Amazon Brutally Going After Voice Market – Seeking Alpha
When taking into account how many devices or computers Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) are on, it would appear they would easily dominate Amazon (NASDAQ:AMZN) in the voice assistant market as, together, they are embedded in hundreds of millions of mobile phones and computers.
Considering estimates for Amazon Echo sales are probably in the single-digit millions, it would suggest the e-commerce giant has little chance to effectively take market share from the other tech powerhouses.
Not only do I not think that’s how this will play out, but I believe Amazon will end up dominating this market because of the overall view the other companies are taking, and their slow response to growing consumer and business interest.
If that’s the case, the company will add a third revenue and earnings line to its already formidable cloud service and e-commerce business.
Why Amazon is so aggressive
Beyond the obvious opportunity to take share in a potentially explosive, relatively new market that is just catching on with consumers and businesses, there’s a reason Amazon is aggressively going after the voice assistant market at this time: Its competitors have decided to take a much slower approach to the business. Why are they doing that?
My take on it is Google, Apple and Microsoft in particular, view assistant voice services as complementary or ancillary to their main products. For Amazon, it represents an entirely new market.
One way to understand it is how Wal-Mart (NYSE:WMT) and Amazon compete in the e-commerce business. One of the reason in my view, why Wal-Mart was slow to respond to the e-commerce threat of Amazon was it knew it would cannibalize its physical stores; at the time it didn’t see it would be a growth market.
Even now as it attempts to grow out its e-commerce business, there is no doubt Wal-Mart will eat into its physical store sales. Amazon on the other hand, has nowhere to go but up. It’s not cannibalizing anything. And even with it looking to build some physical stores, it’s based upon internal data showing items that consumers prefer to buy when interacting with them with their senses, i.e., in a physical setting.
So while Amazon could lose some sales if it opens up physical stores, it will add a lot more because of the desire for customers to handle specific items before buying. There isn’t much downside for Amazon, while Wal-Mart is very unlikely to gain a lot of e-commerce customers without losing sales at its physical stores.
It’s similar to that with Amazon’s foray into voice. Its major competitors already sell the devices or computers the voice assistants are embedded in, and don’t consider them a priority. This is why they’ve been slow to respond to developing apps and services for them, leaving a big opportunity for Amazon to step into.
Sensing blood in the water, Amazon is going after this market in a way that it will probably gain significant market share before its competitors understand what is at stake. But similar to Wal-Mart, it’s Amazon, because of it having so much upside and the most to gain, that will benefit the most from winning voice.
I think this is why its competitors have been slow to respond. They understand consumer demand for voice, but don’t look at it as a key component of growth. Again, it’s considered more of an add-on to existing products; something Amazon doesn’t view voice as.
Embedded assistants aren’t much of an advantage
Other than being part of the acquisition of a mobile device or computer, it’s not really that much of a competitive advantage to Amazon’s competitors.
For example, even though Google is on millions of Android devices, developers can only support those interactions with the Google Home speaker. At this time, support isn’t offered on Android phones.
For Apple, it has struggled with Siri, as even its staunchest fans have complained about it not keeping up with Amazon and Google specifically. It is less accurate and the functionality isn’t as good as its competitors.
While Apple is probably, to some degree, guaranteed a consumer base because of its brand strength, it won’t likely be expanding beyond that, based upon its closed-system strategy. On the other hand, with Amazon offering a different device and rapidly moving ahead in the app realm, consumers may prefer to use Echo and Alexa before Siri, even with the convenience of having it embedded in their iPhones.
Also important is that Apple has required much stricter guidelines to its partners than Amazon has, which has allowed Amazon to provide home products at a much quicker pace than Apple’s HomeKit products.
I like this approach because Amazon can always say it’s sorry later. And even with its tougher requirements, Apple, as mentioned, has underperformed in the quality of its products.
It appears that Amazon’s strategy is to have consumers consider it a must-have device for the home, positioning itself as the superior voice assistant, even though hundreds of millions of devices come with competitive voice assistants as part of buying the phone or computer.
Putting it another way, I think Amazon is building its voice ecosystem as the professional and higher quality alternative to the weaker assistants that don’t have the best interests of the consumer in mind. It looks like they’re successfully implementing that strategy, and for that reason, it could become a huge revenue stream for a long time.
Seeing an opportunity in business
Amazon has obviously quickly moved into the home voice market, and there has been moves to the auto market, as it wants to be in all places people are. Also significant, is recently it has visibly shown it wants to take command of the business market as well.
An area Amazon went after is business calendars, where Alexa now supports Office 365 calendars. This will make it attractive to businesses using Office 365.
On the corporate conference side of business, it has been reported that Amazon is developing phone call capabilities for Echo, which would be an alternative for offices and conference rooms. This is already being used by Box (NYSE:BOX) and Oracle (NYSE:ORCL) for conference room check in.
If reports of a version of Amazon Echo being able to work as an intercom are accurate, it’s obvious this would work with various corporate office needs.
Additionally, Amazon may be working on a device, which includes camera capabilities powered by Alexa. This could be a camera for a smart conference room, or possibly one that would compete with services like Skype, or one that directly competed with Nest Cam. It could even be developed to compete in all those segments of the market.
With the rapid development of apps and services for Echo and Alexa, there will continue to be a lot of conjecture as apps and products are increasingly reported on. The key there is Amazon is what’s driving this interest, not its competitors.
Amazon without a doubt wants to dominate this market, and is working on offering services anywhere human beings may be located or doing something. This is why we’ll hear more about increasing the number of uses for Echo and Alexa in the home, transportation, businesses, and in devices people use for a variety of reasons, such as the camera mentioned above.
What is most important to me is the momentum Amazon now has. It will continue to boost the number of things it can do for users, and with its competitors taking a more laid back approach to the voice assistant market, I see it surprising to the upside on how much market share it’ll take, and will position itself as the go to provider in the voice segment.
The bottom line to me is Amazon views this as an extraordinary revenue and earnings opportunity, while its competitors look at it as primarily complementary to existing products. This is the mistake that has led to Amazon aggressively going after the market before they can recover and effectively compete.
This will certainly be the third major revenue stream the company creates, and it has a lot of potential to enjoy wide margins and contribute significantly to earnings in the years ahead. It’s only just getting it ramped up.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.