Earlier this year, Amazon (NASDAQ:AMZN) unveiled the Dash Button, which can be attached to surfaces around the home and used to reorder consumable products like trash bags, toilet paper, razors, or detergent. Amazon basically gives out the devices for free -- each button costs $4.99 but includes $4.99 of credit toward purchases.
Brita, Brother, and Whirlpool quickly partnered with Amazon to integrate the technology directly into new household gadgets under the Dash Replenishment Service (DRS) program. Brita developed a connected pitcher for ordering water filters, Brother produced a connected printer for ordering ink cartridges, and Whirlpool created a washer and dryer that could automatically order detergent.
However, Amazon's list of DRS partners recently got a lot longer as 11 more companies -- including General Electric and Samsung -- hopped on the bandwagon with smart washers, printers, blood glucose monitors, and pet food dispensers. These devices also add dedicated buttons for ordering refills of products like detergent, ink, glucose test strips, or pet food from Amazon. These gadgets can tighten Amazon's grip on its customers and expand its e-commerce ecosystem into the Internet of Things (IoT) market, which consists of everyday objects connected to each other and the cloud.
Why are these companies supporting Amazon?
People have talked about fully automated homes for decades, but they only became practical in recent years thanks to faster Wi-Fi networks, smaller and cheaper system-on-chips (SoCs) for connected devices, and mobile apps tethered to the cloud.
Networking giant Cisco now predicts that the number of connected devices worldwide will double from 25 billion this year to 50 billion by 2020. Research firm IDC believes that worldwide IoT spending will jump from $656 billion in 2014 to $1.7 trillion in 2020.
Those bullish forecasts fueled a big IoT land grab across multiple industries, which caused market fragmentation. Leading companies in networking, chipmaking, telecom, and mobile devices all established IoT communication standards of their own. These partnerships include the AllSeen Alliance, the Open Internet Consortium, the IPSO Alliance, the Industrial Internet Consortium, and various other groups. The conflicts between these standards caused big headaches for IoT device makers and consumers.
Amazon's approach is much simpler. Rather than pledge its allegiance to those alliances, it simply introduced a Wi-Fi enabled button that automates orders from its website while letting device makers worry about communication standards for other features. Amazon claims that DRS members only have to add as few as 10 lines of code to tether their devices to its e-commerce ecosystem. This makes DRS an elegant and universal solution for companies that are eager to sell smart appliances but are tired of tripping over communication standards.
Bad news for Alphabet
Growing support for Amazon Dash is bad news for Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google division. Last year, Google chairman Eric Schmidt admitted that "more than twice" the number of shoppers used Amazon for product searches instead of Google. This causes Google to process fewer shopping search queries, which translates to lower ad revenue and user data mined for targeted ads.
Google fought back with home delivery options, but those efforts seem to be crumbling. Two of Google's top e-commerce execs resigned over the past year, and it shuttered two same-day delivery hubs in the Bay Area in August.
The core problem is that Google doesn't offer a service as attractive as Amazon Prime, which offers users free two-day deliveries, discounts, streaming media, and other perks for $99 per year. That ecosystem takes prisoners and opens up their wallets -- which is what Amazon will keep doing with Dash Buttons and DRS-enabled devices.
The growth of Amazon's Dash in smart homes could also hurt Alphabet's Nest division, which is trying to build a smart-home ecosystem with smart thermostats, smoke detectors, connected cameras, and the OnHub smart-home hub and Wi-Fi router.
A win-win situation for Amazon and its partners
In my opinion, Amazon's DRS strategy is a brilliant win-win strategy for both itself and its partners. Amazon gets ecosystem growth and increased sales through its website. DRS partners gain an easy-to-integrate IoT feature, and companies that run on the razor-and-blades model gain frictionless (and mindless) orders. Brother and Brita, for example, won't have to worry about consumers buying cheaper generic versions of their printer cartridges and water filters anymore.
For Alphabet, the situation is more lopsided. Alphabet can certainly collect more data from connected appliances, but it's unclear how that connectivity will actually help manufacturers in the long run.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com, Google (A shares), and Google (C shares). The Motley Fool owns shares of General Electric Company. The Motley Fool recommends Cisco Systems. 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.