We are in the midst of a massive mindshare bubble involving stationary smart speakers in the home. While the press talk up the category with near breathless enthusiasm and positivity, there is a growing amount of evidence that stationary smart speakers powered by digital voice assistants do not represent a paradigm shift in computing. Instead, the stationary smart speaker's future is one of an accessory, and it will be surpassed in prominence by wearables. It's time to call out the stationary smart speaker market for what it is: a mirage.
Despite a number of companies competing in the stationary smart speaker space, Amazon is the undisputed leader. In November 2014, Amazon introduced the Amazon Echo to little fanfare. TechCrunch’s relative simplistic take on the first Echo ended up being very telling:
"Amazon has a new product that doesn’t really have any current equivalent from any other tech company – a connected speaker called Echo that’s always-on, listening for commands that its virtual assistant can then respond to with information or by triggering a task."
Instead of positioning hardware, software, or design as the most critical ingredient, Amazon positioned a digital voice assistant as the Echo's differentiator. Silicon Valley was intrigued, and it is fair to view that initial Echo as having single-handily kicked off today’s smart speaker market.
As shown by Google Trends, it took another two years for the Echo to go mainstream. Given how Amazon has supplanted a portion of Google search, one can safely assume Google Trends underestimates Echo interest, especially when considering Amazon Prime users.
The 2016 holiday season stood out for Amazon Echo. The company went on to say it sold nine times more Echo devices during that holiday shopping period than during the previous year's. While Amazon didn't elaborate on the reasoning behind the dramatic jump in sales, the most logical explanations were that Echo sales were coming off a very low base in 2015 and consumers were enticed by the low-priced Echo Dot, unveiled in March 2016.
Since the leading smart speaker manufacturers avoid disclosing sales, there is a dearth of concrete sales data regarding the overall size of stationary smart speakers. Therefore, we are left to depend on questionable customer surveys and research firms using mysterious methodologies.
When it comes to the current market leader, it is not in Amazon’s best interest to disclose Echo sales. Given how Amazon already receives near universal praise in the press, there would only be downside found in Echo sales disclosure. Taking the few clues provided by Amazon management in the form of holiday press releases, my estimate pegged Echo sales at around 15M speakers per year during the first half of 2017. To put that sales number in context, Apple is selling approximately 20M Apple Watches per year. Earlier this week, Amazon said that “millions” of Echo devices were sold between Thanksgiving and Cyber Monday. It is reasonable to assume that the company has seen an increase in the Echo sales pace in recent months.
As seen by the massive resource shift occurring across the industry, other companies have taken note of Amazon’s Echo sales. Seemingly every consumer-oriented tech company is now coming up with its own offering for the stationary smart speaker market. Facebook is even rumored to be working on a stationary screen with a speaker.
On the surface, Amazon Echo sales point to a burgeoning product category. A 15M+ annual sales pace for a product category that is only three years old is quite the accomplishment. This has led to prognostications of stationary smart speakers representing a new paradigm in technology. However, relying too much on Echo sales will lead to incomplete or faulty conclusions. The image portrayed by Echo sales isn't what it seems. In fact, it is only a matter of time before it becomes clear the stationary home speaker is shaping up to be one of the largest head fakes in tech. We are already starting to see early signs of disappointment begin to appear.
A closer look at Amazon's Echo line reveals why people are apparently buying millions of Echo devices: they're cheap. Amazon has ushered in a race to the bottom within the stationary speaker space like we have never seen in consumer electronics. In just three years, the stationary home speaker market is now filled with mediocre speakers costing as low as $20. Google has followed suit with Google Home Mini, a cheaper version of its Google Home smart speaker. It is just as expensive to buy a specialty pizza as an Echo Dot or Google Home Mini. Similar races to the bottom were projected in smartphones, tablets, and wearables but never materialized.
Aside from cheap Echo speakers, there is no clear evidence of other speaker manufacturers seeing significant traction. Google Home sales are estimated to be a fraction of Amazon's speaker sales. Meanwhile, there is a similar lack of evidence supporting the idea that higher-end speaker alternatives like Sonos have been able to move beyond niche.
It’s not just that smart speaker prices have collapsed. If the primary value of an Echo speaker is access to Amazon's digital voice assistant, Alexa, there is little additional value found in higher-priced Echo alternatives. While Amazon is not in a rush to provide a sales breakdown by Echo model, my suspicion is that the vast majority of sales are found with the Dot, the cheapest Echo.
Silicon Valley calls this race to the bottom the commoditization of hardware. Services companies like Amazon and Google use low-cost hardware to seed rich, data-capturing services in our lives. The end goal for these companies is accessing valuable customer data while the vehicle of choice to capture this data is a digital voice assistant.
It is not a coincidence that the companies placing the largest bets on stationary speakers in the home have either failed or run into trouble with previous mobile strategies. Amazon's entry into smartphone hardware with the Amazon Fire phone was one of the colossal failures in smartphone history. Similar attempts by Facebook to come up with its own smartphone went nowhere. Meanwhile, Google now finds itself running into trouble as Android continues to lose power in the premium end of the smartphone market.
The commonality among the three preceding examples is that each has seen its dependence on Apple grow over time. The lack of a viable, standalone smartphone offering means Amazon, Facebook, and Google have had to rely increasingly on iPhone and iOS to reach their customers. This scenario has irked Jeff Bezos for years and plays a big role in Amazon's hardware strategy. Facebook's Oculus acquisition was born out of a similar mindset with Mark Zuckerberg looking to control Facebook's destiny by owning hardware. Meanwhile, Google has resorted to using the Pixel smartphone to reach premium users becoming disenchanted with Samsung. In addition, Google has begun ramping up its traffic acquisition costs (TAC) to ensure it remains the default search option on iOS.
These companies are not moving into stationary devices for the home because they represent the next frontier in tech or an upcoming paradigm shift. Instead, these companies are incentivized to figure out a way to reduce smartphone usage by unbundling the device. The result is smart speakers piping digital voice assistants that are also available through our smartphones, tablets, and smartwatches.
The fact that companies that did not succeed with smartphone hardware are increasingly betting on stationary devices has been described as a moment of opportunity. Some in the tech community have looked at low-cost hardware powered by digital voice assistants as some kind of hardware disruption – commoditized hardware powered by closed-based services to handle tasks we used to give smartphones and tablets. I disagree. Stationary home speakers aren't a disruption. Instead, they are proving to be a distraction.
The past 10 years of technology can be boiled down to one overarching theme: mobile devices with a multi-touch interface (smartphones and tablets) becoming alternatives to traditional laptops and desktops. While there have been a few side shows here and there, nothing has come close to matching this one paradigm shift.
While smartphones and tablets continue to get smarter and more advanced, there is no denying that sales growth reflects mature product categories. With already high adoption rates, upgrade trends and platform switching are increasingly becoming the only remaining sources of sales growth. This has led to acceleration in resources being shifted to other product categories in search of the next big thing.
We now find ourselves at a crossroads. The competitive tech landscape is changing. The battle for our attention is broadening into a massive land grab for the most valuable real estate in our lives. Tech battle lines are now being redrawn around three pivotal aspects of daily life: body (health), home, and transportation.
It would be a mistake to assume that these three categories have jobs and use cases that will require three completely different sets of products. At the same time, it would be equally incorrect to assume the smartphone will remain at the center of our lives. Instead, there will likely be new products and some overlap as to how those products are used. One of the major sources of this kind of overlap is found with the body and home.
In some ways, the stationary smart speaker market resembles the early wrist wearables market. There was a significant amount of unknown found with where the wrist wearables market was headed: low-end fitness trackers, high-end smartwatches, or some combination in between. It took a few years and Apple’s entry into the market for the landscape to change.
There are three distinct possibilities as to the stationary smart speaker's future.
- Low-cost hardware to push digital voice assistants. Consumers purchase cheap smart speakers solely based on the accompanying digital voice assistant. Smartphones, tablets, and smartwatches ultimately lose value in this scenario. The winners are services companies betting on intelligent digital voice assistants to capture as much customer data as possible.
- High-end accessory. Given how digital voice assistants are already found in smartphones, tablets, and smartwatches, consumers look for standalone speakers to offer something more. That additional capability would likely be superior sound quality.
- Disjointed space waiting for unknown catalyst. A number of players are able to coexist despite relying on dramatically different strategies and core competencies. While market share will likely be used to denote winners and losers, in reality, success will be determined by usage patterns and access to premium users.
Consensus currently thinks the first option is the most likely outcome for the stationary smart speaker market. This explains the sheer amount of skepticism pointed toward higher-priced speakers like Apple’s HomePod speaker. Meanwhile, Apple is placing its bet on the second or third options coming true. When introduced at WWDC 2017, HomePod was marketed as an iOS accessory that will serve as the best speaker people have ever owned. The $349 price certainly reflects this accessory mindset. While Apple briefly went over how HomePod will be able to serve as a type of smart home hub, it was almost more of an afterthought. At its core, Apple does not think the only function for stationary smart speakers is to pipe digital voice assistants.
I don’t think stationary smart speakers represent the future of computing. Instead, companies are using smart speakers to take advantage of an awkward phase of technology in which there doesn’t seem to be any clear direction as to where things are headed. Consumers are buying cheap smart speakers powered by digital voice assistants without having any strong convictions regarding how such voice assistants should or can be used. The major takeaway from customer surveys regarding smart speakers usage is that there isn’t any clear trend. If anything, smart speakers are being used for rudimentary tasks that can just as easily be done with digital voice assistants found on smartwatches or smartphones. This environment paints a very different picture of the current health of the smart speaker market. The narrative in the press is simply too rosy and optimistic.
Ultimately, smart speakers end up competing with a seemingly unlikely product category: wearables. In fact, stationary smart speakers and wrist wearables share a surprising amount of similarities. Each is ultimately based on handling tasks formerly given to smartphones and tablets. Two examples are delivering both digital voice assistants and sound. If the goal is to rely on a digital voice assistant, an Apple Watch wearer has access to Siri at pretty much every waking moment. When simply wearing an Apple Watch, Siri is instantly available everywhere in the home. The same kind of access to Alexa would require five, ten, or maybe even 15 Echo speakers spaced strategically throughout the home (another reason why Echo sales are becoming increasingly misleading - some consumers may be buying a handful of $20 speakers at one time). With a cellular Apple Watch, Siri is now available outside the home even when users are away from their iPhones. Meanwhile, Alexa is stuck within four walls - at least until Amazon unveils its Alexa smartwatch.
Wearables contain a much more attractive long-term value proposition than stationary smart speakers that have to be connected to a wall outlet. In addition, the presence of a screen provides even more value as it has become very clear that voice-first or voice-only interfaces just aren't that efficient.
The writing is on the wall. The stationary speaker market is a stopgap measure taking advantage of relatively low wearables adoption. My estimate is that Apple Watch adoption stands at 3% of the iPhone user base (10% to 15% of iPhone users in the U.S.). As that percentage increases, my suspicion is we will start to see the stationary smart speaker market begin to experience usage and retention troubles. Just as every company seems to be moving into the smart speaker space today, pain and lackluster results will begin to spread, ultimately leading to most companies exiting the space.
There may still be a future for stationary smart speakers, but not as some kind of future computing paradigm. Instead, stationary smart speakers will become accessories to the very same wearables that they are competing against today. For example, when an Apple Watch wearer wants to listen to music, HomePod will be positioned as a way to provide a much better sound experience. In addition, the very same HomePod can be positioned in the home as a type of smart home hub for controlling devices while away. If voice interfaces evolve to the point of becoming more useful, wearables will be able to easily support an increased reliance on digital voice assistants. The current fascination with standalone smart speakers may end up being labeled as a stepping stone to mass-market wearables adoption.
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