CES 2017 — Alexa’s “Hello” Event

How Amazon is Winning the Next Big Race in Tech…

Alexa Everything

Amazon, more specifically (virtual assistant) Alexa, dominated this year’s CES through product integrations with companies like Ford, Volkswagen, Whirlpool, GE, Dish, Lenovo, and LG just to name a few… Everything from refrigerators to cars boasted Alexa voice capabilities as a result of Amazon’s decision to open-source their digital assistant’s software to third-parties. While this unconventional move may not help Amazon win the hardware race, it has undoubtedly catapulted Alexa into becoming the ubiquitous voice-assistant of 2017.

Momentum

Capitalizing on a two-year head start over Google Home, Amazon sold an estimated 5.1 million Echo (Alexa) devices since it launched in late 2014 according to data from Consumer Intelligence Research Partners. The resulting momentum was on full display at this year’s CES and illustrated by CNet’s tally of voice-activated internet-of-things product announcements. Nearly twice as many products boasted Amazon Alexa compatibility (33) in comparison to those designed for Apple HomeKit compatibility (18).

Amazon Alexa — (33) Product Announcements
Apple HomeKit — (18) Product Announcements
Google Home — (8) Product Announcements

If voice does indeed become the dominate way we interact with our devices over the coming years, Amazon has already secured a clear lead over their rivals (Google Home and Apple’s HomeKit) going into the new year.

First Mover Advantage

Amazon knows better than most about the inherent disadvantages of being late to the game in a two-sided marketplace. Despite building a superior mobile phone (in terms of hardware specs) in 2014, the Amazon Fire Phone was one of the companies biggest failures due to the lack of available apps.

The PC and smartphone markets are both two-sided markets: The more devices customers buy, the more attractive the market is to app developers. And the more apps a platform has, the more attractive devices become for consumers.

Instead of adopting Google’s open Android OS (86.2% Market Share), Amazon opted to introduce its own proprietary mobile OS for their Fire Phone — for which no developers had made applications. Ultimately, the phone lacked basic apps like Google Maps and Starbucks upon release and failed to attract customers as a result.

The same two-sided market dynamic is at work with connected household devices — however, now in Amazon’s favor.


Alexa’s Skills

Amazon has taken advantage of its first-to-market position by creating the equivalent of an app store for Alexa (known as “skills”) with developers in mind. In January of 2016, only 130 Alexa skills had been submitted to the store. In December of the same year, however, that number had grown to just over 5,000 skills. Today, Alexa boasts over 7,000 skills and counting — putting Amazon in a stronger position every time it tries to sell Alexa to a new car or appliance company.

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In fact, we are already seeing companies choosing to bump competing technologies in favor of Alexa’s more robust platform. LG’s InstaView refrigerator, for example, was first announced with Microsoft’s Cortana integrated at IFA just four months ago; at CES it officially launched with Alexa instead.

LG InstaView Announcement with Amazon Alexa Integration

In theory, the more devices that support Alexa, the more streamlined the user’s experience. And the more devices with Alexa integration built in, the more lucrative of a platform it becomes for developers.

Market Growth

An estimated 24.5 million voice-controlled devices will ship this year — representing a significant increase from the 1.7 million devices shipped in 2015 and 6.5 million units shipped just last year.

With the best estimates pegging the market for digital assistants at 3.6 Billion by 2020, Amazon appears to be in good stead to capture a significant portion of the inflating market.

Final Thoughts

One notable market aspect is the “high consumer lock-in” as reported by a recent industry report by VoiceLabs. According to their study, only 11 percent of survey respondents (who owned an Echo or Google Home) said they’d buy a competing device. This unusually high degree of consumer “lock in,” in conjunction with Alexa’s significantly more robust app (skills) store, increases my confidence in Amazon’s ability to retain and further grow its consumer base despite threats of new entrants.

However, the race is now on for hardware providers to distribute devices as quickly as possible — a race in which Amazon has a 2-year head start.

John P. Holowesko

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