To date, approximately 65 million smart speakers have been sold worldwide. Most of those to North America, but the rest of the world and China, in particular, is catching up fast. The YoY growth in the market has been impressive. It is, without a doubt, the fastest growing category in consumer electronics. In our analysis of this category, I mentally include smart speakers in the smart home/smart home tech category which by itself just looking at connected home categories is growing quite fast. Put all this together, and the big picture observation is that smart home/connected home technology is exploding in growth and further evidence that it is the next consumer electronics battleground. Here are two charts from my model to help visualize the market.
Like any proper analysis, this market is layered with interesting narratives. Not only, is the market a growth category YoY but if current trends hold we will pass 70 million in sales in 2018 alone. Which highlights the point that the vast majority of smart speakers sold in total have come in the past 12 months.
While I frown upon hanging too much emphasis on quarterly market share, I prefer to look at installed bases, the big story of the past few quarters has been Google’s market share growth in the category. Many articles came out making the point that Amazon had more than 70% share of the category, and that was true, but it was true when the category was only selling a few million units a quarter. Inevitably, as the market got larger and more competitive, we would see market share sales balance out. This is how markets work, and it is no surprise it has balanced out. Google and Amazon are hands down the sales leaders by market share, so I’m showing just their sales by quarter broke out.
As you can see, 2018 has been a much evener battle between Google and Amazon. Of course, it is worth noting the vast majority of the sales of these products has come at lower price points. The significant sales spike during the 2017 holiday quarter was because of Echo’s and Google Home products in the market for less than $100. For the time being, we can conclude low-cost smart speakers drive the market. This is at least the land-grab strategy for both Google and Amazon are employing. Their hope is a low barrier to entry price wise will lead to hooking customer on the value and then over time the same customers will look to them for more premium offerings but will be addicted to one assistant and not interested in switching. This, at least, is the theory and we will see if it plays out this way.
The Smart Speaker Market is Evolving
It is interesting to see some evolution in this category start to take place. Amazon’s Echo Show demonstrated the value of a voice assistant paired with a screen. The key to this product was the addition of voice as the primary UI to navigate as a screen based product. The result, was a computing solution where a consumer could control a screen with their voice, freeing up their hands to do other things, or operate the screen from a distance since touching it was not necessary to use it. This signaled the first major evolution of this category to smart screen based voice computers.
Below is the left to right evolution of the products from Amazon and Google.
The screen-based products are most interesting to me right now from a competition standpoint. I’m not joking when I say I’ve used every one of those products pictured in my home and tested many different scenarios and use cases with them. In doing so, what I observed was the value of the assistant was relatively equal when no screen was present. Enter the screen, and Google’s assistant started to perform better and in more valuable ways than Alexa on the Echo Show. As of now, that Lenovo smart speaker with Google Assistant is my favorite product of the bunch and has displaced the Echo Show in my kitchen.
What further got me thinking about how this category can evolve and get positioned was how these screen-based assistants might start to appeal to different segments of the market. I stumbled across this highly influential YouTube blogger whose main influence is on millennials and Gen Z. His name is Dave Lee, and he reviews many tech products, but I found his positioning of the Lenovo/Google Assistant smart display as an accessory for college students quite interesting.
Strategically, getting millennials and Gen Z hooked on assistants while they are young is essential. If we believe, as I do, these smart assistants play a role in the next major platform, then creating dependencies now on existing computers is strategically imperative for everyone hoping to compete. What makes Google interesting in this, is how Google Docs, Google Search, Gmail, and a host of other Google services are standard tools college students use as a part of their workflow. Which is why positioning these smart displays as an accessory for college students, for use not just as entertainment in their dorms but also as an educational/productivity tool is extremely interesting.
There is still a lot we don’t know about this category, and while we are attempting to answer essential market questions, it is still evolving quickly before our eyes. For all of our clients, and anyone interested in this category I continually stress that we are still very early days despite the strong sales and growth we have seen thus far. I’m bullish on the category, but I still think a great deal of evolution regarding product market fit is going to take place and while having sold well, I think many of the current products in the market will be outdated relatively quickly over the two-year time frame.
This market represents a significant opportunity as not just consumer homes, but retail spaces, businesses, public spaces, educational locations, and more are all opportunities for smart screens and voice assistants. It is a significant category, but that opportunity will also come with significant challenges. In some cases, these challenges will be much steeper for consumer tech companies who have had a reasonably easy path getting to where they are.
