Amazon Broadens Access to the Surveillance State
Last week, Amazon.com, Inc. (Nasdaq: AMZN, Rated “B-”) revealed an autonomous indoor security drone and privacy hawks predictably went nuts. But this product is at the vanguard of a category of products that are speeding down the pike, and they accrue to the inherent advantages of big tech.
The Ring Always Home Cam is supposed to surveil your home when you are away, reacting to strange sounds and tripped alarms.
In reality, it’s a gateway to Amazon’s next really big business.
This is why investors should ignore the usual critics and buy Amazon.com shares.
“Surveillance as a service” sounds really bad. However, the idea is cloud-connected hardware and software that allows anyone to connect to, and see inside, their home or business from anywhere in the world. A few taps on your smartphone and you’re looking through the lens of strategically located cameras like a home version of Jack Bauer in the television series “24.”
Critics are always quick to point out the stuff that could go wrong. Hackers or government agencies could break into these systems to spy. These warnings play to our natural paranoias and undoubtedly win clicks and likes on the internet.
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The problem for investors is that these warnings also distract from huge business opportunities. The same critics who now say Ring Always Home Cam is a dumb idea that will not work are also the ones that warned Echo, a smart speaker that reacts to commands, was dead on arrival.
What they missed, beyond the fact that consumers are willing to give up some privacy for convenience, is that Amazon.com has a built up a huge reservoir of trust. This is critical. It’s a business moat and a competitive advantage that others have to spend dearly on to achieve. In most cases, it’s a barrier too high to climb.
In January, research firm Morning Consult found that Amazon.com was the second most trusted American brand, right behind the United States Post Office. Alphabet Inc. (Nasdaq: GOOGL, Rated “B-”) and PayPal Holdings, Inc. (Nasdaq: PYPL, Rated “B”) were ranked third and fourth.
Today, Echo controls 70% of the smart speaker market in the United States. And Alexa, the digital assistant brain of these devices, has landed in 200 million products, up 100% since 2019.
Amazon hardware is a big business that privacy hawks told us could not happen. Now, that business is about to explode in a profoundly new way.
Many of those Alexa-enabled devices are set to become Bluetooth bridges for Sidewalk, Amazon’s new low bandwidth, long range wireless protocol. With enough access points, Sidewalk could easily cover an entire neighborhood, providing shared connectivity to thousands of smart security cameras, floodlights and other devices that might otherwise be outside of the range of household WiFi.
On Sept. 21, Amazon announced a partnership with Tile, a company that makes tags to help people find misplaced keys and other valuables. And at the Sidewalk launch event a year ago, managers showed off a system that could locate lost pets.
The beauty of this new Amazon-operated network is all of the communications between disparate devices are encrypted multiple times, according to a report at Techcrunch. Participating silicon vendors will need to be verified by Amazon.
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Mano Arana, general manager at Sidewalk, told Techcrunch the wireless protocol has many potential use cases, including powering industrial sensors and small internet-of-things devices. Sidewalk could make cell towers redundant for IoT connections, negating the need for expensive cellular radios.
Analysts at McKinsey and Co., a global business consultancy, believe the internet of things is at the core of digital transformation. Adding sensors and always-on connectivity will help businesses add between $4 trillion to $11 trillion in value by 2025.
Privacy hawks often conflate IoT with connected home toasters and washing machines. They can’t understand why anyone would want a smartphone app to control the rinse cycle on a Maytag front loader, given all of the potential privacy concerns.
Product managers at Amazon understand the difference between connected home and IoT, and they know how to build secure, encrypted networks. They leveraged the strong company brand to build out an ecosystem of software bridges, gateways and access points. To most people, these devices look like smart speakers, connected lights and doorbells.
Investors should see the bigger picture.
This is the foundation of a remarkable new network for the Internet of Things, with Amazon.com as gatekeeper. More important, the barriers to entry are high because public trust is the cornerstone. It’s a business that could be worth billions in profits to shareholders.
Buy Amazon.com shares into every major decline.
Best wishes,
Jon D. Markman
