Essential Products Inc. – An essential sale

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The wheels appear to have fallen off.

• Andy Rubin’s Essential Products Inc. is up for sale almost certainly because of a cash shortage triggered by the fact that its smartphone was simply not an essential purchase.
• Essential Products has now cancelled its second phone and is instead focusing on smart home products exactly as I expected (see here).
• Essential Products’ long-term strategy is to build a hardware-based ecosystem of devices which would offer better and smarter access to the Digital Life services that are used every day.
• These devices would also allow those services to extend into the home creating a cross-device experience that would drive differentiation and allow the company to make a better than commodity margin on hardware.
• The problem is that the digital ecosystem is currently firmly rooted in the smartphone meaning that any purchase decision a consumer makes is almost entirely influenced by the smartphone experience.
• Therefore, trying to create a hardware-based ecosystem experience without a smartphone is like trying to build a car without wheels.
• I am pretty sure this is why Essential’s first product was a smartphone.
• Hence, Essential’s inability to keep the smartphone business line alive is a massive blow to its aspirations which will make it even harder to have an impact in the smart home.
• The problem here is that in 2017, there was a window of opportunity but since the beginning of 2018, this window has been very rapidly closing.
• This was because both Amazon Alexa and Google Assistant had huge failings meaning that there was space in the market for an offering that could address these problems.
• Specifically, the Alexa user experience was (and still is) poor and hardly any products and services would work with Google Home.
• Since then, Google has pretty much fixed this problem and given that it has by far the best product, it is now my lead contender to dominate the market for smart home control.
• This makes the task for Essential Products even more difficult as it looks to me like it has missed the window of opportunity.
• Furthermore, the promise of Essential’s offering in the smart home is based around a smart AI delivering intuitive services by integrating various devices around the home.
• The issue here is that the AI in Essential’s Ambient OS currently looks as dubious as Bixby as it has never registered a presence in any research that RFM has conducted looking into AI.
• When I originally wrote on Essential Products (see here), my view was that it needed to produce must have devices and, in that regard, it has failed.
• The smartphone is a Google Ecosystem device with a few nice features but less bells and whistles than the Samsung Galaxy S8 that debuted for almost the same price.
• Home is now where all the potential is, but it is taking an awful risk in that it is not addressing the smart speaker category and it has dubious AI.
• The net result is that this might make a good tuck-in acquisition for one of its existing investors or someone else that is looking to expand its presence in the smart home.
• The price paid is likely to be just a tiny fraction of the mooted $900m – $1bn valuation just one year ago.