Amazon Cranks Up IoT Innovation Machine

Amazon is ramping up its innovative hardware product testing and beefing up marketing strategies to give its nearly quarter billion customers better ways to buy its wares using Internet-connected devices.

Amazon will boost staffing at its Silicon Valley hardware unit, Lab126, by at least 27 percent over the next five years, according to reports that surfaced last week.

The company reportedly plans to boost full-time payroll to at least 3,757 people at the facility by 2019. Lab126 had almost 3,000 full-time employees in its 2013 taxable year.

Some of the products said to be under development are smart home gadgets — part of the growing Internet of Things. Amazon reportedly plans to invest US$55 million in Lab126 operations.

Amazon declined to confirm its specific plans for expansion and product development. It also declined to comment on an agreement reached with California in June that would give the company $1.2 million in tax breaks. Mention of the agreement is posted on the California governor’s website.

“As a matter of company policy, we don’t comment on rumors and speculation,” Amazon spokesperson Kinley Pearsall told the E-Commerce Times.

Expanding Research

News of this expansion comes amid reports that Lab126 is testing connected-home devices that could open up a marketing arsenal to compete against Google and Apple.

Amazon definitely is working on strategies to monetize the IoT, and operations at Lab126 are a key part of that plan, said John Rossman, a disruption expert at Alvarez & Marsal.

“There is a lot of CAPEX and OPEX being poured into that operation, so it had better be real,” Rossman told the E-Commerce Times.

No Longer Obscure

Although Amazon declined to comment on the scope of operations at Lab126, the development team is moving incredibly quickly, according to Pearsall, and already has introduced the new Fire TV, the new Fire Phone, new Fire tablets and new Kindle e-readers this year.

The team will continue to invent and create innovative features, services and products, she said, acknowledging that Lab126 is growing fast.

Products For IoT

Since its beginning, Amazon has put considerable effort into lowering the friction for online shoppers, observed A&M’s Rossman, a former Amazon exec and author of The Amazon Way: 14 Leadership Principles Behind the World’s Most Disruptive Company.

Amazon no doubt will build its expanded product connectivity around the Prime service, he added.

“Amazon has put a moat around its core customer base,” Rossman said. “That moat is generally tied into the Prime service. That started as a shipping program and morphed into a customer loyalty program. Now it is a business model. Amazon has so many different components to that business model that it makes it easy for customers to make a commitment to buy.”

Consumers Need Controls

An auction model is one area that Amazon might be expected to evolve. It did something similar with its advertising, noted Dave Birch, global ambassador at Consult Hyperion.

“For commodity products, it makes more economic sense for stores to bid on the basket rather than individual items,” Birch told the E-Commerce Times.

The Internet of Things business depends on having a security layer, something that is currently missing, he said.

“Therefore, I expect to see the main players fight for control of that layer,” Birch said, “fighting for control over the identity of you, your household appliances and your bots.”