For (AMZN) - Get Report , selling consumer hardware has long been a means to an end, rather than an end itself. Its latest acquisition probably doesn't change that strategy, but rather opens the door -- both literally and figuratively -- to taking it in some ambitious new directions.

The Story

Amazon is buying Ring, a maker of Wi-Fi-connected video doorbells and other home security and monitoring devices. Ring was founded in 2012 and has raised $450 million over the years. Its revenue more than doubled last year to $415 million.

Deal terms are undisclosed, but multiple media reports put the price above $1 billion. Sources tell Re/code Amazon paid "somewhere between $1.2 billion and $1.8 billion." That would make it Amazon's company's second-largest acquisition, behind the $13.7 billion Whole Foods deal but ahead of its $1.2 billion 2009 purchase of shoe retailer Zappos.

Shares of home security leader ADT (ADT) - Get Reportaren't taking the news well: They're down nearly 7% as of the time of this article, and have made new 52-week lows.

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        This is Amazon's second purchase of a home security startup, and the deals appear to be complementary. In late 2017, Amazon bought Blink, a developer of home cameras and video doorbells, for a reported price of $90 million. But Blink was a much smaller firm than Ring, and, per Reuters, Amazon was primarily interested in the low-power chips used by Blink's cameras, which are promised to last two years on a pair of AA batteries. Amazon reportedly sees opportunities to use Blink's chip IP within both home cameras and Echo devices. There's a good chance the company also sees it as a way to differentiate Ring's hardware.

        Though Ring is sometimes referred to as a video doorbell maker, it's much more than that. The company's product line includes wired and battery-powered security cameras, a sensor/keypad-based security system, a smoke detector, a flood/freeze sensor and a slew of accessories. And like Alphabet's Nest unit and other rivals, Ring offers subscription-based cloud video recording and sharing services. Together with Amazon's fast-growing Echo hardware business, Ring makes Jeff Bezos' company a major player in a home IoT market that appears to be reaching a tipping point.

        It's easy to imagine Amazon offering Prime members who buy Ring's cameras and doorbells free or discounted video-recording services, much as it currently gives them 5GB of free cloud storage and unlimited photo storage. In time, one could also see the company rolling out discounted professional security monitoring services for buyers of Ring's security systems. Such possibilities are of course part of the reason why ADT's shares have been hammered on news of the Ring deal. But as Netflix , Spotify and Dropbox can attest to, the fact that Amazon offers something for free or at a discount to rivals doesn't necessarily spell doom for providers of rival services -- at least provided the rival is focused, has scale and is executing well.

        A very likely possibility: Amazon also integrates Ring's hardware, which already supports the Alexa voice assistant, with its Amazon Key service. Key, currently available in over two dozen U.S. metro areas, allows buyers of Amazon's $120 Cloud Cam home camera and a compatible smart lock to get free in-home delivery for many Prime orders. The camera lets users see the delivery in real-time or watch it later. Amazon, eager to drive adoption of a service that can further differentiate Prime and keep consumers hooked on it, provides free installation services for the camera and smart lock. In addition to reducing package thefts and giving shoppers more peace-of-mind, Key -- by removing the risk that food items will be harmed by the elements -- could aid Amazon's budding grocery delivery efforts. Last month, the company began offering free two-hour Whole Foods deliveries ($35 order minimum) in select markets via its Prime Now service. One unanswered question: Is Amazon comfortable supporting Key via third-party home cameras the way it supports third-party smart locks? Ultimately, Amazon could decide that driving Key adoption is more important than using Key to boost camera sales.

        Ring decided to sell at what's (judging by reports) a pretty moderate sales multiples given the company's recent growth. It wouldn't be surprising if fears about battling Amazon head-on in a market that Jeff Bezos' company had already entered influenced Ring's decision. In one consumer hardware market after another, Amazon has priced its devices very aggressively -- its priority has been to use the hardware to boost adoption of Amazon services, rather than to generate fat hardware margins. It has also given its hardware lines tons of free advertising via its site, app and e-mails, and can use its retail infrastructure to keep fulfillment and delivery costs down. Even Roku , which has a large ecosystem it can lean on, has had a tough time dealing with Amazon's hardware pricing and marketing. Ring, lacking such an ecosystem, may have decided it's better to join the Bezos empire rather than try and beat it.

        If there's been a weakness to Amazon's hardware strategy, it's that the company's decision to prioritize its own services on its hardware has sometimes hurt the user experience. The company's Fire tablets, which run on Amazon's Fire OS and so lack Google's Android apps and services, are a good case in point. It's possible that this could also prove a handicap for Ring's devices in the future. Along with Alexa, Ring's hardware supports Google Assistant. Time will tell whether Ring continues to do this. Also, if third-party retailers launch an Amazon Key-like service, chances are that Ring won't support it. That said, Amazon's consumer and delivery scale might make it uniquely positioned in the near-term to offer something like Key.

        The Big Picture

        By acquiring Ring, Amazon didn't just significantly expand its home IoT business. It also bolstered its never-ending efforts to enhance Prime's stickiness and drive more commerce on its platform. And based on reports, it did so at a pretty reasonable price.

        There are still unanswered questions about what kinds of services Ring's hardware will support, how they'll be priced to Prime members and how much these services will be opened up to third-party hardware. But given how it has executed with its Echo and Fire TV lines, there are good reasons to be optimistic that Amazon will eventually get the formula right.

        Jim Cramer and the AAP team hold positions in Amazon and Alphabet for their Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells AMZN or GOOGL? Learn more now.