Smart Home Voice Control and the Bellwether Fourth Quarter

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4Q 2018 | IN-5333

Last year’s fourth quarter saw a leap in sales of smart home voice control front-ends (often termed smart speakers). This year, device vendors and the voice control platform providers behind them, are repeating the strategies that made their devices such a stand-out category during holiday buying in 2017, but these devices and the smart home market itself have progressed significantly during the past 12 months, and it is worth considering what might be learned from vendor strategies in 4Q 2018.

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Fourth Quarter

NEWS


Last year’s fourth quarter saw a leap in sales of smart home voice control front-ends (often termed smart speakers). This year, device vendors and the voice control platform providers behind them, are repeating the strategies that made their devices such a stand-out category during holiday buying in 2017, but these devices and the smart home market itself have progressed significantly during the past 12 months, and it is worth considering what might be learned from vendor strategies in 4Q 2018.

From Pucks to Displays 

IMPACT


Last year, fourth quarter voice control front-end shipments grew 189% over the previous quarter, and 159% over 4Q 2016. Sales were fueled by significant price cuts as Amazon and Google battled to win over new customers. Prices for Amazon’s Echo Dot and the Google Home Mini, which are low-end “puck-style” devices, were cut in half, supported by marketing budgets that helped drive consumer awareness and acceptance. Last year, Amazon reported that the fourth quarter saw more sales for the Echo Dot than any other products it sold.

Price cuts have been instituted again this year, although not quite at the same intensity. Amazon has cut the price of its third-generation Echo Dot, released just 2 months ago, from the original US$49.99 price to US$29.99. Last year’s second-generation Echo Dot is selling for US$24.99. Google has cut the price of its Home Mini device from US$49 to US$29 and its Home device from US$129 to US$99. These devices will ship in the tens of millions this quarter.

Major retailers, including Target in the United States, are also bundling voice control devices with smart home devices, such as smart plugs, to lead consumers into the smart home control market more directly. This year has seen a new generation of smart home voice control front-ends embedded with screens come to market. These support the same voice control platforms as smart speakers, but they add a screen interface to support visual data presentation that ranges from weather graphics to video feed from smart home cameras and, increasingly important, video calling.

Screen-enabled devices from Lenovo and JBL (both with Google’s Assistant platform on-board), as well as Google’s’ own screen-enabled device, the Home hub, all launched in the second half of this year. Amazon launched its first screen-enabled voice control devices, the Echo Spot and the Echo Show, in mid-2017, but in October this year, Amazon released upgraded versions of both. The same month, Facebook entered the smart home market with its Portal video conferencing screen-enabled device that has Amazon’s Alexa voice control built in.

These screen-enabled devices typically are priced well above the more popular puck devices, but December price cuts are being used to push these devices, too. The Echo Spot and the Echo Show retail at US$129 and US$229, respectively, while the Google Hub sells for US$149. Prices have now been cut to US$99 for the Spot, US$179 for the Show, and US$129 for the Hub (as of December 11, 2018). Facebook’s two Portal offerings have had prices cut from US$199 to US$149 for the Portal and from US$349 to US$299 for the Portal+.

Pricing as a Market Indicator

RECOMMENDATIONS


Though evolving rapidly, there is still plenty to play for in the ongoing battle to build up a broad and valuable smart home voice-control end-user base. Competition underpinned bargain pricing on smart home pucks and it continues to do so as voice control platform vendors invest in putting their systems at the heart of smart homes. In addition, investments by Amazon and Google in a growing range of smart home devices and offerings look to directly extend voice control device penetration into smart home control.

This year’s price cutting and bundled deals provide additional insight into the kinds of smart home installations and the kinds of smart home customers in which these leading voice control platform players are prepared to invest. Much of that value to platform providers stems from the value of the data collected from these devices. ABI Research has written before about the value of these low-cost voice control devices to voice control platform vendors, and how that can lead to device pricing falling below the cost of producing them. The role of the display versions of these devices is less clear.

While the bill of material for the screen devices is significantly higher than the low-end puck devices, potential remains for a substantial price, especially if platform providers sense untapped opportunity to draw in more valuable data with these devices over screen-less devices. For further detail, please see ABI Research’s recently published teardown report on the JBL Link View.

How vendors and, most importantly, Google and Amazon have cut the pricing or plan to bundle their screen devices with smart home devices in December shows just how far the smart home market has developed. The puck devices remain an easy entry point for many new consumers, but they also offer networked features that can push them into ways to extend voice control throughout the home with multiple devices installed in one residence. If the puck devices are being bought by existing customers expanding and enhancing their existing voice control capabilities, there is less incentive for platform providers to offer deep discounts. While last year’s deep discounts have not been matched, the significant price cuts suggest these devices are still appealing to consumers who have no existing smart home voice control installations. Despite the greater potential for discounting screen devices from Amazon and Google, it is the puck devices that have the greatest sales price discounts.

Regarding the value of voice control devices to their players, two recent developments may speak to the opportunity for these smart home voice control devices to drive additional revenue streams. Amazon has long had developer policies designed to restrict the ability of advertisers to offer promotional messaging within Alexa Skills (apps). These messages have been allowed in some streaming audio, but there have still been restrictions on how they are presented. This quarter, Amazon announced that developers can roll out in-skill purchases, which will drive new revenue to both the developer and Amazon. Offering “consumables" represents premium content or user experience. Amazon will let developers keep 70% of the list price of any consumable offered, with Amazon retaining the remaining 30%. Not every app will be able to monetize its skills with consumables, but certainly a good number will and there is every likelihood that these may represent a greater opportunity for screened devices.

In November, Google filed a patent related to monetizing visual data collected within a home. Such data would enable the vendor to better understand the residents, so they can, in turn, better target Google-delivered advertising and services. While Google’s hub device does not have a camera at present, its Nest operation offers a smart home video camera, but again, a screen device with voice control could be a more valuable resource than puck-style devices.

Above all, a screen brings a level of detail and information that can support the key long-term roles for these devices. The ability to see items and options will greatly enhance end-user comfort in using these platforms for shopping and receiving advertisements, which are key operations for both Amazon and Google.

It remains to be seen how this year’s voice control devices will be deployed—either in new homes or in those with existing systems. It will also be valuable to assess how many new devices replace existing ones or are used to extend functionality in the home. Pricing of both puck and screened voice control devices through December will not be the only measure of vendor intention or consumer enthusiasm for each type of device, but after the gold rush that took place last year, 4Q 2018 will be a keen indicator of how far the smart home market and its voice platform proponents have come.

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