Risks for Startups Taking Money From Amazon’s Alexa Fund
In mid-2016, Amazon.com made a $100 million offer to buy August Home, which makes locks that can be opened with an app, according to people familiar with the previously unreported offer. August had earlier released an app that worked with Amazon’s Alexa virtual assistant. More importantly, its technology allowed delivery people to easily get into a home, ideal for Amazon’s e-commerce business.
But August turned Amazon down. So Amazon built its own product to compete with August. Last October, the e-commerce giant unveiled Amazon Key, an Alexa-powered system for giving delivery people access to homes. Around the same time, August sold itself to Swedish lock manufacturer Assa Abloy for $150 million. The sale allowed August’s investors to exit at a high price and avoid dealing with the competitive threat posed by Amazon.
The episode shows the risks for startups working with big tech firms like Amazon. August is one of a number of companies that Amazon has invested in through its Alexa Fund, which puts money into companies making devices that work with Alexa. While Amazon’s backing helps the startups build their businesses, sometimes Amazon decides to go into the market directly. It can either offer to buy the startup or simply make the product itself.
An Amazon spokesperson said the company doesn’t use information gained through investments to help it develop a competing product.
The dynamic has played out across Amazon’s businesses: Amazon Web Services often promotes products from its partners but then builds its own competing services. Amazon’s lineup of private label products and everyday items called “basics” compete with merchants who sell on its marketplace.
And the pattern isn’t unique to Amazon. Apple, for example, competes with its component suppliers. With its latest iPhones, it decided to create its own graphics processors rather than license the part from Imagination Technologies. Apple admitted it had thought about buying the firm at one point but instead poached a number of its employees.
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