Amazon vs. Everyone – Battle for the home pt. V

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Amazon goes better, smaller cheaper.

  • Amazon has raised the bar in the digital assistants battle right before Google’s hardware event on 4th October with an update to the Amazon Echo home speaker and a big upgrade to the user experience.
  • Amazon has launched two new speakers to replace the Amazon Echo, one of which is has extra hardware to optimise the smart home experience.
  • On top of this Amazon has created an over the top experience that allows the user to tie together a range of Alexa skills that it hopes will make Alexa much more intuitive to use.
  • Two new Echos have been released to replace the original.
    • First: The new echo is smaller, has better sound quality,comes in 6 colours and will cost $99 which is half of what the original did at launch.
    • It has a new microphone array that should improve audio performance in terms of noise cancellation and wake word making the overall experience less error prone.
    • Importantly, this is now cheaper than Google Home and looks set to continue what has become a race to the bottom in smart speakers.
    • Second: Amazon Echo Plus has all of the above but also includes a built in home-hub that enables the automatic discovery and set-up of devices that support Zigbee.
    • The device costs $150 but also includes a Phillips Hue smart light bulb to get the user started.
    • This will enhance the smart home functionality but it in no way covers all available devices.
    • Third: Amazon has launched Alexa Routines that allows the user to tie together a series of actions into one command.
    • The user will now be able to say “Alexa, I am going to bed” and the lights will be turned off, doors locked, TV turned off and so on all in one go.
    • It will also be possible to schedule these sorts of actions.
    • This will not work with all of Alexa-enabled devices and skills but I think it represents a further step forward.
  • With this update, I think that Amazon has achieved two goals:
    • First: It has put itself ahead of Google in the hardware race with an improved device that is now meaningfully cheaper than Google’s offering.
    • Whatever pricing Google was considering for Google Home 2 may now be quickly re-thought.
    • Second: The horrible user experience using Alexa’s skills may now take a big step forward.
    • A lot depends on how good this experience is and how well it works but if it is good, it will bring Alexa into line with what I consider to be smart home best practice (see here).
  • Amazon has had by far the most aggressive roll-out of hardware that supports a digital assistant of any of the major ecosystems.
  • There are now a total 8 different types of home device that all carry the Alexa digital assistant with a large number of third party devices in the works.
  • This is critical because a large majority of the usage of digital assistants occurs when user’s hands are busy meaning that the smartphone is almost always useless in most use cases.
  • This gives and advantage to those that provide a physical device present in the home that use an audio wake word.
  • Google has this with the home but there is only one device whereas Amazon now has 8 all which are much better at controlling the smart home than Google is.
  • This puts Google on the back foot right ahead of its launch despite the fact that it has a much better product when considering the performance of the assistant and its ability to correctly respond to enquiries.
  • Google’s response on 4th October will be key to its outlook in the smart home and based on its performance to date, I am not optimistic.
  • I continue to think that Google is at risk of suffering a VHS vs. Betamax-like defeat in the smart home.
  • I don’t like either Amazon or Google on valuation grounds preferring instead Tencent, Baidu and Microsoft.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.