The Smart Home & Amazon Alexa (and Echo)

When talking about Amazon and their strengths and weaknesses for coming out on top for the looming (massive) smart home opportunity — you have to include both Echo (hardware) and Alexa (software) in the equation. While they are intertwined now, that’s not going to remain the case. The Echo is, of course, Alexa’s first customer. However, The Echo is not Alexa’s only customer. An ever increasing range of devices will utilize Alexa’s voice assistant in the future (the tools for integrations are already live). The more devices utilizing Alexa, the more data Amazon collects, and the smarter/better Alexa’s voice assistant will become. It’s the same core reason Google dominates search — their flywheel of data (teamed with investment in AI) is spinning faster than anyone else’s. Without massive consumer adoption (aka data), there’s zero chance of a competitor delivering a better search engine than Google.

Amazon’s goal with controlling connected devices in smart homes is more adoption for Alexa. In the near term, that means more Echo sales/revenue as well — but I don’t really think they care about that revenue long term. The long term goal is to become the default voice assistant for consumers globally. Part of what a voice assistant will do for consumers is help them find products and services — which is where Amazon makes their money. If those consumers are making that decision with Alexa’s help, it means Amazon doesn’t have to pay a “user acquisition tax” to Google (or anyone else).

Without further ado, let’s dig into Amazon’s positioning for smart homes…

Pros

• Controls both Hardware AND software.
• Distribution in homes — Amazon’s sales of Alexa-powered devices surpassed 10 million earlier this year (via GeekWire), and 15 million this month (via GeekWire). They control 76% of the smart home speaker market in the United States.
• AI man power and capital: I’ll wager a guess Amazon is investing more in AI than anyone else (aside from perhaps Google).
• Already responsible for a major chunk of device sales to connected devices manufacturers on Amazon.com. That means they can exert significant influence over device manufacturers (aka “nudge” them to make devices Alexa compliant).
• “Open system” means faster (and cheaper) path for manufacturers to integrate.
• Capital to fund in-home installations of connected devices.
• Video is here, with Amazon Show (& Spot coming Dec 2017). This opens up a whole new opportunity for experiences that require images/video — such as real estate and travel.
• Alexa Fund
• The Echo does more than just control connected devices in the home — it plays music, provides weather, etc

Cons

• Open system means less control over the home owner experience. The classic “Windows vs Apple” situation (in this case Amazon vs Apple”). Without end to end control of the user experience, the experience is likely to be inferior to a closed system.
• Wifi dependent — meaning lag time
• Business model isn’t dependent on making the consumer home owner experience better.
• Trust. It’s not that consumers don’t “trust” Amazon with their data, but I don’t believe they have the level of consumer trust Google and Apple have. At least not yet.

Do you have an Echo? If so, do you have it controlling any lights, door locks, thermostats, etc? Do you love Alexa? In a perfect world, what would Alexa help you with in your home?

I still think the big question is…. what happens when Alexa talks first?

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