Smart Home Voice Device Shipments Boom But It’s Not About Devices

Driven by price cuts and extensive marketing as well as steadily growing consumer awareness and acceptance, voice control front-end devices saw a bumper fourth quarter. Shipments of voice control front end devices, such as Amazon’s Echo range and Google’s Home devices, grew by 189% on the previous quarter, with 2017 seeing total shipments up 159% over 2016.  While such strong shipment growth has been driven by dedicated devices, the impetus behind those fourth quarter sales and the developments on display at CES in early January, underpin that the smart home voice control market is being driven by more powerful competition than device form factors. Instead, it is the platforms behind these devices that are part of a long-term play to capture an increasingly valuable smart home data stream; one that provides not just detailed insights into the homes they are in but will also be the foundation for a new generation of valuable and integrated services.

The dynamic investment and the growing fight for the smart home voice control user base was to the fore at CES at the start of January. For those there, it was all but impossible to miss Google’s notable investment in promoting the Google Assistant platform which drives its Home devices and other Android devices. Google’s presence at the trade show was notable given that the company had long shied away from direct engagement at the show. This year, not only was the Las Vegas Monorail wrapped in Google advertising with added Google announcements for riders, but there were big screens along the strip and a promotional booth which drew long lines of attendees looking to win prizes in return for using Google Assistant. The promotion didn’t stop there. Google placed its uniformed staff on as many smart home booths as possible to emphasize and promote Google Assistant integrations in devices from those partner companies. Some of these companies said their integrations had been pushed by Google reaching out just weeks before the show to help invest and drive the delivery of supporting products to the show.

For its part, Amazon’s Alexa-platform was always going to be a feature on many of the smart home stands at the show and had been last year too. Amazon Echo devices created the market and had an 18-month jump start over the entry of Google - it’s closet rival in the space. Even so, this year Amazon extended its presence at the show from largely executive attendees last year to an outdoor promotional area near the Las Vegas Convention Center, as well as hosting workshops and presentations focused on Alexa-based products.

The show presence of both vendors came at a crucial time and for good reason. While voice control was already a dominant trend last year, this January the next wave of adoption was clear. This year it was less about specific frond-end devices and increasingly about how the same voice control platforms will be embedded in third-party devices across a wide range of form factors. CES saw voice control support embedded in a wave of new  devices and form factors including light switches from Start-up Brilliantto bathrooms products from Kohlerand Moen;to smart home All-in-One devices from start-up Abodeand to counter-top appliances from Gourmiato cars from Toyota. In addition, in partnership with Panasonicand initially aimed at the voice-control market in automotive, Amazon also previewed Alexa Onboard - a version of Alexa capable of operating without cloud connectivity. Panasonic, its first partner for the new version intends to put the capability into vehicles, but the potential for edge voice/AI extends well beyond just the automotive market.

Meanwhile, at CES far from Samsung launching its own voice control front-end device as some had predicted, the company highlighted its plans for its SmartThings smart home management platform and its Bixby voice control platform to become embedded in a range of its own smart home devices and appliances including refrigerators and TVs.

Voice is becoming the interface for the smart home taking over from control panels and apps and the battle between vendors to ensure their platform is controlling and collecting the valuable data stream from the smart home via these voice control front-end devices is drawing a growing list of vendors with competing strategies into the market. In light of the 4Q push from Amazon and Google, the delay to Apple’s HomePod shipments – pushed from a 2017 delivery to February 2018 – meant the company missed out on the sale boost its rivals saw in Q4 2017 impacting Apple’s ability to be the initial smart home voice platform for millions of homes. Even so, Apple does already have a presence in smart home voice control through the integration of the Siri system into its HomeKit smart home management platform. That Apple felt compelled to deliver its own smart home voice control front end device speaks volumes for the immediate lure of the dedicated device market, but the success of voice control devices in increasingly becoming the de facto interface for smart home control speaks not just to the ease of use for smart home users but more vitally to the long-term value to the voice control platform vendors of the smart home market.

During the fourth quarter, we got to see how device shipment revenues are of secondary importance to Amazon and Google. In prices cuts of around 50% for these devices, ABI Research found that with BOM’s of around $31 for the Amazon Dot and $26 for the Google Mini, both vendors were likely selling these devices at a loss during sales promotions during the quarter. Their incentive is building a dominant user base bringing more and more homes and partners to the platform. It is a repeat of the strategy already been played out in many technologies and other markets where the winning play stems from the development of such self-perpetuating growth. Think PC operating systems, web browsers, smartphones market development.

What current investment is rooted in is the revenue stream that can flow from the insights and opportunities the smart home can present to voice platform providers and their partners. It is the same impetus driving Facebook’s own reported ambitions to bring its own voice control devices to market later this year and an area that ABI Research’s Smart Home practice is examining in detail for an upcoming report.

The smart home itself offers the promise of not just intimate knowledge of end-users and their preferences but, with voice as the user interface, a way to automate and channel purchasing decisions to related or partners services. Voice as a user interface can simplify many actions and that is its appeal, but it can also obfuscate how related services are provided. For example, the instruction “Play Music” could draw content from a range of music service providers – standalone such as Spotify or Pandora, or platform provided such as Apple Music or Amazon Music – the prominence given to one system over another is a revenue opportunity – either to be leveraged by the voice control platform provider directly or in monetizing through partner relationships. With the increasing reach of voice control platforms from mobile and smart home device into transferring content or integrating with the family car, determining where groceries and other items are ordered from, selecting transportation options such as Uber or Lyft and many other services. Given that voice control is a market with very limited interoperability or standards, the ability to attract and lock in voice control customers through dedicated devices, additional devices and as wide an array of partnerships as possible in the next 18 months is essential.