Smart Speaker Wars

Posted: May 31st, 2018 | Author: | Filed under: amazon, apple | No Comments »

Kind HomePod

Like the Apple Watch and AirpPods before it, many think the HomePod is a flop. There are common criticisms and rationale behind this sentiment. In the end, the HomePod will play out like the Watch and AirPods. It’ll be the most loved and most profitable product in its market.

The “Smart Speaker” category is just getting started. Amazon, with their Echo family of speakers owns 70% of the market. Google owns 25%. But, only 20% of US Adults own a smart speaker. From the iPhone to the Watch this is one of the least mature industries Apple has entered in awhile.

Apple’s foray into Smart Speakers is the same playbook they’ve followed for decades. Apple is never the first mover, they’re always “overpriced” and “under featured”. The HomePod is all of these to the T yet those who follow Apple closely believe this time is different. That Amazon has an insurmountable lead.

The HomePod’s strengths compared to the competition is voice recognition and sound quality. Siri may not be as accurate and robust as Alexa but the HomePod is most likely to hear your command. The price point is much higher than Amazon’s and Google’s products but the sound quality is arguably the best. Smart Speakers largest use case so far is to play music. Apple is making sure they nail this.

Ben Thompson believes HomePod’s sole native integration with Apple Music is an example of Apple’s strategy of squeezing more out of current customers. He cites Apple’s iPod’s interoperability with Windows as a clear difference in Apple’s strategy with HomePod. Ben forgets the first generation iPod was only MacOS compatible. Time well tell if Apple provides better support for Spotify and Amazon Music.

Apple continues to follow Apple’s strategy since its inception –  ensure Apple products work best within the Apple ecosystem first and foremost. Airplay from an iPhone, using Siri to play Apple Music – make sure these experiences work 99.9% of the time before rushing to support other systems.

Amazon’s strategy is much different. Amazon is focused on creating cheap devices. They’re on the lower end of sound quality and the price point implies the margins are slim or non-existent. Amazon doesn’t announce their strategy but there are two strategies that make sense when selling something at a loss. The first is to ensure market share and slowly but surely raise the price until you’re profitable. The second is to make money off of the device in other ways. Microsoft famously lost money on every Xbox but made it up on licensing from games sold. Google doesn’t make money off of Android but off of Google Searches on Android phones. Amazon believes those with an Alexa device in their home will buy more stuff from Amazon. Will this be true? So far there is evidence of correlation but not causation.

Beyond price, Amazon’s Alexa is a better voice assistant than Apple’s Siri.  But…both leave a lot to be desired. Despite the majority of people having access to voice assistants on their phone, only 46% have used them once. Of those who do use it, only 39% found that voice assistants accurately respond to their commands most of the time. Imagine if Google Search was only 39% accurate? Voice assistants aren’t quite ready for prime time.

Apple is behind on market share. HomePod is expensive. But HomePod is the best at what people use Smart Speakers for – playing music. The price point will drop, the HomePod will support more third party devices/streaming apps and Siri will catch up to Alexa and Google Assistant. Ultimately the HomePod will never have the most market share but they will own the most profit in the category.

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