September 24, 2014 / 11:09 AM / 3 years ago

Exclusive: Amazon tests smart home gadgets, expands hardware lab

5 Min Read

A zoomed illustration image of a man looking at a computer monitor showing the logo of Amazon is seen in Vienna November 26, 2012.Leonhard Foeger

SAN FRANCISCO (Reuters) - Amazon.com Inc will boost staffing at its secretive Silicon Valley-based hardware unit by at least 27 percent over the next five years as it tests Internet-connected "smart" home gadgets such as a one-button device to order supplies.

The plans, detailed in a little-known government document and by people familiar with the matter, signal Chief Executive Officer Jeff Bezos's intentions to double down on the No. 1 U.S. online retailer's hardware strategy. This is despite the lukewarm reception of Amazon's new Fire smart phone and some investors' criticism of its heavy spending on highly experimental projects.

The Lab126 division, which developed Amazon's Kindle and other consumer electronics devices, plans to boost its full-time payroll to at least 3,757 people by 2019, according to the agreement reached with California in June that would give Amazon $1.2 million in tax breaks.

Amazon will invest $55 million in Lab126's operations in Sunnyvale and Cupertino, the agreement posted on the California governor's website shows.

This expansion comes as Lab126 tests connected-home devices that could open up a new front in its war against Google Inc and Apple Inc, two people familiar with Lab126's activities said recently.

The sources requested anonymity because they are not authorized to speak to the media.

Technology companies see Internet-connected dishwashers, thermostats and other household devices that can "talk" to one another as ways to fuel demand for products and services. But skeptics say many of these devices cost too much for most consumers and could take years to go mainstream.

Amazon is testing a simple wi-fi device that could be placed in the kitchen or a closet, allowing customers to order products like detergent by pressing a button, one of the people said. Lab126 is also interested in wearable devices, the other person said. Both sources stressed that such devices may never come to market.

These details shed rare light on the division at Amazon, which is notoriously tight-lipped about any unit's operations and staffing.

In a statement, Amazon said Lab126 was moving "incredibly quickly" and cited the company's 2014 devices, including the Fire phone, Fire set-top box and several new tablets and e-readers.

"We will continue to invent and create new features, services and products, and to support this innovation. Lab 126 is also growing very quickly," Amazon spokeswoman Kinley Pearsall said.

Aim to Be Indispensable

Whether or not Amazon ultimately sells connected home and wearable devices, the experiments hint at Bezos' broader ambitions. Lab126 has become increasingly important to Amazon's broader aim to use devices to make it indispensable to its more than 240 million active users.

Bezos is deeply involved in developing Lab126's projects, from the 2007 debut of the first Kindle e-reader to the Fire phone.

The Fire phone, which Lab126 worked on for four years, debuted this summer to lackluster sales and reviews. Earlier this month, Amazon cut the price of its phone to 99 cents with a two-year contract with AT&T.

Amazon shares are down nearly 20 percent this year.

Other tech leaders are also seeking a central place in the home. In January, Google bought Nest Labs, a smart thermostat maker for $3.2 billion. In June, Apple announced plans for HomeKit, its own framework for connecting household gadgets.

Embedding households with such devices would be much more lucrative than merely selling gadgets like wireless LED light bulbs or wi-fi garage-door openers.

With Lab126's experiments, Amazon envisions homes decked out with Internet-connected sensors that would allow it to tell customers ahead of time when they need to replace air conditioner filters or service their washing machines, one of the sources said.

"If I walk into my laundry room and there's a big pool of water and the floor needs to be replaced, I'd love to know about it two weeks before it happens," said Ryo Koyama, CEO of Weaved, a startup working on connected-home technology.

Lab126 had almost 3,000 full-time employees in its 2013 taxable year.

Reporting by Deepa Seetharaman and Noel Randewich; Editing by Richard Chang

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