Amazon and Google always thrive in the fourth quarter as people get out their wallets for Christmas. Both companies – or in Google’s case, its parent group, Alphabet – are therefore expected to announce booming revenues in their fourth-quarter results over the next fortnight, with Alphabet going first on Thursday and Amazon the following week. But analysts are already looking beyond the simple question of how many cardboard boxes Amazon filled and how many searches Google answered. They’re wondering which company will win the battle to control your home.
That battle is being fought by two carafe-sized cylinders from the respective companies. One is Amazon’s Echo, with its voice-operated “personal assistant”, Alexa; the other is Google Home, which responds to the phrase “OK Google”. Both are internet-connected, home-based devices which can be command to do things: give the weather forecast; play music; read out news headlines; update shopping lists; and control “smart” devices in the home such as light bulbs or power points. In theory, if a device can be linked to it, the Echo can control or monitor it, and keep you informed. And simply by saying “Alexa, add sugar to the shopping list”, users can keep up to date on house supplies and even purchase them directly.
Amazon is in the lead, having launched the Echo in November 2014, two years before Google Home came out. Though Amazon has not – and does not – release sales figures for any individual item, investment bank Morgan Stanley estimates that 11m Echos had been sold by the end of November 2016; other estimates suggest a further 7m have been sold since. About 700,000 were estimated to have been sold in the UK and Germany, the only countries outside the US where it is available.
The Morgan Stanley estimate would put an Echo in more than 8% of US households. This is a significant figure, especially compared with the best estimates for Google Home, which put its sales at less than a million since its launch in October 2016.
Why should Google care about Amazon? Because voice is seen as the next big field for computer interaction, and the home is a far better environment for voice detection than the great outdoors. Research company Gartner reckons that by 2018, 30% of all interactions with devices will be voice-based, because people can speak up to four times faster than they can type, and the technology behind voice interaction is improving all the time.
The risk to Google is that at the moment, almost everyone starting a general search at home begins at Google’s home page on a PC or phone. That leads to a results page topped by text adverts – which help generate about 90% of Google’s revenue, and probably more of its profits. But if people begin searching or ordering goods via an Echo, bypassing Google, that ad revenue will fall.
And Google has cause to be uncomfortable. The shift from desktop to mobile saw the average number of searches per person fall as people moved to dedicated apps; Google responded by adding more ads to both desktop and search pages, juicing revenues. A shift that cut out the desktop in favour of voice-oriented search, or no search at all, would imperil its lucrative revenue stream.
Amazon is copying one feature of Google’s success in smartphones: it is offering methods to connect and control smart devices via the Echo for free, rather as Google’s Android software was offered as a free platform for smartphones. There are signs it is paying off: Wynn hotels in Las Vegas announced in December that it would be adding Echos to all 5,000 rooms, for functions such as playing music and controlling curtains and blinds. That gained some notice, as much as anything because the life cycle of such hotels implies they will be there for a decade or so.
Similarly, at January’s Consumer Electronics Show (CES), also in Las Vegas, commentators were struck by how many devices incorporated Alexa. And Amazon is even stealing into Google’s territory: some phones sold in the US from China’s Huawei, which uses Android, will incorporate Alexa rather than Google’s Assistant programme.
Google’s natural reaction is to have its own voice-driven home system, in Home. But that poses a difficulty, illustrated by the problems it claims to solve. At the device’s launch, one presenter from the company explained how it could speak the answer to questions such as “how do you get wine stains out of a rug?” Most people would pose that question on a PC or mobile, and the results page would offer a series of paid-for ads. On Home, you just get the answer – without ads.
What analysts wonder is: how can Home bridge that revenue gap? So far, Google hasn’t explained. Even if it can fend off the Echo, it may not be able to defend its core business.
By contrast, the Echo’s benefit to Amazon is much clearer: it can make online shopping (at Amazon) a breeze, play music from Amazon’s paid-for subscription service, and generally act as a passive block on your using rival shopping sites – rather as Google cemented its dominance by being the default search engine on multiple browsers in the mid-2000s.
Richard Windsor of Edison Investment Research suggests that time is running out for Google: “It has to act quickly, as Amazon is on the brink of becoming the industry standard for controlling smart home devices.
“At CES, everyone was integrating with Echo, with Google Home and Apple HomeKit barely present.”
Indeed, where are Apple and Microsoft, which also have their own voice-driven assistants in the form of Siri and Cortana? Although both can be used in the home – Siri on the iPhone or iPad, and to play content on the Apple TV set-top box, and Cortana on the Xbox games console – neither seems to be intent on the “home assistant” market.
Phil Schiller, Apple’s vice-president of marketing, seemed to suggest recently that Apple wouldn’t follow Amazon and Google into offering a voice-only device: “Having my iPhone with me as the thing I speak to is better than something stuck in my kitchen or on a wall somewhere.” He also emphasised the importance of a visual display: “We still like to take pictures and we need to look at them, and a disembodied voice is not going to show me what the picture is.”
Even so, there are persistent rumours that Apple has prototyped an Echo-like device in secret but is undecided on whether to release it. The company hasn’t commented. It could be ready to unveil something – or may never do so. Microsoft, meanwhile, is in more homes than the Echo via the Xbox, but isn’t trying to make itself a listening device linked to a shop.
So, will we all be burbling away to thin air in a few years, asking how long our commute will take while our smartphones sit unused in the kitchen? Perhaps – though Ken Sena, a senior analyst at investment bank Evercore ISI, suggests that home-based voice assistants will never be used as widely as smartphones. According to Sena, they are not such a must-have.
Yet, they were a hot Christmas present – and voice interaction is still in its early days, perhaps comparable to the smartphone market in 2005, when BlackBerry, Palm and Microsoft dominated. Or, it could be like the smartphone market now, effectively dominated by Google and Apple. But which?
Alexa, can you see into the future?
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