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Amazon to Acquire eero. Why It Matters.

An Ethernet cable connected to a modem

In typical Amazon (NASDAQ: AMZN) fashion, the company's move to acquire Wi-Fi networking company eero seems to have come out nowhere, but makes a lot of sense. eero will give Amazon a foothold in a space that competitor Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is already in, and that's not the only reason that the acquisition is a clever move for Amazon.

What eero does

eero manufactures Wi-Fi networking devices. Its specialty is mesh Wi-Fi, a system in which multiple router-like devices are placed throughout a space to offer more coverage. Each additional router-like device works with the others and with a single main router to create a web of Wi-Fi extenders without the annoyances and quirks of older, aftermarket Wi-Fi extender products.

None of this comes cheap: an eero router costs $199, while its "Beacon" extension modules are $149 each. eero says that for "most homes," one eero and two eero Beacons will suffice, covering up to 3,500 square feet, and it offers this package for $399.

eero actually pioneered this type of Wi-Fi setup, but it has since been joined in the mesh router business by other companies -- including Alphabet's Google, which offers a mesh router system called Google Wifi.

An Ethernet cable connected to a modem

Image source: Getty Images

Amazon could do a lot with eero

When it comes to eero, Amazon has options.

The simplest thing that Amazon could do would be to allow eero to keep operating more or less autonomously. Despite significant layoffs in 2018 as the company eliminated a project to "focus on our core business," eero has looked pretty healthy for most of its existence. I t report edly has raised at least $90 million from investors so far.

Alternatively, Amazon could look to integrate eero's offerings -- or the underlying technology -- into its other product lines. Amazon's Echo and Fire TV devices rely on internet connections to work, and make natural partners for Wi-Fi networking products. In addition to its router offerings, eero has a cybersecurity service that might work well with Alexa's capabilities, which include security-related smart-home functionality. Amazon could even produce combination devices -- picture, for instance, an Echo device that also extends your Wi-Fi network's range.

And regardless of what Amazon does with eero's product line or technology, it will gain something else: a whole lot of information.

eero gives Amazon access to a lot of data

Amazon's acquisition of eero is giving some privacy hawks pause, and it's not hard to see why. An internet user's Wi-Fi router sees all of their internet traffic.

But eero says it does not track its users' browsing history, and says that won't change with the acquisition. Still, there's a lot that Amazon can learn from eero users.

eero does appear to collect information about the number and types of devices that users connect to their routers. It can tell how much data users are transmitting. It can learn things about connection speeds and how to balance traffic between different mesh Wi-Fi modules and devices. Google Wifi products collect similar types of data (and similarly avoid browsing data, according to its terms of service).

All of this is information that Amazon could find very useful, especially given the importance of home networks to Fire TV and Echo devices. It's worth noting that tracking web histories would be hard for Amazon to do with existing eero hardware, given the prevalence of HTTPS encryption among modern websites -- not to mention the likely public backlash such a move would generate.

An on-brand move for Amazon

Amazon's acquisitions sometimes come out of the blue, and the eero purchase fits that mold. But that's not the only way in which this is an on-brand move for Amazon. This is a move that puts Amazon in a new business space, attacks a direct competitor, opens up new opportunities for Amazon's existing product lines, and -- perhaps most importantly of all -- gives Amazon more information about its consumers' internet habits. We don't yet know exactly what Amazon will do with eero, but we do know that this acquisition makes a lot of sense for the tech giant.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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