Amazon Matures its Echo Lineup

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Amazon on Wednesday held an event to update and expand its Echo lineup, and in the process demonstrated how the product line is maturing. There are more products, but they’re also more clearly targeted at specific segments of the market, while still undercutting pretty much all major competitors on price. Amazon clearly isn’t ready to cede the market to Google, Apple, or anyone else likely to enter in the near future.

Increasing Segmentation in the Echo Lineup

The first thing to note about the new Echo lineup is the increasing segmentation of the market. Though I’ve seen some reacting to Amazon’s new lineup as if it’s essentially random and experimental, I think there’s a lot more structure to it than it might at first seem. The illustration below lays out Amazon’s Echo product line before and after this week’s announcements:

Before this week’s announcements, the Echo portfolio looked like a bit of a hodgepodge, with two specialty devices, one device with a screen, and one cheap and one relatively expensive straight voice speaker. After this week’s announcements, the picture is a lot clearer, especially in the first two columns in the chart above:

At this point, the vast majority of customers will mix and match products based on how much they care about audio quality and video, in a variety of rooms in the home, using Dots for secondary spaces and Echo or Echo Plus units in primary spaces, with the occasional device with a screen for customers who care about video conferencing or another endpoint for Prime video.

Addressing a Broader Market

The range of activities enabled by the Echo line has been expanded mostly through software since the original launch, but over the last few months Amazon has added considerable specialization through hardware too, from the screens and cameras on the Show/Spot and Look to the smart home hub in the new Echo Plus to the accessories.

By addressing a wider set of use cases, Amazon is clearly looking to expand the market for which Echo devices will be attractive beyond those looking for voice-driven kitchen timers, user-friendly but low-quality and unattractive speakers for music, or an alternative to turning on the radio in the morning. As such, these devices start to compete indirectly with more products which would previously have set in fundamentally different categories, including game-centric TV boxes like the Apple TV, VoIP services and devices, smart home hubs like those from SmartThings and others, and so on.

Amazon’s ambitions with the Echo have always been broad, but they’ve been achieved largely by taking on a new, voice-driven interface with the limited set of tasks that are well suited to voice control through a device with finite capabilities. Its broader ambitions are now more easily realized as it leverages its early dominance in voice speakers into these new market segments, and I would expect it to take a greater share of the segments of the market it addresses in the coming year than in the past year, despite Google’s likely introduction of a Dot competitor next week.

The High End is Still Up for Grabs

That last sentence, though, raises the question of what will happen in the segments of the market Amazon doesn’t address with its first party lineup, especially the high end market. That market doesn’t really exist today for voice speakers specifically, and is mostly limited to standalone speakers from premium audio companies and Sonos, which will hold its own event next week, one that’s widely expected to feature voice as a major new feature.

Apple, of course, will also shortly enter the market at the high end, emphasizing many of the same historical strengths that have driven Sonos’s dominance of the mid-tier whole-home audio market: quality, ease of use, and a focus on music. Amazon still seems relatively uninterested in going after the premium part of the market, in part because that’s a strategy for those who want to drive high margins from their hardware rather than for those who are using voice speakers as a loss leader for building a voice ecosystem. Both Amazon and Google seem likely to try to address that premium end of the market mostly through partners, though Amazon has moved ever so slightly into higher quality audio in recent months. Google is reportedly working on a higher-end Home speaker, but we’ll have to see whether that actually launches and where in the market it’s pitched.

The diagram below indicates how I see this market playing out over the next few months, with Sonos and Apple both entering towards the premium end of the market, but Apple likely pricing above Sonos based on the pricing of Sonos’ current lineup:

Amazon doesn’t have a strong incentive to pursue the premium part of the market for today, while Google’s participation in that part of the market is still theoretical at this point. That means that we may well see the same dynamic playing out in voice speakers which we’ve seen in smartphones, tablets, and even connected TV boxes, with Apple capturing the small but highly profitable premium segment while Google (and in this case Amazon) captures the lower-margin mass market. Given that there’s likely to be close alignment between those who already favor Apple’s devices in those other categories and those who will prefer the premium approach in the voice speaker market, that likely won’t present problems for Apple’s ecosystem. Sonos, meanwhile, may find itself squeezed between increasingly high-quality voice speakers from Amazon and Google (and their partners) and Apple’s HomePod, and will have to ensure that it’s unique value proposition around multi-room audio really stands out in that mid market.