Amazon.com (NASDAQ:AMZN) has been in the hardware business for nearly seven years. The original Kindle launched way back in 2007. If you include the three years it took to develop the Kindle before its release, you could argue that Amazon has worked on hardware for a decade.
The e-commerce king is about to push even deeper into first-party hardware, according to Reuters.
Within the next five years, Amazon is reportedly looking to dramatically expand its hardware division, growing its headcount to nearly 3,800. That will also help Amazon get some tax breaks in California, as its Lab126 division is located in Silicon Valley.
Specifically, Lab126 is supposedly working on a whole new generation of hardware products for Amazon, focusing on the smart home and the Internet of Things. Oh, and there might even be a pinch of wearables on the side. Those three trends are currently all the rage in tech, and Amazon isn't going to sit on the sidelines.
Of course, Amazon's angle will largely be to make buying things even more seamless, such as a Wi-Fi enabled device that could help order household items at the touch of a button. It's also entirely possible that none of these devices being developed will ever see the light of day.
Apple unveiled HomeKit earlier this year, a framework for developers to use with connected accessories. The company also unveiled the Apple Watch this month, which ships next year, as its big foray into wearables. Google's Nest acquisition gave the search giant inroads into the smart home, and its hardware partners are similarly launching a slew of Android Wear smart watches this year.
Who's the boss?
Amazon has a mixed track record when it comes to selling hardware. It has some undeniable successes under its belt, such as the Kindle and Kindle Fire, but also some products that have fallen flat. The most recent and prominent example is the Fire Phone, which appears to have flopped given how quickly Amazon discounted the device to $1 on contract.
The company also recently launched Fire TV. While the device quickly sold out, it remains unclear how many Amazon had initially produced. Chances are that Fire TV sales are anything but game changing. As usual, the company refuses to give investors any solid numbers regarding its hardware business, leaving it to their imagination.
At the end of the day, what matters to investors is if Amazon can ever recoup the resources that it's investing in developing hardware. Amazon typically sells hardware at or near cost, but its hardware portfolio helps maintain the moat surrounding its e-commerce and digital content businesses.
Expenses related to building technology and content jumped 40% last quarter to $2.2 billion, representing approximately 12% of revenue. Amazon is infamous for having extremely long time horizons for its investments as it enters new markets, but inevitably, it will have to answer to shareholder scrutiny if its hardware business becomes a money pit.
Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.