Insights

Amazon Lands Another Unexpected (and Shrewd) Acquisition

E-commerce and cloud computing giant Amazon (NASDAQ: AMZN) is no stranger to game-changing acquisitions.

This week, the company signed a merger agreement for Roomba maker iRobot (NASDAQ: IRBT). The all-cash deal will cost Amazon $1.7 billion and add a brand-new wrinkle to Amazon’s range of household-helper technology products. However, recent Roomba systems already work with Amazon’s Alexa platform, so integrating iRobot’s assets and technologies should be pretty painless.

In fact, buyouts are such an important part of Amazon’s business model that it’s easy to forget just how game-changing these deals can be. Let me remind you of a few highlights from Amazon’s long, rich acquisition history. I’m sure you’ll recognize many names along the way — and maybe you forgot that some of them actually weren’t Amazon brands from the start.

Whole Foods: The $13.7 billion elephant in the room

Amazon has owned the Whole Foods grocery store chain since 2018. The $13.7 billion buyout was the largest deal in the e-commerce veteran’s history, adding 472 physical stores to Amazon’s formerly all-digital sales model.

Physical stores accounted for a modest 3.6% of Amazon’s total sales last year. However, the Whole Foods stores have other functions in Amazon’s larger business machine — and the chain is evolving as we speak.

For example, the stores serve as hubs for Amazon returns and pickup deliveries. Amazon introduced an experimental checkout-free store model near its Seattle headquarters last year. That idea has also been seen in a Whole Foods store in the area, just a few months later. Whole Foods is a significant operation, despite its minimal impact on Amazon’s top-line sales.

Ring and Blink: $1.1 billion of home security muscle

OK, everybody knew about the Whole Foods deal already. But did you know that the company bought the Ring video doorbell specialist and the Blink home security company the same year?

These deals were much smaller than Whole Foods, of course. Amazon spent $1 billion on Ring and less than $100 million on Blink. Nevertheless, these brands now form the core of Amazon’s home security catalog and are held up as fantastic sellers in every Prime Day sales event. Furthermore, the presence of a fully Alexa-integrated security system filled a glaring gap in Amazon’s smart home product line. I’d say that was a sensible billion-dollar investment.

Alexa: Remind me of your ancient buyout

Here’s a fun one. The Alexa digital assistant platform that sits at the core of Amazon’s personal technology business was not an in-house invention. Amazon bought the Alexa Internet business for a song — the purchase price was too small to be disclosed in the announcement — in 1999.

Back then, Alexa was nothing more than a handy information-scraping add-on for the leading web browsers of the time. Now, Alexa is an advanced artificial intelligence system with cloud-based connections to all of Amazon’s smart-home and personal assistant devices — as well as a growing collection of third-party gadgets. It’s fair to describe Alexa as the brains of Amazon’s consumer technology business.

Given Alexa’s extreme prominence these days, it seems kind of silly that the original deal was microscopic. Amazon actually announced it as a bullet point side note in a press release for the $645 buyout of used books marketplace Exchange.com.

In 2022, Exchange.com has melted into Amazon’s larger e-commerce platform, perhaps leaving some used-goods features behind but otherwise evaporating. Alexa was clearly the most crucial deal in that announcement, given the benefit of 23 years of hindsight.

But wait — there’s more!

Amazon has acquired more than 100 companies so far and is in the process of closing several deals right now. The $3.9 billion buyout of One Medical, a subsidiary of primary healthcare provider 1Life Healthcare (NASDAQ: ONEM), springs to mind. Amazon is already making moves in the healthcare sector, and the 1Life deal will accelerate those ambitions.

Will iRobot join the ranks of memorable, game-changing Amazon deals? That remains to be seen, but the two companies go together like peanut butter and jelly. The Roomba brand is a firmly established and quite valuable part of the iRobot deal, and I expect Amazon to keep that name for future products in the home-cleaning robotics market. Also, I think Alexa is about to learn some new tricks from iRobot’s highly polished robotic navigation software.

Again, iRobot is a fantastic fit for Amazon and its Alexa-powered product catalog, especially considering the e-commerce expert’s deep history of successful buyouts.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon. The Motley Fool has positions in and recommends Amazon and iRobot. The Motley Fool has a disclosure policy.

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