Google & Amazon – Battle for the smart home pt. V.

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Google has a chance to displace Amazon.

  • I don’t think Google will go out of its way to patch things up with Amazon as having YouTube absent from Amazon devices could disincentivise users from going with Echo products giving Google Home a badly needed boost.
  • Google and Amazon have been sparring for several months but I think that the move by Google to pull YouTube off Amazon ecosystem devices may bring this issue to a head.
  • It is also a demonstration that content is king and as of today, YouTube is amore important platform than Amazon Prime Video.
  • Consequently, I think that Amazon needs YouTube on its devices more than Google does as users will simply go elsewhere to get it.
  • This sparring began three months ago when YouTube pulled its native support from the Amazon Echo Show.
  • This was followed by the removal of Nest products from the Amazon website and the implementation of a clumsy and far from ideal workaround to get YouTube content back on the Echo Show.
  • Google has closed this loophole as of today and will also pull support from Fire TV from Jan 1st
  • This battle between Amazon and Google is peripheral to their core businesses as even in video, they do not really compete directly.
  • YouTube is an encyclopaedia of user generated content while Amazon Prime Video is just like Netflix.
  • Google does have YouTube Red but this is a tiny part of YouTube overall.
  • Consequently, I think this fight is all about the home and here Google is way behind Amazon despite having the better product (see here).
  • This is because Amazon has been much better showing developers love and as a result they have preferred to develop their smart home products for Amazon Alexa.
  • The result has been that almost every device sold will work with Alexa with only a few working with Google.
  • This has changed over the last 6 months but Amazon’s ability to advertise its products on its website as well as giving its cheapest product away for free has allowed it to maintain its lead.
  • With the critical holiday selling season upon us, this is a great time to throw a spanner into Amazon’s works as not working with Google services is going to be a problem for the vast majority of users and may push them to consider Google Home.
  • I still see Google as being on the backfoot when it comes to the smart home but it has closed some of the gap to Amazon in terms of third parties and it remains a superior product.
  • This will be a key battle that is played out in 2018 and the level of support offered by device and service developers when they show their wares at CES in January will be a key indicator.
  • The market remains very lowly penetrated and so there is everything to play for but I still think that in the long-run Google should win as it has the better product.
  • I will revisit this position again once it becomes clear which way smart home developers are inclining for their 2018 product launches.

Google & Amazon – Battle for the home pt. VI

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Opportunities to break in are fast disappearing

  • Google seems to be closing on in launching a Google Home based product with a touchscreen which indicates that Google’s understanding of the smart home user experience is improving quickly.
  • This is bad news for others like Essential (see here) that are looking to compete in this space as both Google and Amazon are starting to make progress on addressing the areas where they have been weak in the smart home.
  • If Google can now improve its position with the developers of smart home products, it will be in a good position to really take the fight to Amazon which still dominates with over 70% share.
  • Earlier this year I identified two major problems with using voice-based digital assistants in the home.
  • These were:
    • First, 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 has meant using the screen of a smartphone which is not an optimal experience especially as most voice usage occurs when the hands are busy doing something else.
    • At launch Essential Products had taken this into consideration as its small device (Essential Home) 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 (master of none).
    • I think that Essential hit the nail on the head and its product should optimally fix the single biggest current problem with human machine voice interaction with its integrated screen.
    • However, should Google come up with an attractive take on Google Home but with a screen, I think this will lessen the appeal of Essential Home materially.
    • Second, fragmentation: Despite Amazon Alexa being able to talk to almost everything, the experience has been horribly fragmented.
    • Google Home has been no better and has also suffered from their being fewer compatible devices.
    • The real use case for the smart home is where all elements in 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 had to be manually operated and adjusted.
    • With each launching a service called “routines” (see here and here) both Google and Amazon have moved to start addressing this issue.
    • How well these “routines” work remains to be seen but critically, both companies have recognised the biggest problems with their services and are moving to address them.
  • The net result is that the opportunities for small differentiated services to break into this space by doing something better is closing fast.
  • This combined with the fact that developers will be making their devices work with Amazon first (and maybe Google) will make it even more difficult for smaller players to break-in.
  • Market penetration remains very low which means there is still a chance, but new entrants need to act fast as the big players are moving much more quickly than their size would indicate.

Essential Products – Long road home.

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Home is where the heart is.

  • Essential Products is clearly struggling with its Essential Phone which I think will probably lead to it ending up focusing on the smart home only.
  • Essential Products Inc. has used the only competitive weapon it ever really had and has cut the price of its flagship Essential smartphone by 29% from $699 to $499.
  • Those that have already purchased the device will get a $200 credit towards purchasing other devices within the Essential ecosystem such as the 360 camera.
  • There are two major problems with this move:
    • First: it will really annoy fans of the device who paid full price and
    • Second: it is an admission that there is nothing particularly special about this device leaving Essential Products in the same boat as everyone else in terms of competing on price.
  • I see this as a real climb down for the company because competing directly with the Chinese and LG directly on price, it means that the user experience and ecosystem that it spent so much time creating is getting no traction with users.
  • This fits exactly with my previous observation that Essential Products has created a great Google phone and nothing more (see here).
  • Essential’s strategy is to create an ecosystem of products and services around its smartphone that reach into smartphone peripherals and the smart home.
  • In the smart home, I think Essential has a good grasp of the real problems and has designed a product to address these issues (see here) but digital ecosystems are still completely defined by the experience on the smartphone.
  • Essential aims to differentiate in hardware, AI and the cross-device compatibility and consequently to get its innovations in the hands of users, it thinks that it needs a smartphone.
  • The aim with the price cut is obviously to drive volume and user numbers but I suspect that this will put real pressure on its gross margins meaning that the $300m recently raised by the company will erode much more quickly.
  • Furthermore, this action will almost certainly result in a hit to the company’s credibility as it makes much of the message it communicated at the time of launch look hollow.
  • I continue to think that the company has no differentiation in smartphones but its strategy in the smart home looks interesting (see here).
  • Consequently, I can see the smartphone being dropped with all the remaining focus and resources being placed on creating a position in the smart home.
  • This will be easier and said than done as it is up against two companies that sell good products at cheap prices and have both the means and the will to lose money for a sustained period to build the market position they are looking for.
  • Against this, Essential Products has little chance but its hope lies in its understanding of the smart home and moving to address it ways that its opponents are currently failing to do.
  • It has to move fast as both Amazon and Google are showing signs of realizing what it is they are missing in the smart home.

Google – Brain boxes

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Clever devices are useless without volume.

  • Behind the carefully orchestrated event was a series of strategies aimed at driving penetration of devices which to date have been very disappointing.
  • Google made up for slightly below par hardware by maximising its leadership in AI to provide best in class functionality as well as some unique features that no one else is likely to be able to copy for some considerable time.
  • However, the key to badly needed volumes will be execution as Google completely bungled the open goal left by Samsung after its Note 7 disaster.

Pixel 2 / 2 XL

  • Google has updated the Pixel phones and has moved to OLED displays.
  • In contrast to iPhone X, Google has opted to make use of the always on display feature that allows key information to be displayed when the screen is off with almost no impact on battery life.
  • Why Apple declined to make use of this excellent feature on the iPhone X is a complete mystery.
  • What really sets the Pixel 2 apart are the new features such as Google Lens which offers the best image recognition and the fact that Google uses AI to do with one camera while everyone else needs 2.
  • However, Google openly admitted that volumes of Pixel have been disappointing and its offer of a free Google Home Mini is clearly aimed at driving badly needed volumes of this device.
  • Pricing remains punchy at $649 for the Pixel and $849 for the XL making the comparison to better looking Samsung s8 and iPhone 8 inevitable.
  • I suspect price is going to be an issue for users considering this device.

Google Home.

  • Two new products were introduced:
    • First: Google Home Mini ($49) which takes direct aim at the best-selling Amazon device (Echo Dot) in another clear attempt to drive badly needed volume.
    • Second: Google Home Max ($399) which goes up against Sonos and Apple HomePod.
  • The broadening of the portfolio should help Google increase its penetration of the home but the smart home piece is still badly lacking.
  • Google claims that 1,000 devices from 100 manufacturers now work with Google Home but it failed to demonstrate any and instead concentrated on products from Nest.
  • Google also launched routines which is exactly the same as the Amazon Echo function of the same name and something that all smart home controllers need in my opinion.
  • The integration of Google Home with other Google devices and the functionality being added is far ahead of anything else available but the smart home bugbear continues to rankle.
  • This means that anyone serious about smart home is likely to choose Amazon simply because they know that anything made for the smart home will work while the same cannot be said for Google.
  • This needs to be fixed and will remain the reason for Google’s potential defeat at the hands of Amazon because elsewhere it is by far the best product available.

Google Accessories.

  • Two companion products were launched which deepen the cross-device functionality as well as highlight Google’s core AI strengths.
    • First: Pixel Buds ($159). These take aim at Apple’s popular AirPods (also $159) and while the design looks inferior, the functionality is excellent.
    • This includes an exciting implementation of Google Translate that works with the Pixel phone to enable usable voice translation in 40 languages.
    • It also allows easy access to the best in class Google Assistant in a similar way to AirPods.
    • The difference here being that Google Assistant is a substantially better service than Siri.
    • Second: Google Clips ($249). This looks like a regular GoPro or Yi camera but the differentiator lies in its functionality.
    • The idea with clips is to position the device during an event or gathering and leave it to gather the best photos and video clips.
    • Again, this is Google using its leadership in AI to differentiate and if this feature works well, I suspect that it will be a very good reason for users to buy this product.
    • The number one use case for GoPro and Yi cameras is family despite their sporting image and it is this use case that Google is taking aim at.
    • If it works well and gains traction, this spells more trouble for GoPro which has struggled with software and ecosystem from Day 1.

Take Home Message.

  • Google has substantially deepened its cross-device capability with the new launches as these devices should all work extremely well together.
  • I think that Google comfortably leads the industry in this capacity.
  • Furthermore, much of the functionality that Google has demonstrated should make its way onto the Android devices from other manufacturers driving which should really help penetration.
  • How well they work on the hardware of others is a concern as manufacturers tinker with Android that always seems to result in inconsistent and subpar performance of apps and services.
  • Consequently, in terms of driving deeper and richer services for its ecosystem users, this was a successful event but the real question remains what volumes will Google’s own hardware achieve?
  • These services will obviously work better on Google controlled hardware where the endemic fragmentation and lack of software updates are not an issue.
  • Execution and marketing are the two things I am looking for from Google as to date, these have been woefully lacking.

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.

Google vs. Amazon – Battle for the home pt. IV.

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Amazon increases its aggressive land grab. 

  • Not content to sit on 70% market share, Amazon is aggressively compensating for the lack of Alexa on smartphones by effectively giving the devices away and pushing e-commerce as hard as it can.
  • A land grab strategy makes complete sense because the more Amazon can drive Alexa usage, the more data it will generate and the better it can become.
  • Usage is the key to making all digital assistants better and this is the one area where Amazon has huge ground to make up compared to Google.
  • Amazon has launched yet another Alexa device which costs $20 but this is immediately credited back to the user when it is registered with an Amazon account making it effectively free.
  • The latest addition to the family is called the Amazon Dash Wand which can be used to scan bar codes or Alexa to order products from Amazon.
  • Alexa is present on the device and while this is clearly aimed at driving e-commerce, there is no reason why it can’t be used to answer inquiries or control the smart home.
  • The one thing it won’t do is play music or radio but when the whole device costs $20, it is obvious that the audio experience would not be worth the effort.
  • At the same time, Amazon is also offering $50 off the Amazon Tap reducing the price of the portable speaker to $79.99.
  • The two weaknesses of Amazon in the digital assistant space are that it is inferior to Google and that Google Assistant is present by default on every Android smartphone that ships.
  • This means that if Google can convince users to use their smartphones to access the digital assistant, then Amazon will be at a big disadvantage.
  • However, at the moment over 60% of all digital assistant usage occurs when the user’s hands are busy with another task which obviates smartphone usage as the device almost always has to be removed from a pocket to be activated.
  • This, combined with the fact that Google is still really struggling in the smart home (see here), is why Amazon still has the upper hand which it is showing no sign of losing.
  • This move is clearly aimed at seeding as much of the market as possible before Google can get its act together.
  • If a large number of households have Alexa which is working nicely with the other smart devices they have at home, it will be increasingly difficult for Google to win them back even with a superior product.
  • This is particularly relevant given that the market is still lowly penetrated in USA and is almost non-existent overseas.
  • Given Google’s very slow progress, I am increasingly of the opinion that we are witnessing a repeat of the VHS vs. Betamax battle.
  • I continue not to like either Alphabet or Amazon (even if it wins the smart home) on valuation grounds, preferring instead Tencent, Baidu and Microsoft.

Home vs. Echo – Battle of the Home pt. III.

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Google has everything to do.

  • Google is great at getting third parties to build hardware that uses its software, but needs to work on developers of smart home devices if it wants to trounce Amazon.
  • Following the general availability of the Google Assistant SDK that allows anyone to embed Google Assistant into almost anything, Google has also announced a series of third party devices which will be launched at IFA next month.
  • These include the Anker Zolo Mojo, the Panasonic GA10 and the TicHome Mini all of which will go on sale during Q4 17.
  • Amazon has followed suit but as of yet, there appears to be less traction with hardware makers.
  • Alexa is likely to power the next generation of Sonos speakers and may make an appearance in some VW cars but it looks like Google has more momentum when it comes to hardware.
  • This is likely to ensure a race to the bottom in terms of voice enabled smart speakers from which I think Google will be the only likely winner (just like Android).
  • It badly needs to close the gap on Amazon which has around 70% of the home speaker market and having a much wider selection of attractively priced products will be of great help.
  • What will further help Google is the fact that Google Assistant is a vastly superior product compared to Amazon Alexa.
  • This is because the AI that sits behind Google Assistant is the best available, meaning that Alexa answers fewer questions correctly and gets stuck much more often.
  • However, where Google comes completely unstuck is in the smart home.
  • Amazon has aggressively pursued developers and showered them with love and support meaning that almost every developer of anything that has a Bluetooth or WiFi radio can be controlled with Alexa.
  • The same cannot be said for Google Assistant which I think has been caused by Google’s surprising lack of support for developers of this type (see here).
  • I think that part of the reason for this is that Google Assistant has been brought to life by one part of Google (hardware) but was created and managed by another.
  • Google is addressing this by encouraging developers to write directly to the assistant meaning that any device be it a smartphone, speaker or thermostat can run the smart home but progress to date has been slow.
  • Amazon Alexa has over 15,000 skills which don’t work very well but importantly, there are there and do work with a little effort.
  • Google Assistant is hopeless by comparison and it is here that it is at real risk of suffering a Betamax-like defeat.
  • I think that Google needs to bring all of these devices together such that “OK Google, I am going to bed” results in the whole house shutting down rather than a long series of carefully constructed instructions to each device individually to go into night mode.
  • For many of Alexa’s skills, it is simply easier and quicker to perform the operation manually than to ask Alexa to do it.
  • Unfortunately, so far there is no sign of smart integration from Google meaning that the advantage remains with Amazon.
  • The market remains very lowly penetrated meaning that everything is still to play for but this won’t last forever.
  • Valuation keeps me from liking Alphabet and Amazon leaving Microsoft, Tencent and Baidu as my top choices.

 

Facebook – Empty head

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Another smart speaker that badly needs a brain.

  • It looks like Facebook is joining the ever more crowded smart speaker bandwagon, but without a decent brain inside the box, it may as well be a paperweight.
  • One possibility is for the device to use Cortana as it comes from one of the few companies that doe not compete directly with Facebook: Microsoft.
  • The device looks like it will be using a 15-inch screen from LG and will be manufactured by Pegatron but beyond that there are very few details.
  • I suspect that Facebook may be trying to take a slightly different tack here.
  • This is because:
    • First: the smart speaker market is already very crowded,
    • Second: Facebook has no brain of its own to install in the box,
    • Third: Facebook is more focused on community than smart home.
  • Facebook’s main objective in life is to bring its users closer together using its apps and to give them a sense of community.
  • While this all sounds great for users, the reality is that they will end up spending more time inside Facebook’s fledging ecosystem, generating more traffic and thereby increasing Facebook’s ability to make money from them.
  • Hence, I suspect that this device may be aimed more at making it easier for Facebook friends to spend time with each other by voice, video, messages or even images.
  • However, to earn a place on the increasingly crowded countertop of consumers, it is going to need voice functionality of some description.
  • I think that Facebook M, which is Facebook’s own digital assistant is hopelessly inadequate to fulfil this role, meaning that Facebook will have to get one from somewhere else.
  • Top of my list for this is Cortana which, while not the sharpest tool in the box, it is the only one whose owner is not competing directly with Facebook.
  • In fact, I have seen Microsoft and Facebook creeping closer together (see here) over the last few years and this is a collaboration that could make some sense.
  • With a bit of tinkering on Microsoft’s part, Cortana could be taught how to deal with the majority of the tasks that users ask smart speakers to perform.
  • This work is probably already going as Microsoft may already be working on a smart speaker of its own.
  • Combining this with the screen and Bing would give the device a reasonable shot at doing a decent job of answering queries.
  • This is just another example of how badly Facebook needs to bring its AI up to a level at which it can compete on a level playing field with Google.
  • This would also help Facebook deal with the objectionable content problem that it has on its platform as its current answer to this is to throw more humans at the problem.
  • For me, this has to be Facebook’s number one strategic priority and the progress displayed at F8 on image and video recognition was somewhat encouraging (see here).
  • I am still quite cautious with regards to Facebook’s outlook for this year as I don’t think that either its video offering or its gaming offering are mature enough to bring the company back to high growth in 2017.
  • This combined with requirement to really improve its AI to compete with the other digital ecosystems leads me to still prefer Baidu, Tencent and Microsoft.

Baidu – Talking machines.

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The way in China is wide open for Baidu.

  • Baidu’s strategy around its AI platform and its Duer OS has become clearer and with the support of a large number of chip vendors, it is in pole position to be a major player in smart connected devices in China.
  • DuerOS is not a traditional OS like Android or iOS but instead is a much more focused sub-system that is capable of bringing intelligent voice control and intelligence to any device in which it is implemented.
  • DuerOS’s direct comparisons are the software that runs on Amazon’s family of Echo products, Google Home or JD.com’s DingDong.
  • While Duer still speaks no English at all, I think it is currently by far the leading contender in this category for China for two reasons:
    • First: ecosystem. Baidu has already lined up an impressive list of component and device manufacturers who will be implementing DuerOS in their products.
    • Realtek, Intel, Nvidia, MediaTek, RDA, Conexant and ARM have signed up to support the system, which combined with a series of device makers, should create a pretty healthy ecosystem.
    • There are already around 30 products in the pipeline encompassing pretty much the entire range of domestic electronic devices and appliances.
    • Second: Artificial Intelligence. RFM research (see here) has indicated that Baidu’s AI is second only Google and certainly far better than anything else currently on offer in China.
    • This is a product of years of work as well as having developed by far the leading search function in China.
    • The net result is that DuerOS, like Google Assistant, should be able to provide users with the best experience when it comes to understanding and dealing with voice based requests.
  • Putting these two together put Baidu in pole position when it comes to creating an ecosystem within which a whole series of devices can talk and understand both the user and each other as well as work together.
  • This represents a big threat for Xiaomi which has laso built quite a large ecosystem of smart devices but they really lack the intelligence that DuerOS can offer.
  • The upside for Baidu is that by powering all of these voice-enabled gadgets, it will be able to gather data about its users that it will be able to make its search all the more relevant.
  • One of the big differences between China and Western markets is that no one seems to care very much about privacy (see here) meaning that this strategy could work very well.
  • I don’t expect Baidu powered machines to suddenly start spewing out voice-based advertising but learning what its users like and what their needs are will help it make its search results more accurate and hence more valuable to advertisers.
  • Baidu is still the search leader in China but its recent problems with fake advertising are only just behind it and this could provide a good pillar for long term growth.
  • I think that its real rivals, Alibaba, Xiaomi and Tencent, are miles behind when it comes to AI and voice-based services, leaving the Chinese market wide open for Baidu.
  • This combined with its leadership position in AI and search are the main reasons why I still like Baidu together with Tencent and Microsoft.

Alibaba – Virgin home

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Another day, another home assistant.

  • Alibaba is moving to launch a home speaker, much like Amazon Echo, that should direct users to its e-commerce services but I suspect that if it teams up with Baidu, it will launch a better product
  • The obvious intention is to make it even easier for users to shop on Alibaba’s sites but given the differences between China and developed markets, I am not convinced that this is necessary.
  • Alibaba’s users are already making over 80% of their purchases on mobile devices which is much higher than Amazon or other e-commerce platforms in developed markets.
  • The reason for this is that China is a mobile first market (see here) because in China, the mobile internet works much better than fixed.
  • In developed markets, the opposite is true which has meant that shopping via a PC or Mac still represents the majority of transactions.
  • Hence, if one can easily order products using voice commands with Amazon Echo, it represents an easier experience than using a PC and a web browser.
  • However, apps on smartphones are so optimised for the task for which they have been designed that it may not end up being much easier to use a speaker from Alibaba than the mobile phone.
  • This will especially be the case if the assistant that Alibaba puts into the speaker is not that smart.
  • RFM research (see here) has not highlighted Alibaba as being a leader in AI meaning that the intelligence of its speaker is likely to be second or even third rate.
  • Hence, if the shopping experience is not much enhanced by having a speaker, it will need to be very good at other functions in order to be appealing.
  • Typically, these have included the ability to play music, answer general inquiries and control smart devices around the home.
  • Offering a decent user experience in these areas is a much more general AI problem and one with which I think Baidu is far more advanced.
  • Hence, I think that if Alibaba comes to some arrangement with Baidu to use its personal assistant Duer for part of the functionality, it will end up with a much better user experience.
  • The good news is that China is almost virgin territory when it comes to this space as I do not believe that either Baidu or JD.com have had any real market impact with their products.
  • Furthermore, the failure of Amazon in China and the blocking of Google services has meant that foreign competition is almost non-existent.
  • This means that even if Alibaba’s speaker is sub-par due to the basic level of AI that Alibaba has to put into its offering, it may still sell reasonably well with the right marketing push behind it.
  • I think that Alibaba is also still well behind when it comes to the smart home and so it would make sense to emulate Amazon’s extremely developer friendly attitude.
  • Xiaomi has also built up a reasonable ecosystem of smart home devices In China that use its API, and so including this at the factory would also seem to be a good idea.
  • I have been quite encouraged by Alibaba’s emerging understanding of the importance of data and how it can benefit by integrating it all together and making as much use of it as possible.
  • This move with a home speaker would represent a further expansion of that understanding.
  • I still struggle with the valuation of Alibaba as there is a lot built into its share price, but fundamentally it is doing all the right things to be one of the big ecosystems at home.