of rivals Alphabet and Apple. The Echo has the potential to open up a massive new revenue stream for Amazon well beyond the device itself, much like smartphones have. For this reason alone, AMZN stock is at least worth a closer look.