Amazon Bought Ring for Market Position Despite Internal Concerns
Amazon Bought Ring for Market Position Despite Internal Concerns
(Bloomberg) -- Amazon.com Inc. went ahead with its acquisition of video-doorbell maker Ring to grab market share in a promising area of consumer technology despite some security and compliance concerns about the startup, according to documents made public on Wednesday.
Four months before Amazon sealed the $839 million deal in April 2018, Chief Executive Officer Jeff Bezos had recommended buying the company.
“My view here is that we’re buying market position -- not technology,” Bezos said in an email released by Congressional investigators looking at market power in big tech. “And that market position and momentum is very valuable.”
Ring has helped give Amazon a foothold in home-security services and the market for smart cameras, expanding the reach of Alexa, the voice assistant Amazon has worked to position at the center of the internet-connected home. The purchase also brought the company a string of negative headlines around privacy concerns and cybersecurity flubs, including reporting that employees passed around unencrypted consumer video, and a series of instances in which people reported strangers taking control of their Ring cameras, including speaking to children inside their homes.
Amazon disclosed in January that Ring had fired at least four employees for improperly seeking access to customer data in the last four years.
Spokespeople for Ring and Amazon didn’t immediately respond to emails and a voicemail seeking comment on the new documents, which offer a detailed inside look at Amazon’s examination of a potential acquisition target.
An Amazon executive performing due diligence raised concerns about the risks of leaving Ring to operate largely as a standalone entity under Amazon ownership. Those concerns, which flagged compliance and security standards at the startup that were below Amazon’s, seemed to preview headlines about sometimes lax cybersecurity protocols at Ring, according to emails disclosed as part of an antitrust investigation by the House Judiciary Committee. The antitrust subcommittee of the Congressional panel held a hearing Wednesday where Bezos was questioned along with the CEOs of Apple Inc., Facebook Inc. and Google parent Alphabet Inc.
Rob Stites, who works on supply chain operations at Amazon’s Lab126 hardware development center, said a review of Ring’s manufacturing processes turned up “no red flags.”
An executive in Amazon’s corporate development group, Nick Komorous, said the team was suggesting a hands-off approach should it acquire Ring. “Our current integration hypothesis is to do the minimum amount of work to ensure that Darwin’s products are reliable and safe,” he wrote in an email, using an apparent code name for the startup. “So, the goal would be to keep Darwin as independent as possible under the principle of doing no harm and not slowing them down.”
In one lengthy message, sent to Amazon devices chief Dave Limp and other executives, Stites aired concerns that a potential deal may bring hiccups in integration, citing struggles fellow tech giants Alphabet Inc. and Apple Inc. faced after purchasing Nest Labs and Beats Electronics.
“We know that they have limited to no activity around compliance and CSR validation,” Stites wrote, referring to Ring. CSR likely refers to corporate social responsibility, a term that in manufacturing contexts can mean corporate review to make sure products don’t contain conflict minerals and that contract manufacturers follow local labor law.
Another area where Ring might have to change under Amazon’s umbrella: security. “I would be shocked if they didn’t need major work in this area to meet our expectations,” Stites wrote.
He suggested integrating Ring into Amazon’s operations to a greater degree than the company planned at the time. Ring founder and Chief Executive Jamie Siminoff has said he’s a frequent traveler to Amazon headquarters in Seattle, but that his Southern California-based company operates largely independently.
“I am strongly convinced that ignoring all of these areas will just result in a slow and painful migration over time in response to problems,” Stites said in a November 2017 email. He recommended Amazon work to replicate Ring’s technology, which he said lacked a “secret sauce,” instead of shelling out for an expensive acquisition. “I think we could easily replicate all of their hardware to be better, operate in a more secure and robust infrastructure, for a LOT less than the cost of buying them,” he said.
Amazon’s assessment of Ring also had some upbeat comments, the documents show. Stites said that his team had a “positive assessment” overall. “In the early meetings at least we don’t think they are broken,” he wrote.
In a separate email earlier in Amazon’s pursuit of Ring, another executive wrote that the startup was “doing something right given happy customers and high growth rate.” He suggested it may be worth paying for market position, “as it’s hard to catch the leader.”
In December 2017, Limp would present Bezos with three options: buy the company, participate in a planned funding round, or do nothing and keep an eye on the startup.
In a reply a couple of hours later, Amazon’s founder was definitive: “I’d buy it right now,” Bezos wrote.
©2020 Bloomberg L.P.