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Smart Speakers in Perspective

2018 is slated to become the year of the smart speaker. We touched upon the subject in our podcast The Scotch Enlightenment when we joked about ordering cocaine through an Amazon Alexa speaker.

But the question remains: What can you expect from smart speakers? And what do their makers expect from you?

Why do companies put smart speakers on market anyway and why do people buy them? Let's break down the different motivations.

There are many reasons for consumers to buy smart speakers. The most important ones are.

  • Play media (mostly music)
  • Search the internet
  • Order goods
  • Digital assistant
  • Control other devices in a smart home setting

Most, if not all, of these functions are available through smartphones. But smart speakers make them more accessible to most customers. Therefore it makes sense for vendors to offer them.

Reasons for vendors to offer smart speakers contain

  • Sell devices themselves
  • Sell goods through devices
  • Gather data
  • Play advertisements
  • Sell additional goods and services that work with smart speakers
  • Entrench customers in the system of goods and services offered by the vendor.

The last reason is the most important one. It is the one business incentive that is consistently for all vendors, no matter what their other goals are.

While 2016 saw the first mainstream smart speakers to hit the market, they started to spread through 2017, and more have been announced for 2018. We will see the different systems compete this year. Already one in six Americans owns one and the market is growing with quite some momentum. Today, the market for smart speakers is growing quicker than when smartphones or tablets were spreading.

The decision for one kind of smart speaker means to invest into an ecosystem of other connected devices and services. All these devices are designed to entrench customers in a vendor ecosystem of goods and services.

With billions of Dollars (or Euros) up for these devices the makers are looking for your money too. Now is the time for us consumers to take a look and decide where to put our money.

For starters, let's differentiate between the different kinds of smart speakers.

First, there are smart speakers that are mainly positioned as high quality entertainment devices with a voice interface, such as the Apple HomePod.

And then there are smart speakers that are mainly voice interfaces to online services, like the Amazon Alexa line and Google Home.

The different speakers do have some common characteristics but they emphasize very different use cases. This is important to keep in mind. All of them contain speakers, microphones and feedback devices. All of them differ in the quality of components and in the scope of services.

Different business models

The different features are a result of the maker's different business models and strategies. Google and Amazon turn data into profits while Apple sells hardware.

Each smart speaker and its feature set is designed to serve one of these business models.

Understanding the different business models helps you to appropriately judge the different speakers — and other products from these companies.

Amazon Alexa

Amazon is, in essence, a data driven retail company.

Amazon delivers physical and digital goods and analyzes its sales to serve you offers that are tailored so well that you do not want to shop anywhere else. Amazon wants simplify purchasing through them in order to get a cut of as many sales transactions as possible. Amazons customer base consists partly of its users, as well as sellers, that use Amazon to sell.

The strategy for Amazon's smart speakers is to make them ubiquitous by offering them cheap. When customers connect through them, Amazon

  • sells goods (profit),
  • plays media (profit),
  • learns about user behavior which can be analyzed to optimize its business (profit).

All these business interests do not require Amazon to build the speakers. By allowing other devices to integrate with Alexa, Amazon creates additional value for users. This in turn means more Alexa usage, and therefore profit for Amazon.

Google Home

Google is, in essence, a data driven advertising company.

Of course, all modern advertising is data driven. But in Google's case, it is worth to emphasize it. Google's main customers are advertisers and its main business is serving perfectly targeted ads to its users. To gather data (which in turn can be used to optimize ads), Google offers useful services like its web search, email, calendar, digital assistant, smartphone operating system and many more…

Because Google knows so much about each user it can offer value like a schedule for the day,  tailored reminders, and more. Also, Google integrates many third party services for added value.

Additionally, Google can play tailored advertisements to its users through its smart speakers, which it already did in 2017.


Apple HomePod

Apple is, in essence, a highly integrated hardware company.

Apple is the odd one out in the field of smart speaker vendors. Of course, the smart speaker HomePod serves Apple in its grand strategy. But the business model is very different from Google and Amazon. Apple sells thoroughly designed devices at premium prices (+ some services) and its users are also its customers.

Apple is positioning the HomePod mainly as the best device to listen to its Apple Music service. the device has been painstakingly engineered to sound the best. Therefore Apple sells at a relatively high price point. Experience has shown that even at low market shares Apple has managed to capture a disproportionate share of profits by sticking to its premium high margin strategy.

Apple also offers the HomePod as a base to control smart home devices and as a gateway to Siri, its digital assistant. But Siri is also available throughout Apple's product range, from the wireless headphones EarPods, through Apple Watch, iPhones, iPads, Macs, to Apple TV. Therefore, Apple has less to lose if people don't invest in a HomePod.

Should I get one? Which?

Each ecosystem of smart speakers offers you some unique value and seeks to profit from you in one way or another.

First, you should consider which use cases are most important to you. We have prepared a table that stacks up the different offerings against each other.

Then you should decide whether the company's interest align with yours. We have prepared a table for this case as well. Note that the different corporate interests are graded from their point of view.

User value

  Amazon Alexa Google Home Apple HomePod
Play media ⭐⭐ ⭐⭐ ⭐⭐⭐
Search the internet ⭐⭐ ⭐⭐⭐
Order goods ⭐⭐⭐ ⭐⭐
Digital assistant ⭐⭐ ⭐⭐⭐ ⭐⭐
Control smart home ⭐⭐⭐ ⭐⭐ ⭐⭐⭐

Vendor value

  Amazon Alexa Google Home Apple HomePod
Sell devices themselves ⭐⭐⭐
Sell goods through devices ⭐⭐⭐
Gather data ⭐⭐⭐ ⭐⭐⭐
Play advertisements ⭐⭐ ⭐⭐⭐
Sell additional goods and services ⭐⭐⭐
Entrench customers ⭐⭐⭐ ⭐⭐⭐ ⭐⭐⭐

Do you want to get a smart speaker? Which one will it be? And why? Let us know in the comments below.

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