Smart speakers – Pregnant pause

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Pause while products improve.

• Google is catching up with Amazon in the smart speaker race, but there are signs that growth may soon grind to halt until some of the shortcomings are fixed.
• Data from Strategy Analytics indicates that total smart speaker shipments were 9.2m units in Q1 18 up 278% YoY but down 51% QoQ (compared to Q4 2017).
• This implies that smart speakers, like smartphones, are very seasonal but also that the massive growth of this segment is likely to slow very rapidly from here.
• I see this slowdown coming for two reasons:
  • First, the fad effect: All digital assistants today are, in the grand scheme of things, far to stupid to be really useful.
  • Hence, they make a nice convenience for when one’s hands are occupied or for playing music, but no one would be greatly inconvenienced if they suddenly ceased to exist.
  • However, what is going on right now is a land grab by the digital ecosystems to entice users to spend their digital lives in the home with their respective offerings.
  • This is why these devices are being offered at such low prices so that users become locked in when the segment is ready to be really useful and fun.
  • As all of these assistants (except Apple) are deployed in the cloud, it is very simple to upgrade the intelligence of the assistant without the user having to do anything, not even a software update.
  • Hence, I think until the assistants become much more useful, they are going to remain on the fringes of the ecosystem and not play a meaningful role in driving the users’ purchase decision.
  • Second, third party audio: Neither Amazon nor Google are audio companies and consequently, the quality of the speakers that they make is best described as second rate.
  • Apple is an exception as it has focused its product particularly on audio quality.
  • It is only on this basis that it is selling as Siri on HomePod is far less capable than it is on the phone (see here).
  • Consequently, the likes of Harman, JBL, Bose, UE and so on should be able to make a far better sounding smart speaker than either Amazon or Google can.
  • So far things are not going well as the market remains dominated by Apple and Google, largely because users buying these products are not made aware that there are third party products available.
  • I expect that this problem will be solved with time as more and more speakers become enabled with one or more digital assistant.
• I still believe that there is no reason whatsoever for Apple or Google to make their own speakers as their main objectives (shopping and data collection) can still be achieved with third parties making products with their assistants embedded.
• Furthermore, with a much wider choice of price points, form factors and audio quality available, the appeal of these products is likely to become much wider than it is today.
• Hence, I see growth in this market grinding to a halt in 2018 but then picking up again in 2019 or 2020 as the third-party products come on stream and consumers become aware that their favourite audio brands also have an assistant in them.
• It is at this point that the battle moves entirely into software and the user experience, and here I still think Google has Amazon licked.
• This is because Google Assistant is fundamentally a better product than Amazon Alexa.
• Furthermore, the vast majority of digital assistant traffic is generated on a smartphone meaning that Google Assistant has much more raw material with which to improve.
• Now that Amazon’s advantage in controlling the smart home has been all but eroded, Google Assistant is competing on more level playing field.
• I now expect this battle to be won by Google with Amazon Alexa becoming the assistant with which to do one’s groceries and not much more.
• I am warming up to Google once again mainly because it is likely to escape the most unscathed from the current privacy related back lash and hence should outperform its peers.
• That being said, privacy advocate Apple is likely to fare the best of all while the current storm rages.