Amazon.com (NASDAQ:AMZN) recently unveiled the Dash Button, a tiny button that can be stuck or clipped to various surfaces around the home. When pressed, the device automatically orders preset consumable products such as Glad trash bags, Gillette razors, Cottonelle toilet paper, Huggies diapers, and Tide detergent.
The Dash Button synchronizes to Amazon's mobile shopping app via Wi-Fi, and the user sets the quantities that are ordered with each press of the button. The device will be available to select Prime members who request an invitation. Amazon will give up to three Dash Buttons for free to accepted members.
Amazon is also working with companies to integrate the same technology into household gadgets. Brita is developing a pitcher that can automatically order water filters, Brother is making a printer that can order ink, and Whirlpool (NYSE:WHR) is creating a washer and dryer that can automatically order detergent. Amazon's goal is to streamline the shopping process, while companies will benefit from branded buttons encouraging brand loyalty.
What's Amazon up to?
This isn't the first time Amazon has tried to expand its presence in homes. Last year, it launched the Fire TV and Fire TV Stick, which tether TVs to Amazon's ecosystem. It launched the Dash bar-code scanner, a wand-like device that uses a bar-code scanner and voice commands to order groceries and other products through AmazonFresh. Last November, it launched Echo, an always-on speaker that can answer questions, stream music, and perform other virtual assistant tasks.
These devices all expand Amazon's presence in the Internet of Things, or IoT, where sensors connect everyday objects to the cloud and each other. IDC forecasts the IoT market will grow from $1.9 trillion in 2013 to $7.1 trillion by 2020. Networking giant Cisco (NASDAQ:CSCO) believes the number of connected devices worldwide will double from 25 billion in 2015 to 50 billion by 2020.
The Dash Button is yet another way to tighten Amazon's grip on Prime users. These customers already pay $99 per year for free and discounted shipping options, e-books from the lending library, video streaming, and other benefits. Handing out Dash Buttons to let them instantly order consumables could increase user dependence on that ecosystem.
Not so fast, Amazon...
Amazon's smart home plans are ambitious, but they could face three major challenges.
First, the products that can initially be ordered via Dash Buttons are pricier brand-name items. For example, it might make more economic sense to buy Kirkland Signature detergent in bulk at Costco (NASDAQ:COST) instead of Tide refills from Amazon. Therefore, the success of the Dash Button depends on consumers mindlessly ordering items from Amazon without checking prices. If consumers don't take that leap of faith, the Dash Button will fail.
Second, the entrance of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) into the smart home market could derail Amazon's efforts. Both companies are connecting their popular smartphone operating systems to IoT devices such as smart locks, light bulbs, and thermostats. Amazon lacks that native strength, since its Fire Phones flopped last year.
Apple's platform, HomeKit, will reportedly use Siri to control the entire house. If Amazon's partners also make their household gadgets compatible with HomeKit, voice commands to Siri could be used to replenish goods from non-Amazon sites. Last year, Google partnered with brick-and-mortar companies to tackle Amazon in the home delivery space. Those partnerships could enable Google to add similar e-commerce components to its smart home efforts.
Last but not least, mobile apps from many retailers, including Costco, already make it possible to have consumables delivered straight to your door. Branded Dash Buttons designed to "lock in" customers feel like a big step back, not forward, from those apps.
Over the past year, Amazon introduced headline-grabbing products that barely matter financially, since most of these devices are restricted to a tiny percentage of Amazon users.
The Echo and Dash Button are only available to Prime users via invitations. The Dash bar-code scanner is available to AmazonFresh members, which limits it to select customers in Seattle, California, and New York. That's a tiny sliver of Amazon's North American market, which accounted for 62% of the retailer's top line in 2014. None of those devices are available to international customers, who accounted for the remaining 38%.
Amazon's new devices might seem like "stepping stones" that could tether smart homes to its e-commerce ecosystem, but they should more accurately be described as experimental devices.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Cisco Systems, Costco Wholesale, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Costco Wholesale, Google (A shares), 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.
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