I was dismayed when news broke that Amazon was purchasing my favorite WIFI hardware company, Eero. I’ve been a happy Eero customer for a couple of years now and our WIFI coverage has never been better.
The first question that came to my mind was “How is Amazon going to monetize this investment?”. Like any capital acquisition, an army of financial analysts will review the cash outlay versus the financial payback. Is Amazon only after the profits generated by a relatively small router company?
Even if what Amazon paid for Eero is small enough to justify by only getting WIFI Router profits in return, I find it implausible that this is what Amazon is after. Because from a cost of capital standpoint, this would be too small to move the dial for Amazon shareholders. When I worked for Herman Miller as an analyst, we evaluated an acquisition of an office furniture company in Columbia. We didn’t really care too much about their current product portfolio. We wanted their brand and favorable location to serve as a gateway to all of Latin America.
If I put my financial analyst hat on and think how I would try and persuade Jeff Bezos to let me buy this company I’d have to take a bigger picture view. There would need to be a tie-in to my current hardware or retail portfolio. For Amazon it could be in either direction.
You could work up a scenario where Amazon would like to offer a premium version of their Echo hardware that could also serve as a WIFI mesh router solution. Buying Eero would give their WIFI solution instant credibility and a 2-year head start over the growing pains of creating their own.
Or you could say that the purchase of Eero is more aimed at increasing their retail sales by acquiring more customer intelligence data. The more that retailers know about their customers the easier it is to strategically plan their advertising and inventory decisions.
I would guess that Eero is more about creating more accurate customer profiles than it is about applying WIFI technology to current Amazon products. The financial models would show far, FAR, more opportunity for profit growth in intelligence gathering versus hardware applications. This also partially answers why Apple would never purchase Eero. Apple doesn't believe in harvesting data in this way or for this purpose.
I’m not about to throw out my Eero system just yet but I’m not happy that Amazon is about to be given the keys to my entire family’s online activities. I’m planning to switch to some other company when the time to upgrade comes. Assuming there are any other independent or privacy minded-companies left when that time comes.
Even if what Amazon paid for Eero is small enough to justify by only getting WIFI Router profits in return, I find it implausible that this is what Amazon is after. Because from a cost of capital standpoint, this would be too small to move the dial for Amazon shareholders. When I worked for Herman Miller as an analyst, we evaluated an acquisition of an office furniture company in Columbia. We didn’t really care too much about their current product portfolio. We wanted their brand and favorable location to serve as a gateway to all of Latin America.
If I put my financial analyst hat on and think how I would try and persuade Jeff Bezos to let me buy this company I’d have to take a bigger picture view. There would need to be a tie-in to my current hardware or retail portfolio. For Amazon it could be in either direction.
You could work up a scenario where Amazon would like to offer a premium version of their Echo hardware that could also serve as a WIFI mesh router solution. Buying Eero would give their WIFI solution instant credibility and a 2-year head start over the growing pains of creating their own.
Or you could say that the purchase of Eero is more aimed at increasing their retail sales by acquiring more customer intelligence data. The more that retailers know about their customers the easier it is to strategically plan their advertising and inventory decisions.
I would guess that Eero is more about creating more accurate customer profiles than it is about applying WIFI technology to current Amazon products. The financial models would show far, FAR, more opportunity for profit growth in intelligence gathering versus hardware applications. This also partially answers why Apple would never purchase Eero. Apple doesn't believe in harvesting data in this way or for this purpose.
I’m not about to throw out my Eero system just yet but I’m not happy that Amazon is about to be given the keys to my entire family’s online activities. I’m planning to switch to some other company when the time to upgrade comes. Assuming there are any other independent or privacy minded-companies left when that time comes.
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