Alphabet – Magic half

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Half a million is good but not enough. 

• Latest data from Wave 7 is implying that Google devices have done better than my retail survey implied, but I don’t think that it has come close to capitalising on the open goal that Samsung and Amazon left for it in Q4 16.
• It looks like Google managed to ship around 0.6m units of Pixel and 0.5m units of Google Home during Q4 16.
• In the USA, Pixel is exclusive with Verizon and made up around 12% of its activations but the fact that it is out of stock everywhere implies that it has been unable to ramp up volume to properly capitalise on the Samsung Galaxy Note 7 fiasco.
• I suspect that if it had been able to get devices to retail, it would have shipped considerably more than it has.
• I suspect that the problem that Google has had has been related to an inability to source more components than it originally planned for.
• This is because its much lower overall volume probably meant that it was at the back of the queue when it came to getting its increased demand requests filled.
• Google Home, on the other hand, looks like a realistic representation of demand as there are mountains of Google Home devices to be found at almost every retail outlet.
• This is not because the device is not selling but because Google has been able to ramp up demand of this product to ensure good stock in most areas.
• In contrast, Amazon Echo is out of stock everywhere but there are plenty of the much cheaper ($50) Amazon Echo Dot available.
• I think that this is a reflection of the fact that the vast majority of purchases of the Amazon Echo are made by users whose primary requirement is a Bluetooth speaker rather than a smart home control hub or a digital assistant.
• I see 0.5m units as disappointing as Google Home has a much cleverer assistant and the device is $50 cheaper.
• That being said, I think that Amazon shipped somewhere between 0.75m and 1m Alexa devices during Q4 16 giving Google a good piece of the market.
• Google has to act quickly as Amazon is on the brink of becoming the industry standard for controlling smart home devices as, at CES, everyone was integrating with Echo with Google Home and Apple HomeKit barely present.
• Google’s Assistant is much cleverer and much more useful than Amazon’s Alexa but if Amazon wins a big presence in people’s homes this will give it time and the data it needs to close the gap to Google.
• RFM estimates that only 2% of Amazon’s users who are aware of the Echo have bought one, meaning that Google still has a chance but it will have do even more than it has done as of today.
• The net result is that Google has done reasonably well with both the Pixel and Google Home but its Google Home where the more effort needs to be made.
• This is because Google Assistant is going to find its way onto all Android devices anyway whereas Home is a greenfield segment that needs to be fought for.
• Given the sudden importance of this segment, I am looking for a price cut, more marketing and a huge assault on the developer community to ensure volumes grow and that third party devices begin to work with Google Home.
• I still prefer Microsoft, Baidu and Tencent to Google s I see all of the good growth left in mobile advertising as priced into the shares.