Google vs. Amazon – Battle of the Home pt II.

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Alexa still ahead despite very poor performance.

  • New data suggests that Google Assistant is even more superior to Amazon Alexa than RFM’s tests have suggested, but still Google remains at risk of suffering a Betamax-like defeat (see here).
  • The digital agency, 360i has written a piece of proprietary software aimed at scientifically testing how good digital assistants are at answering queries (see here).
  • This software asks 3,000 questions and then assesses the answers given.
  • It is here that I suspect some human intervention is needed as both Google Assistant and Amazon Alexa often give answers that I think software will have difficulty in assessing.
  • This is why I suspect the results are being considered as very preliminary and that some human parsing of the answers is needed.
  • While, there is no hard data available yet, 360i has said that the initial indication is that for any question, Google is six times more likely to come up with the right answer compared to Amazon Alexa.
  • This contrast is so stark, that I suspect that Google will still beat Alexa hands down once the real data has been scrutinised and published.
  • This reflects RFM’s own much less scientific tests where every person asked to live with Amazon and Google side by side for four days expressed a strong preference for Google Assistant.
  • The one exception was a small child who was much more interested in endlessly turning the lights on and off rather than improving his general knowledge.
  • It is here that we find Google Home’s great failing as Google Home does not support the smart light system tested, as it is only available with Amazon Alexa.
  • This problem is reflected right the way through the entire smart home ecosystem where every smart device one can think of works with Amazon Alexa but only a small proportion work with Google Assistant.
  • Amazon has been extremely welcoming to third party developers giving a lot of support as well as meaningful discounts for running their services on AWS.
  • The same cannot be said of Google as almost every developer I have spoken to has not been complimentary when describing the experience of trying to develop for Google Home.
  • I find this to be a big surprise because Google’s Android developer program has been huge and thriving for years.
  • This is why Google suffered such a resounding defeat at CES in January where Amazon Echo was everywhere and Google Home was barely seen or talked about.
  • Google’s strategy to fix this issue is to focus developers on the assistant rather than the device.
  • This has two advantages:
    • First It ensures that any device with Google Assistant in it can control any product written to the one API.
    • Second and most importantly, developing for the Google Assistant is part of the highly successful Android developer program rather than the poor effort made by Google’s hardware division to date.
  • I still think that smart home is Google’s to lose but Amazon Alexa is still orders of magnitude greater when it comes to the number of home devices in the hands of users.
  • The home speaker is a much more convenient device with which to control the home as there is no requirement to remove the device from a pocket or unlock it.
  • Furthermore, I don’t think that users have yet really understood that the functionality on the phone is exactly the same as it is on the home speaker or anything else meaning that Amazon still has the volume advantage in the mind of the developer.
  • I still think that Google has the advantage as it has by far the better product but developers start really making their products work with the assistant soon, then the game will quickly be lost.
  • Google’s outlook for 2017 remains pretty good but the shares still look fairly priced leaving me preferring Microsoft, Tencent and Baidu.

Essential Products – Domestic bliss.

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Home is where the heart is

  • While I am not a fan of Essential Products’ phone (see here), I think that the strategy around the smart home is bang on I think it has created the right product.
  • I don’t like the phone simply because it does not do anything particularly special in a brutal commodity market and given the company’s overall strategy, I see no real need why it can’t make use of the phones of others.
  • However, the Home product is something else, and although it may not succeed, I think that it has a good chance.
  • This is because, I think Home has been designed to explicitly address the two biggest problems with home automation that exist today.
  • These are:
    • Firstly, voice control: RFM research (see here) has found that voice communication with machines is very far from being good enough to work effectively without a screen for output.
    • The issue is that even the best machines are not yet intelligent enough to provide a useful experience using voice only and often have to fall back to a screen.
    • In Google Assistant’s and Alexa’s case this means using the screen of the phone which is not an optimal experience especially as most voice usage is when the hands are busy doing something else.
    • Essential Home has already taken this into consideration and the small device has an attractive looking screen on the top.
    • This looks much better than hideous Amazon Show which seems to have been designed to be a jack of all trades.
    • I think that Essential has hit the nail on the head and its product should optimally fix the single biggest current problem with human machine voice interaction.
    • Second, fragmentation: Despite Amazon Alexa being able to talk to almost everything, the experience remains horribly fragmented.
    • The real use case for the smart home is where all elements of the home are aware of each other and can be controlled together.
    • For example, the use should be able to say “I am going to bed” resulting in the doors locking, blinds drawn, heating turned down and so on.
    • Instead each separate device has to be manually operated and adjusted.
    • The experience on Alexa is so bad that it is quicker and more convenient to make these adjustments by hand.
    • Apple HomeKit also addresses this problem effectively but I see little traction among the smaller, more innovative smart home device creators.
    • Furthermore by being limited to Apple products only, 85%+ of the market is not being addressed.
    • This is the problem that Essential has recognised and is trying to address this by making its Home APIs and Ambient OS as open as possible.
  • I like the potential of this product as it is both differentiated from its competition and has been designed to explicitly solve the biggest problems with home automation.
  • There has been no word as to what assistant will be resident in the device, but if Essential is smart, it will ensure that the user can use any assistant he chooses.
  • The problem is going to be getting the device into the hands of users in volume.
  • This will be critical because volume deployments will be needed to get developers to make their products work on Ambient OS.
  • This is the old chicken and egg problem which is very difficult to crack but once it is solved creates real momentum for a platform.
  • This is the problem that Amazon cracked earlier this year and now every developer of any smart product will make it work with Alexa.
  • This will be the key to getting the Home product to succeed but it is going to be an uphill battle even for a start-up as well financed as Essential Products Inc.

Essential Products – Not essential.

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Andy Rubin still works for Google. 

  • Essential Products Inc has launched a series of products aimed at creating an ecosystem but none of them do anything or enable anything that is desperately new.
  • Consequently, the real beneficiary from another nice looking, easy to use phone will be Google whose ecosystem will be front and centre of the flagship device.
  • Essential Products Inc. was founded by Android creator Andy Rubin and has launched two devices and two accessories in a bid to stitch together the fragmented smart home space.

Phone

  • The Phone is similar to the Galaxy s8 although its screen is lower resolution, not waterproof and the battery has a slightly lower capacity.
  • Its one major area of differentiation is that the chassis is made from injected Titanium and has a ceramic back, potentially making it much more resistant to being dropped and scratched.
  • When it comes to screen protection, both are using Gorilla Glass 5 meaning that resistance to screen smashing should be about the same.
  • It also has two pins on the back (much like the Moto Mods concept) to which accessories can be attached.
  • The API for the accessory pins will be made available to developers to create their own devices to attach to the phone.
  • However, it has the price to match at $699 compared to $750 for the Galaxy s8 which is where I think the trouble will begin.
  • Phone is nice looking but I can’t see how it does anything that is not already available and outside of chassis resistance, Samsung gives more hardware bang for the buck.

Home

  • Essential products has also launched a voice activated home controller that aims to bring the smart home together in one place.
  • This is something that the smart home badly needs as the Alexa user experience is dire and hardly any products and services work with Google Home.
  • This product is different for two main reasons:
    • First: it is not designed to play music unlike other offerings although it does has a small speaker like the Echo Dot.
    • Instead, it is aimed at bringing all of the home’s devices together into a single place to manage them in an easy and fun to use way.
    • This device is also able to integrate these products such that smart devices can work together in new, fun and potentially very useful ways.
    • For example, when the timer goes off, the room’s lights can be flashed on and off rather than the generic alarm bell sound that everyone else uses.
    • Second: Home has a small screen on the top that is designed to enhance communication and interaction with the user.
    • RFM research (see here) has found that voice communication with machines is very far from being good enough to work effectively without a screen for output.
    • Consequently, this configuration makes a lot of sense.
  • The device runs its own OS called Ambient OS but Essential intends to open this up completely such that anyone can write functionality for the product.
  • This device takes a massive risk because 70% of the usage of devices in this category is as a Bluetooth speaker.
  • Consequently, there is a sizeable risk that this device will not appeal to the majority of users looking to buy something in this category.
  • Another big issue is the source of the AI that will be running Home as this will be the heart and soul of this product and the AI in Ambient OS currently looks as dubious as Bixby (see here).

Accessories.

  • Essential products has launched a charging plate for the Phone that connects through the two pins as well as a 360 degree camera.
  • I think that the charging plate is pretty useless as wireless charging is starting to come of age and inclusion of one of the standards in the device would have enabled a good user experience with products already present in the market and in users’ hands.
  • For example, because the Galaxy S8 supports Qi charging it will work with any compatible pad.

Take Home Message.

  • When I originally wrote on Essential Products (see here), my view was that it needed to produce must have devices and in that regard, I think it has failed.
  • The Phone is a Google Ecosystem device with a few nice features but less bells and whistles than the Samsung Galaxy S8 for almost the same price.
  • The Home has the most potential but it is taking an awful risk in that it is not addressing by far the biggest use case and has dubious AI.
  • It will also be dependent on third party developers meaning that it will need volume but even in its best case it is not going to out-ship Google Assistant or Amazon Alexa.
  • Consequently, I remain unconvinced with regards to what is special and different about Essential Products and suspect that many consumer electronics buyers will feel the same way.
  • Differentiation in hardware is extremely difficult meaning that Andy Rubin needs to have some software tricks up his sleeve that he is yet to show.
  • Failing that, it seems that this company will end up enriching Google more than itself.

Amazon – Show and tell.

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Screens help to alleviate digital assistants’ stupidity.

  • I think that the Echo Show is more about addressing the shortcomings of voice interaction with machines than it is about launching a series of new and exciting Digital Life services.
  • Amazon has launched an ugly looking device called Echo Show that is effectively Alexa with a 7 inch screen attached to the front.
  • The form factor is disappointing as even Baidu with no hardware experience managed to come up with a far more appealing looking product (see here).
  • Amazon has also upgraded the speakers to give a louder and richer sound profile but I see this being about giving Alexa another medium with which to communicate with the user given the limitations of voice.
  • The problem is simply that Alexa (and all other others) are far too stupid to be able to hold a meaningful conversation with a user.
  • Google Assistant is currently the best but remains woefully short of what one would consider to be a useful assistant.
  • Digital assistants were designed to replace the human variety but because their intelligence is so limited, they are unable to hold a coherent conversation with the user.
  • Human assistants do not need to use screens to understand requests, relay information and carry out tasks meaning that the perfect digital assistant should not either.
  • Hence, I think that the Echo Show has been created to make up for the huge shortfall in Alexa’s cognitive ability
  • This type of interaction is what RFM refers to as one-way voice where the user asks a question and the results are displayed on a screen.
  • RFM research has found (see here) that the vast majority of all man to machine interactions are one-way voice and with this device, Amazon makes these interactions easier.
  • Furthermore, for those that depend on advertising having a screen also helps to maintain the business model of lacing a Digital Life service such as Search or Social Networking with advertising.
  • Consequently, I think that Google is likely to follow up with a similar product which will take advantage of the fact that the necessary communication apps that the device will use are already installed and ready to use on all new GMS Android compliant devices.
  • In Alexa’s case, it looks like the user will have install another app on his phone in order to communicate with the Echo Show.
  • The Echo Show will come with all of 12,000 Alexa’s skills but these skills have been designed for a device with no screen and so I do not see the screen improving the already very poor user experience that these skills currently offer.
  • At $230 or two for $350, the Echo Show is priced to sell but I think that volumes will be small given that the vast majority of Echo’s shipments are made up by the cheapest member of the family, the $50 Echo Dot.
  • Hence, I do not see a sudden rush by developers to upgrade their existing skills or develop new ones to make use of the screen.
  • This is where Google Assistant has a huge advantage as it has already been designed to run with a screen (smartphones) meaning that adapting to having a screen on the Google Home product should be much easier and much better.
  • I still think that Google Home has the advantage here as it has a much better assistant than Alexa, but its lack of developer support for the smart home is starting to be a real problem.
  • Google really needs to pull its finger out and show developers love, especially as Microsoft looks set launch something similar to Echo Show but using Cortana.
  • I continue to struggle with Amazon’s share price whose valuation I think demands that investors pay for profits that never seem to materialise.

Google vs Amazon – Battle of the home.

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The time for Google to move is now.

  • Amazon is far from standing still in its battle to win the smart home meaning that Google really needs to pull its finger out before it suffers a defeat not unlike that suffered by Betamax at the hands of VHS.
  • Amazon is already miles ahead of Google when it comes to devices, with over 10m in the hands of users (compared to Google Home at I estimate, 1m), but it is not stopping there.
  • Last week, Amazon and Conexant announced the availability of the AudioSmart 4-mic development kit.
  • This is a piece of hardware that allows third parties to integrate both the far-field microphone technology that the Echo products use to hear the user as well as the assistant itself.
  • In essence it is an Amazon Echo Dot without the case, being roughly the same size and shape.
  • The idea is that third parties take the kit and integrate it into their own products to provide voice control as well as the ability to control everything else in the house.
  • Ecobee has already taken the plunge by integrating it into its own thermostat and I would not be surprised to see many others follow suit.
  • Amazon has been extremely welcoming to third party developers giving a lot of support as well as meaningful discounts for running their services on AWS.
  • The same cannot be said of Google as almost every developer I have spoken to has not been complimentary when describing the experience of trying to develop for Google Home.
  • I find this to be a big surprise because Google’s Android developer program has been huge and thriving for years.
  • This is why Google suffered such a resounding defeat at CES in January where Amazon Echo was everywhere and Google Home was barely to be seen or talked about.
  • Google must act very quickly as even though it has vastly superior product, it is at risk if being swamped unless it starts to materially improve the number of third party products which can be used with Google Home.
  • Google has its developer conference (Google i/o) on May 17th to May 20th where I will be looking for three things:
    • First, Developer love: Google needs to show creators of smart devices plenty of love and support when it comes to making their products work with Google Home.
    • Second, Google Assistant: Google needs to make the assistant available such that anyone who wants to deploy it on their device can do so easily.
    • Third, hardware: Google should make its microphone array available to anyone that wants to use it.
    • This is more important than one would think as the system needs to able to hear the user from far away even with background noise.
    • This requires some specialised microphones and is important when it comes to delivering a good user experience to ensure engagement and traffic generation.
  • I still think that smart home is Google’s to lose but unless there is real movement in this direction at Google i/o, I fear that by next year, the game will already be over.
  • Google’s outlook for 2017 remains pretty good but the shares still look fairly priced leaving me preferring Microsoft, Tencent and Baidu.

Juicero – Cautionary tale.

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A cautionary tale for budding entrepreneurs.

  • While Juicero is no Theranos, it has got itself into a life-threatening mess that I suspect has come about solely because it got its business model wrong.
  • Juicero is a Silicon Valley company that claims to offer the kind of juice purchased in a store but prepared freshly at home and is totally mess-free.
  • This works through a cold press that can deliver up to 4 tons of force to squeeze the liquid from pre-prepared pouches of fruits and vegetables that the company also sells.
  • The press can only make juice from the pouches which combined with an app and a database, is able to keep track of the produce the user has, when it will expire and send alerts and so on.
  • The juicer is priced at a pretty punchy $400 (reduced from an eyewatering $700) with each pouch selling for $5-$8 meaning that each glass of juice is going to cost somewhere in the region of $7-$8 depending on how long the machine lasts.
  • With each pouch delivering about 9oz of juice, this adds up to $0.83 per ounce which is broadly in line with the top-of-the-line juice companies in Silicon Valley (see here) which charge around $0.86 per oz.
  • I think that the business model is based around breaking even on the pouches and the service with most of the margin coming from the machine.
  • This explains why the company will only sell the pouches to owners of the machine as without it, the business model would collapse.
  • This is where the problems really begin because it turns out that it is possible to produce a perfectly good glass of juice using nothing but bare hands (see here).
  • A female reporter was able to extract 8.5oz of juice from one of the pouches faster than the machine could produce 9.0oz
  • NASA has measured that the human hands of the average male are capable of producing around 90Kg of force (see here).
  • This means that the other 3.5 tons of force that the machine can produce only increases production by 6% demonstrating that Juicero is massively over specified for the task for which it has been designed.
  • Furthermore, if there is a power cut or the Internet is down, no juice is produced whereas hands work all the time and can even offer juicing on the move with limitless battery life.
  • This is where I think the company has gotten its business model wrong.
  • I think it should have followed the tried and tested printer and cartridge model where the printer is sold at break even or a loss and the money is made on the cartridges.
  • I suspect Juicero could have designed the press to deliver 200Kg of force rather than 4 tons with no perceptible difference in performance other than a much cheaper price.
  • If the company had then sold the device for $50 rather than its starting price of $700, I doubt whether anyone would have even bothered to try and squeeze the pouches by hand.
  • This way the company could have hoped to have achieved much greater volume and in doing so it would have been able to get better prices from its suppliers and make good margins on the pouches.
  • The problem now is that everybody knows that the Juicero machine is surplus to requirements for everyone who can read an expiry date.
  • Hence, a change in strategy is urgently required.
  • Juicero offers convenience and in that regard it may have a future as a subscription service for very high quality juice that one prepares at home.
  • However, it will have to confess its shortcomings, ditch the expensive machine and reorient itself around the printer / cartridge model with something much cheaper.
  • On its current trajectory, it is likely to be squeezed out of existence.

 

Amazon vs. Google – Homefront pt. II.

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Amazon is pre-emptively moving to keep Google out.

  • Amazon is pulling out all of the stops to ensure that it is Alexa, rather than Google Assistant, that ends up becoming the nerve centre for controlling the smart home.
  • In its latest move, Amazon is offering credits for AWS that are likely to ensure that connecting one’s smart home device to Alexa remains free in almost every circumstance.
  • As the scope of Alexa improves and users can do more with Alexa, it is likely that creators of smart home devices will require more space on AWS that will require them to start paying Amazon.
  • Most device developers are small start-ups with very limited funds meaning that this will be a big incentive to do more with Alexa.
  • At the moment, the free tier gives developers 1m AWS Lamda requests and 750 hours of EC2 compute time per month.
  • Beyond that, developers end up incurring a monthly charge which is something that Amazon is wisely keen to avoid.
  • With this new program, Amazon is offering a one-time credit of $100 as well as $100 per month towards any charges that they incur as a result of usage of their devices.
  • This is likely to ensure that almost all developers of smart home devices will not have to pay anything to Amazon until they are generating so much usage that they are making plenty of money themselves.
  • I think that this is a very shrewd move as it encourages more developers to sign up to make their devices work with Alexa and also encourages them to make the skills deeper and more intuitive.
  • Currently, most skills are very basic and as a result they suffer from usability problems which in most cases makes it easier to turn the device on manually rather than using Alexa.
  • This looks like a pre-emptive move to keep Google at bay as I see Google making rapid moves to improve its Google Home developer program after being all but wiped out at CES 2017.
  • Even though Amazon has close to 10m devices installed in the houses of users compared to Google at 0.5m – 1m, the Google Home experience is so superior to Alexa that I still see a risk of Amazon losing this race (see here).
  • This is why I see Amazon doing everything that it can to show developers love and support which is something that to date, Google has badly neglected.
  • The result is that very few of the smart home device developers are making sure that their devices works with Google Home giving many users more reason go with Amazon’s Echo devices rather than Google.
  • Amazon is also very fortunate that the market’s view of Alexa is so positive as a side by side test of the Amazon Echo against Google Home shows how inferior Amazon is compared to Google.
  • This is why it is still Google’s battle to lose but Amazon is clearly doing everything that it can to ensure that it is Alexa rather than Google that dominates the potentially extremely lucrative market for intelligent home automation.
  • From an investment perspective, neither of these two companies are desperately appealing leaving me preferring Baidu, Microsoft and Tencent with Apple for long-term income based investors.

 

Smart Home – Back to front.

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Apple is losing badly despite offering the best user experience.

  • Apple has redesigned its HomeKit website (see here) in order to generate interest around its smart home offering but despite having the best experience, it remains a very distant third in developed markets.
  • HomeKit enables smart home devices to be controlled with Siri as well as the Apple’s own Home app that appeared with iOS10.
  • I think that Apple has three main problems with its offering for smart home:
    • First: Hardware. device makers need to install a piece of Apple hardware to enable them to work with HomeKit.
    • This adds a level of complexity and cost for device makers who in many instances are small companies with only a few employees and very limited resources.
    • Consequently, most have ignored HomeKit completely and simply written their own app for iOS devices that talks to the device directly over WiFi or Bluetooth.
    • Second: Data. Just like Digital Life services, HomeKit brings together multiple devices and enables them to work together.
    • The device makers get access to the data that their devices generate, but it is only Apple that gets to see the whole picture.
    • RFM research has found on multiple occasions that understanding the bigger picture is far more useful and offers a much greater monetisation opportunity than looking at data sets individually.
    • I think that this is why device makers who understand this concept generally decline to make their devices work with HomeKit or HealthKit.
    • Third: Device. Apple has no device within which Siri can reside within the home.
    • Usage of both Alexa and Google Home show that over 60% of all usage is generated when the user’s hands are busy with another task.
    • This makes the use case of Siri on a device that needs to be removed from the pocket not as easy or as intuitive as Alexa or Google Home.
    • Furthermore, both Alexa and Google Home can hear the user from a distance which also improves the use case within the home.
    • Hence I think it quite likely that Apple will launch a home speaker device of its own or enable third parties to embed Siri in their products.
  • The irony of the current situation is that Apple has by far the best smart home user experience.
  • This is because Apple has understood the importance of integrating these devices together into single commands and use cases like going to bed, leaving the house or arriving home.
  • This makes it easy to turn off all the lights, lock up, turn down the heating and so on with a single button press which is something that neither of the other two have come close to offering.
  • Furthermore, I suspect that HomeKit will end up being far more secure than the other two but at this point in time, no one seems to care.
  • Amazon has both first mover advantage and has done the best job of showing developers love and support.
  • The net result is that there now over 10,000 skills available for Alexa which continues to grow rapidly despite the awful user experience offered by most of these skills.
  • Consequently, I still think that this is Google’s race to lose as its product is by far the best, and its decimation by Amazon at CES seems to have shocked it into getting its developer activities up to scratch.
  • Of the three, I would continue to prefer Apple but overall I still like Baidu, Microsoft and Tencent.