Author: Jan Dawson

A couple of weeks ago, I wrote in this space about the increasingly self-reinforcing dominance of a group of very large companies in the tech industry. Those companies, I argued, have made it all but impossible for smaller companies to break into the industry, to grow, and to build sustainable businesses without being either wiped out or acquired in the process by the industry’s giants. However, though as a general rule all of that is true, there are some exceptions out there, in the form of a handful of small but successful companies that have somehow managed to survive surrounded by much larger competitors. It’s worth looking at some of them and how they’ve achieved what they have, to see if there are lessons for others.

Anker – Compete Where Others Don’t Want To

Anker was, in fact, the company that made me want to write this piece. It was in the news last week when it launched an Amazon Echo competitor based on Alexa, just the latest in a fascinating series of consumer electronics products which started with batteries and went on from there. The Verge did a great profile on the company and its history, which is well worth a read if you’re interested. The key to Anker’s success seems to have been a narrow focus on competing in areas where the big players really didn’t want to. That began with accessories like batteries, first replacement batteries and then external batteries for smartphones, a place where the big companies either didn’t want to play at all or wanted to offer products at margins that provided a nice price umbrella under which companies like Anker could compete.

But the company has taken that starting point and grown from there, expanding into home automation devices and arguably taking the same quality-plus-affordability approach it took to accessories, with the Echo Dot competitor the latest example of that push. Because it undercuts others on price but has built a reputation for reliability, it occupies a somewhat unique niche between the low-cost no-name brands out of China and the more expensive stuff from the big established brands. There are a few lessons here for others: compete where the big players don’t want to; build from an innocuous base to compete more directly with the larger companies; and, lastly, don’t forget that brands don’t all have to be built at the high end.

Roku – Be Switzerland in a World at War

Roku is another company that stands out as a rare exception – a smaller player which competes head on with some of the biggest names in the business and yet has not only survived but thrived in terms of market share. Roku started out as an arm of Netflix, making hardware for its fledgling streaming service, but was soon spun out on its own and has since made a business out of providing the neutral TV box in a world where essentially all the major competitors are owned by big ecosystems. Though Apple, Google, Amazon, Microsoft, and Sony all have offerings in the space, Roku has the largest market share in the US, through a combination of a range of price points and a certain neutrality in the ecosystem wars.

But Roku’s next big step was pivoting from its focus on first-party hardware to providing a platform for others under threat from the big ecosystems, offering its operating system as a way for other smaller players to break into the smart TV space and bring a compelling and rich set of apps to that market. Again, it offered neutrality where others offered only walled gardens and ecosystem favoritism, and has now gained substantial market share in the smart TV operating system space too. That pivot is still in its early stages, and Roku still likely makes a good majority of its revenue from hardware rather than licensing, but that balance will continue to shift as Roku prepares for an IPO. The key lesson here appears to be that there can be an opportunity in being the neutral player that offers an alternative to warring ecosystems, especially when none of those ecosystems has established a dominant position.

Airbnb – Create Brand New Markets in the Digital Layer

Airbnb is another fascinating company that has come from nowhere over the last few years to build a large and seemingly profitable business in the midst of otherwise dominant ecosystems. And it’s done it largely by creating a new market rather than competing in an existing one. Airbnb exists in what I call the Digital Layer – a business model in which infrastructure-light companies leverage existing physical infrastructure and proprietary software to connect buyers and sellers in such a way that new markets or liquidity are created. Arguably the biggest and most successful companies that have emerged over the last few years in the consumer tech industry all fall into this model – Uber and Lyft are the other big examples, but there’s a plethora of smaller ones too.

The key here is recognizing that a consumer tech company doesn’t have to compete in the consumer tech market and in fact the best opportunities exist outside the tech industry in traditional markets like accommodation, transportation, and retail. By digitizing those markets, these companies create new value that wasn’t there before, often enabled by ordinary people with no history in those markets who choose to supplement earnings or make their main income in this way. Creating just the right user experience, removing barriers and simplifying transactions through smartphone apps and other digital tools, then provides the differentiation needed against legacy business models. The big ecosystems so far haven’t participated in these markets at all, though ride sharing seems to be the market segment they’re most likely to enter, with both Alphabet and Apple dabbling already. But the lesson here is competing outside the constraints of the traditional tech industry and creating an opportunity where others didn’t see one.

No Simple Answers

For the purposes of this column, I’ve necessarily kept things pretty simple here, and arguably oversimplified somewhat what’s made these companies successful. In addition, these companies I’ve discussed are by no means the only small successful tech companies to have emerged over the last few years, and there are other strategies to be achieve what they have. They do demonstrate that, however high the odds against success in a market dominated by giants, there are opportunities to be both found and created, and that it is still possible for the right combination of skill, timing, and smarts to carve out a niche where the big players won’t squash you. At least not right away.

Facebook on Wednesday afternoon unveiled its Watch tab, which will be the new home for video viewing on Facebook and serve as a showcase for existing as well as new and exclusive video within the app. This effort follows several months’ availability of Facebook’s apps for various TV platforms, which have served as a test of sorts for the new in-app video tab. Facebook is clearly hoping that its big video push makes it more competitive against YouTube and allows it to both increase time spent in its apps and generate higher ad revenue, but there are significant risks to this pivot.

The Evolution of Facebook’s Video Strategy

Facebook’s strategy around video has evolved over the last few years in much the same way as its mobile strategy had to evolve around the time of its IPO. Back in early 2014, Facebook talked about video mostly in a passive way, discussing the rise of sharing of video on its service by users, and its expectations that this sharing would grow as smartphones became more capable and widespread. A year later, Facebook was actively talking about proactively building a platform for video, and in 2016 Mark Zuckerberg began talking about video as a third phase in a shift that had already seen the majority of Facebook content go from being text-based to image-based.

The last couple of years have seen an active investment by Facebook in not just tools for creators but in content itself, first around live video and more recently around produced video which would eventually end up in the Watch tab it announced this week. It has primed the pump by subsidizing the creation of content to populate that tab and increase the amount of high-quality content available on Facebook, while also creating new ways for video creators to monetize on its platform, starting with mid-roll ads. Now we’re seeing the creation of a place within the mobile app where the vast majority of users engage with Facebook which is explicitly devoted to video.

The Theory and the Risks

Facebook’s strategy here is fairly transparent: as consumption of content on Facebook has shifted from text to images to video, the content consumed has gone from being hosted on Facebook to being hosted elsewhere, notably YouTube. That, in turn, has meant that any ad revenue generated directly from the viewing of those videos has gone into Google’s coffers rather than Facebook’s. As such, it wants to shift that viewing and the associated ad revenue from YouTube to its own platform, much as its Instant Articles initiative has done that for news articles. In the process, it clearly hopes to increase time spent on content hosted on Facebook servers, and generate the higher CPMs that video ads command. That’s the theory.

However, there are a number of risks associated with this strategy, at least some of which stem from the decision to autoplay videos in the News Feed with the sound off. That, in turn, meant that ads could never run before videos as they do on YouTube, and mid-roll advertising was therefore the only viable option to monetize video on the platform. We’ve seen a push in that direction over recent months, and it’s the anecdotal evidence I’m seeing from that push that has me worried here. The chart below illustrates both the theory and the risks associated with this new video pivot:

As shown in the chart, the theory from the Facebook side is that total time spent will go up, and that the ads people see while watching video will generate higher CPMs. The risks are as follows:

• The time people do spend will shift from the News Feed to the Watch tab
• The nature of ads they will see will go from being native and non-interruptive to being non-native and extremely interruptive
• Facebook will go from ad formats where it keeps essentially all the revenue to models where it has to pass along much of the revenue to content owners and therefore generate lower margins, as Mark Zuckerberg confirmed on the company’s recent earnings call.

All told, there’s a significant risk here that instead of people spending more time on Facebook, people try spending some time in the new Watch tab, which Facebook will no doubt promote heavily as it has with the Marketplace and other recently added tabs, and then be put off by the mid-roll ads which will run in the videos they see there. The few ads that people do see, meanwhile, will generate less margin for Facebook than the highly profitable ads they currently see in the News Feed. Instead of increasing time spent and ad revenue generated, Facebook could actually turn people off and end up with less revenue.

Autoplay Will Turn Out to be a Costly Unforced Error

I return here to the decision to run videos in an autoplay mode without sound, which massively increased engagement with videos and therefore served that purpose well, but made it impossible for Facebook and its content partners to monetize those videos in the way that other ad-supported online video is monetized. People simply aren’t used to watching video on either Facebook or YouTube which breaks partway through and shows ads, and Facebook only has itself to blame for limiting its options now that it’s ready to turn on monetization for video. The great irony is that Facebook is now turning sound on by default for these autoplay videos, eliminating arguably the most effective aspect of the format and in the process neutralizing any benefits it might have gained from it in the first place.

It’s still possible that Facebook may be able to work its way through what at this point looks like a really costly unforced error. Perhaps the new content available on Facebook will end up being so compelling that the digital natives who’ve grown up on YouTube videos will sit through the ads anyway, but a generation trained on pre-roll ads on YouTube and no ads at all on Netflix is likely to have a tough time with random ads in the middle of very YouTube-like videos on Facebook. And that may make the hard pivot towards video Facebook is about to embark on really tough.

As we’re nearing the end of earnings season, one of the things that’s become increasingly clear is that the big companies have mostly performed consistently with their past performance, delivering strong growth and profits. Meanwhile, smaller companies have struggled to find growth and profitability, often losing share to their bigger competitors. The recurring theme for me has been that the dominant become ever more dominant, while the smaller players continue to struggle to break in and cross over to the other side of what’s increasingly looking like a chasm.

The Big Get Bigger

On the big side, we have the giants of the consumer tech industry, as measured by revenue or by influence, all of which have now reported their results:

• Alphabet reported 21% revenue growth and a 24% net margin
• Amazon reported 25% revenue growth and, an exception among this group, a 0.5% net margin
• Apple reported 7% revenue growth and a 21% net margin
• Facebook reported 45% revenue growth and a 39% net margin
• Microsoft reported 13% revenue growth (aided somewhat by LinkedIn) and a 24% net margin
• Samsung reported 20% revenue growth and a 14% net margin, with its strongest quarter for both revenues and profits ever.

With one exception, these are highly profitable companies, and with one exception again, they grew by double digits year on year. Beyond the mere financials, though, these companies individually or in pairs or trios dominate key markets:

• Amazon is increasingly dominant in e-commerce, not taking majority share of spend, but certainly eating up the vast majority of growth in the market
• Alphabet’s Google and Apple carve up the smartphone operating system market between them
• Facebook dominates social networking, with no viable competitors on a global basis
• Amazon, Google, and Microsoft dominate cloud computing
• Samsung and Apple remain the top two players in the smartphone market, and the only ones to make more than minimal profits in the market
• Microsoft continues to dominate the PC OS market, with Apple and Google rounding out the rest
• Facebook and Google dominate online advertising, and especially mobile advertising, and as with Amazon soak up much of the annual growth in the market in the US
• Amazon and Google dominate the home speaker market between them, with Amazon having the lion’s share
• Apple dominates the premium smartphone and tablet markets.

I could go on, but you get the picture: these big, successful companies are only becoming bigger and more successful, and more dominant in the various markets where they compete.

The Small Continue to Struggle

Not all of the smaller consumer tech companies have reported yet, but we have enough of a picture from those that have, and from past earnings from those that haven’t, to know what we’ll end up with:

• Twitter’s revenue declined for the second straight quarter, down 5% year on year, and continues to lose buckets of money, with a negative net margin of 15% in Q2
• Fitbit saw continued rapid declines year on year in its shipments and revenue, and also saw significant losses
• GoPro will be reporting on Thursday, and my guess based on last quarter’s results is that losses and revenue declines are on the cards there too
• Snap reports next week, and although it’s seen decent growth driven by rising ARPU, its user growth continues to struggle and it’s also losing lots of money
• Smartphone vendors from LG to HTC to Lenovo either have reported or will likely report losses and shrinkage, with few exceptions.

Now, some of this is down to company lifecycles, with both Twitter and Snap still to generate any profits at all in any quarter, while Fitbit and GoPro have been profitable and high-growth companies in the past but have run into trouble. The lower-tier smartphone vendors, meanwhile, have always struggled in markets that offer little differentiation and intense competition and which heavily reward scale and premium offerings.

Barriers to Independent Success Remain High

In an earlier piece, I wrote about the danger of being a one-trick pony in the tech industry, with both Fitbit and GoPro among the examples I cited. And that remains a key issue for these companies, many of which are single-product companies and have failed to build broader platforms and ecosystems that can attract consumers and differentiate against powerful competitors.

But the barriers to success go well beyond that. Many of the largest players in the industry enjoy significant network effects and scale which enable them to quickly ramp up new products and services by selling them to massive installed bases of devices or regular users. I wrote about the power of Amazon’s Prime in this regard last week, but Facebook is another great example. If Facebook feels threatened by a new app or feature offered by a rival, all it has to do is copy it and make it available to its own massive user base of 2 billion monthly active users or the smaller but still substantial WhatsApp, Messenger, and Instagram user bases. The rise of Instagram Stories to 250 million daily active users over the past year, eclipsing Snapchat’s 166 million daily active users as of the end of Q1 2017, is perhaps the perfect example of this.

On the rare occasions when companies and products do manage to break through these barriers and create real differentiated value, they’re often simply acquired by the bigger players. WhatsApp, Instagram, LinkedIn, DeepMind, and others are among the list of companies which had created interesting businesses  or technologies outside of the big tech companies and yet have now ended up being absorbed by them.

For all these reasons, it’s almost impossible to cite an example of a consumer technology company that’s emerged in the last few years and achieved real financial success independently of and despite the dominance of the big tech companies. Of those that have tried, the vast majority have run up against the power of ecosystems, been cloned and eclipsed by the big companies, created markets which ended up dominated by larger players, or been acquired.

I’m far from convinced, as some are, that this means regulators should start looking at these companies on antitrust grounds, mostly because I don’t think they’re doing anything illegal. But we are going to see calls for regulatory intervention, especially in Europe and other markets outside the US, and we’re going to see an increasing backlash against these dominant players from consumer groups, would-be competitors, and politicians. Dealing effectively with these complaints and threats is going to be an important skill for these companies over the coming years, even as they begin to feel more and more invincible.

This week, I was driving in my neighborhood when I spotted that most American of sights: a bunch of kids running a lemonade stand, waving signs and trying to flag down passing cars. In some ways, it seemed like a great business opportunity – the temperatures where I am have rarely dipped below the high 90s Fahrenheit lately. And yet I didn’t stop – not because I don’t like lemonade (or kids), but because I simply don’t carry cash anymore, and I’m fairly sure the neighbor children weren’t taking credit cards. That got me thinking about all the people and sectors of our economy which are still dependent on cash, and how they might be affected by our increasingly cashless society.

Cash is in Decline

Whether anecdotally or based on solid data, I think most of us have a sense that cash is in decline. One study from last year suggests that cash is the preferred payment method of just 11% of US consumers, with 75% preferring cards. In other markets such as China, cash is dying out even more quickly, with mobile payments increasingly eating into both its share and that of cards. Though my local dry cleaner in New Jersey was a rare (and suspicious) exception, I very rarely come across businesses that don’t take cards, to the extent that it now really takes me aback when it happens. For many of us these days, credit and debit cards and to a lesser extent mobile payments are making cash largely irrelevant. I still have a huge jar of loose change I accumulated over many years and which now mostly gets used for the occasional school lunch or visits from the tooth fairy, but not much else.

But not for Everyone

However, assuming that this pattern holds for everyone would be a mistake. There are still big sectors of the economy, and large groups of people, who remain heavy users of cash and heavily dependent on it, and as others move away from it, that’s increasingly going to cause them problems. Sadly, this likely applies most to some of the more vulnerable and marginalized parts of our society, who will be least in a position to make the changes necessary to keep up as the rest of society moves on.

Here are just a few examples of people or businesses still dependent on cash:

• Homeless people and others who ask for money on the streets
• Charity workers soliciting cash donations in public areas
• Manual and casual laborers who get paid in cash, either for convenience or for tax reasons
• Cab drivers
• Those who don’t have bank accounts or credit cards, including many without regular incomes
• The elderly
• The very young, also unlikely to have bank accounts
• Anybody who works based on tips, from waiters and waitresses to maids and barhops in hotels to valet parkers
• Small local retailers and restaurants who can’t justify high credit card processing fees on mostly small purchases.

The list could go on much longer than that, but the point is that there are those who are in some cases heavily dependent on cash and relatively powerless to make the changes necessary to keep up. These are often among the poorer and least educated people in our society, and therefore those with least access to technology, the traditional banking infrastructure, or information about how to adapt.

Tech Has Offered Partial Solutions

The tech industry has offered partial solutions, but mostly in self-serving ways. Payment processing company Square has transformed many a small retailer or producer from a cash-only business to one that can take credit cards and even Apple Pay, and created ways for those without traditional cards to carry balances and make payments with their phones. Amazon has introduced methods for those who deal mostly in cash to obtain one-off or refillable cards to be used to pay for things on its site. Venmo has turned erstwhile cash transfers into electronic payments. But these solutions mostly tear down limits to the addressable markets for their own products, without necessarily expanding economic opportunity or promoting inclusion, while also often being based on internet and mobile technology not available to all.

But Needs to do More

What we need is solutions for the rest of society, and especially for those without access to the internet and phones to be able to receive non-cash payments. What about an app that allows patrons or would-be donors to set up a transaction in an app, and allows the recipient to walk into a bank or store to pick it up in cash with a privately shared code? Or an app that allows users of basic smartphones to receive payments and carry a balance without creating an ongoing relationship with the payer? What about a service that would provide meals, access to beds and other facilities, or other needed items to the homeless based on donations from smartphone users? Technology has such an enormous potential to reduce friction and make payments simpler, but what we need are innovations that do the same on the receiving end, including in ways that don’t themselves require technological solutions.

I feel like calling on the tech industry to step up to big societal problems has been something of a theme lately in my columns, but I can’t help but think that this is yet another area where those already most on the fringes of society will just be left further marginalized by technology rather than brought into the fold by it. It doesn’t need to be that way: the bright minds who have created so many technologies that help us deal with our “first world problems” can surely find ways to help those with more biting and pressing challenges as our society continues to evolve.

In what was one of the most packed WWDC keynotes in recent memory, the Apple Watch got under 15 minutes of stage time, and health and fitness features got only a fraction of that. But that’s not really indicative of all the additions to Apple’s health, fitness, and broader wellness features being made this year, and it’s certainly not indicative of Apple’s commitment to the space. I spent some time this week getting briefings about both what’s new in Apple’s own software, and what developers and others are bringing to the party.

Four Key Domains in Health

Apple’s focus in health, fitness, and wellness is clear from the moment you open its Health app – it highlights four key domains for which the app can track data:

Apple’s approach to everything it does has always featured hardware, software, and services, and Health is no exception. But in this area, perhaps to a greater degree than elsewhere, Apple relies on third parties, with much of the heavy lifting in three of the four domains listed above being done by outsiders, and Apple focusing mostly on the Activity area with its own products and features. Those third-party contributions are, of course, enabled by tools provided by Apple, mostly in the form of SDKs and APIs which outsiders can use to build software and integrate into Apple’s various systems.

An Increasingly Comprehensive Play in Medical Too

That’s especially true in a fifth domain, which isn’t as visible in that home tab of the Health app, but is nonetheless important to Apple’s efforts in this area, and I’ve called that medical for the sake of distinguishing it from the other domains. The table below illustrates the roles played by Apple’s own first party products, its tools for third parties, and then the products and services provided by third parties in all this work, with areas that will change or have augmented features or functionality this year highlighted in red:

As you can see, at this point the combination of Apple’s own products and features and those provided by third parties is pretty comprehensive at this point, and you can hopefully also see the number of areas where new features in watchOS 4 are enabling new functionality either in the built-in apps and hardware or through third parties.

What’s New This Year

I want to drill down briefly on some of the things that are new this year, because they got such short shrift at WWDC but some of them are pretty notable. Here they are in bullet point form:

• Enhancements to the Workouts app: following the new hardware from last year which introduced GPS and water resistance to the Watch, watchOS 4 adds additional functionality, including more sophisticated tracking of swimming workouts, optimized tracking for High Intensity Interval Training (HIIT), easier switching between workout types and general usability improvements.
• Changes to the Activity and Breathe apps: each of these apps is getting some subtler changes, with the Activity app getting some smarter coaching which is more personalized than the current more generic reminders and prompts, with some really clever stuff coming here; and the Breathe app getting better explanations of why you might want to take a break and do some deep breathing, in the form of described health benefits.
• GymKit and connected fitness machines: I saw a demo of the new integration with fitness machines, and this is going to be a big deal for anyone who does gym workouts, which the Watch naturally can’t track as well using GPS or motion sensors. The integration here is very clever, with data flowing both ways, meaning that data from the Watch can show up on the much larger, always-on screen on a treadmill or exercise bike alongside the data it captures itself. I think there’s an opportunity here for deeper integration with iOS devices to replace the corded connection some machines offer today, for things like projecting notifications or videos onto the gym machine, but the fitness-focused integration Apple is starting with here is a great start. Getting these machines quickly adopted in gyms will be the key, and I understand Apple will be talking more about how this is going to happen later in the year.
• Core bluetooth on the Watch for more devices: Apple has enabled core bluetooth on the Watch for heart monitoring chest straps from the beginning, but not for a broader range of devices. In watchOS 4, it’s opening up core bluetooth to other devices too, enabling other body sensors and even medical devices like continuous glucose monitors, as well as connected fitness equipment like tennis racquets or golf clubs.

The Medical Domain is Coming Into its Own

Beyond the things Apple itself is going, I got to see quite a few apps and devices from third parties in my meetings this week, and one of the things that impressed me most was the innovation being done in what I labeled the medical domain above. Between the original HealthKit and the additions since in ResearchKit and CareKit, Apple is enabling some really interesting work by doctors, device vendors, and medical facilities which leverages Apple devices to do things that would otherwise have been impossible or a lot more difficult. Some examples include:

• The Propeller Health asthma inhaler sensor and accompanying app, which automatically track when the inhaler is used and also invite users to track their symptoms and environmental conditions manually, pulling in third party data. The solution is designed to help increase “adherence” (the faithfulness with which patients adhere to a treatment plan such as using a preventative inhaler daily) and understanding of what triggers symptoms for better management. These products have been available through medical professionals but are now going direct to consumers as well.
• A WebMD Pregnancy app which includes a ResearchKit component that is allowing researchers to learn a lot about pregnant women and their symptoms, which are surprisingly under-researched, especially in remote and rural areas far away from where most studies are conducted. The app is going to be most useful with women who have access to regular blood pressure and other vital signs measurement, but is already generating a much higher participation rate from rural areas.
• A Sharp Health app for helping eye surgery patients get ready for and recover from their procedures. The app helps ensure that patients don’t have surgeries canceled because they forget about necessary steps to take beforehand like stopping blood thinners, and again helps with adherence after surgery, as well as giving them options for talking to medical professionals if they have questions during their recovery. The basic model here could certainly be applied to other procedures by other health systems too.

More Work to be Done

As I said earlier, it’s starting to feel like Apple has an increasingly comprehensive set of hardware, apps, tools for third parties and a growing ecosystem of apps and devices from others in this health domain. But in quite a few of these areas, it feels like we’re still just scratching the surface of what can be done, especially in the medical field, where things still tend to move very slowly and where comprehensive electronic patient records are still more of a dream than a reality. But Apple is helping here by providing tools that professionals and companies with the appropriate medical pedigrees and qualifications can tap into, while focusing on what it does best.

One question I had for the Apple folks I talked to was how it decides which domains to play in itself versus leaving them to third parties – for example, it’s added some sleep-related functionality such as the Bedtime feature, but still doesn’t do its own sleep tracking, and doesn’t really have much of a first-party play in nutrition tracking either. The answer I got was the classic Apple one: Apple tends to participate directly in a market only where it feels like it can do something unique and different. For now, that means there are plenty of areas where others are better qualified and equipped to make a difference and provide the features and functionality users need. Discovery of these in the App Store and elsewhere is going to be key for enabling users of Apple’s ecosystem to make the most of all this, and that’s an area where the App Store changes Apple announced at WWDC should help.

Apple is never going to be done in this area, and neither are its partners or its competitors. There’s lots of work still to be done by all these players in a field that I suspect is going to receive increasing attention from the tech industry over the coming years, even as politicians argue over the best ways to manage the funding of healthcare and the structure of insurance plans that will pay for much of this. I’m hopeful that we’ll see much faster change and greater benefits coming on the technology side, and this week I saw promising signs in that direction.

With reports this week that Samsung is readying a Bixby-powered voice speaker for the home, and an announcement from Alibaba that its entry in the category will be launching next month, it feels as though we’re reaching a tipping point in the market pioneered by the Amazon Echo. It seems as though pretty soon every major platform and device vendor will have an entrant in the market, signaling a new phase in its development. But this market isn’t quite like other markets that have gone before.

A Tipping Point in Voice Speakers

Amazon, which arguably created the voice speaker market with its Echo device in late 2014, had the market largely to itself for a good two years. Then, Google entered the market with its Home device late last year, and this year saw a slew of announcements at CES, mostly of Amazon Alexa-powered speakers, with an announcement last month by Apple and this week by Alibaba, among others. Things certainly seem to be picking up steam, as the diagram below shows:

Apple’s HomePod should be with us later this year, while Tencent has said it’s working on something in this space, Lenovo’s Smart Assistant was announced at CES but hasn’t become available yet, multiple speakers from Microsoft partners including HP and Harman Kardon are on the way, and Samsung is reportedly working on a speaker powered by its Bixby voice interface. On top of all those, there are quite a few others from smaller companies.

A Different Kind of Market

Most markets in consumer technology go through multiple phases, often pioneered by one or two companies who prove out the opportunity, followed by a rushing in of new players as the opportunity becomes obvious to others, and an eventual thinning and consolidation of the market as the winners begin to emerge. In the last few years, the rushing in phase has been characterized by an influx of low-cost Chinese competitors in markets as diverse as smartwatches, drones, virtual reality headsets, fitness trackers, and more.

That hasn’t really happened in quite the same way in the voice speaker market, for one obvious reason: this isn’t just another hardware category where free, off-the-shelf software gets you an instant global presence. Even though Amazon has opened up its Alexa platform for others, and we’ve seen a number of not just speakers but other devices launched which incorporate it, that platform is still fairly severely geographically limited. The Alexa Voice Service which device vendors can use is so far only available for the UK, US, and Germany. And of course Amazon as a brand may be present in many markets, but is only really popular in less than a dozen countries worldwide.

The Google Assistant so far only works in English, though support for other languages is coming shortly, but even once those roll out much of the world will be left without a voice assistant platform that speaks its language. Apple’s Siri, at least on iOS, supports many more languages, but it’s not yet clear which HomePod will support, and of course Siri isn’t a licensable platform.

Localization Beyond Language

But language isn’t the only localization challenge with voice assistants. These assistants need to understand local accents and idioms, know the right conversions for locally-used measurements, be familiar with television shows, movie stars, and sports figures in each country, and so on. And they need to integrate with relevant local entertainment, information, and other services. That makes expanding into other markets particularly challenging, and it’s yet another reason why most successful voice assistants will be part of broader ecosystems coming from big companies like Amazon, Google, Microsoft, and Apple.

However, that means the broader opportunity for voice speakers is nothing like as large as for other recently hot consumer electronics categories, with the long tail of cheap Chinese vendors in particular likely to remain largely absent. It’s possible that, with the entry of players like Alibaba into voice speakers and Tencent and Baidu into voice assistants, we’ll eventually see some expansion into lower-cost tiers. But this is likely to remain a highly regionalized market, to a far greater extent than any other recent consumer electronics category.

That’s important because there’s already a false narrative around a global market in voice speakers. Several of the news outlets that covered Alibaba’s announcement this week said it was a competitor to Google Home and Amazon Echo, but of course since those devices don’t work in China and Alibaba’s won’t work outside China, they’ll never actually go head to head.

Business Models Will Vary Too

The other interesting thing about the voice speaker market is that, for at least some of the players, it will be a means to an end rather than a lucrative business in its own right. It’s already clear, for example, that Amazon sees the Echo family and the Alexa platform as an opportunity to sell more stuff on Amazon.com, while Google plans to use advertising to create additional revenue streams on the somewhat cheaper Home. Apple, meanwhile, will take its usual tack of monetizing the complete package of hardware and software, though it will likely see some uplift in services like Apple Music off the back of HomePod sales as well.

In China, meanwhile, we’ll likely see these and other business models play out, with Alibaba’s device named after one of its popular online stores, and Baidu’s and probably Tencent’s efforts likely to be more ad-focused. All of this will lead to different pricing strategies for the hardware itself, with the early Chinese examples hitting price points roughly half those of the two early leaders in the US market, and Apple in turn pricing its premium speaker at roughly double those devices.

This is going to continue to be a fascinating market to watch unfold, one that won’t necessarily follow any of the established patterns from other recent hot devices. It will be more regionalized – even balkanized – and more varied in the business models than other device categories. And as a result we’ll likely see several major players taking leading positions in different regions around the world, rather than global winners as in smartphones, tablets, or PCs. Over time, we’ll certainly see the usual thinning and consolidation as some winners do emerge and smaller players fail to gain traction, but in the meantime it feels like we’re going to see lots more new entrants and interesting devices and business models.