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How and Why the Tech Giants Are Fighting for the Home Platform

Decoding how the varying business models of Amazon, Google, and Apple inform their smart home strategies

As we pointed out in our 2018 Outlook, this is the year the battle for the home has begun in earnest as the competition heats up between major tech players vying to own the smart home ecosystem. Now, a quarter into 2018, the battle is going strong.

Last Thursday, Amazon announced the nationwide rollout for Amazon Key, a security camera and smart lock bundle service that lets Prime members opt in for in-home delivery. Amazon first launched the service last November in 37 cities across the US where Amazon Logistics handles the drop-off. The ecommerce leader has since acquired leading video doorbell maker Ring, reduced the price of its video doorbell, and is reportedly looking to integrate Amazon Key with Ring products. Nevertheless, this national roll-out marks a significant step in Amazon’s smart home play as it aims to gain access to customer’s front door.

Not to be outpaced, Google also recently made some significant advances in conquering the home platform. It reabsorbed Nest, the spin-off subsidiary brand for connected home devices, into its hardware team for better integrations, subsequently pulled Nest products from Amazon sites, and worked with Target to create the first voice-activated coupon for Google Assistant. The last move came just a week after the company launched Google Shopping Actions program to unify its ecommerce ad products and services across platforms, including search and voice, signaling the Mountain View company’s ambition to fight Amazon on the ecommerce front.

In the past year or so, the “Amazon vs. Google showdown” has become the dominant narrative in the mainstream media coverage of the smart home space, partially due to the outsized influence that smart speakers have in leading the smart home market growth. Google, for its part, has been very eager to catch up with Amazon in terms of name recognition as it pours considerable capital into event activations at CES and SXSW, as well as the star-studded “Make Google Do It” campaign. Amazon, on the other hand, remains largely unfazed by Google’s lavish marketing spending as it focuses on building out developer tools and extending OEM relationships.

Beyond the Amazon-Google dichotomy, however, Apple is another major player in the home OS battle that is flying under the media radar at the moment. The iPhone company shipped its Siri-enabled smart speaker HomePod in early February, and much has been written about whether it’d be an adequate competitor for Amazon Echo and Google Home, mostly to mixed reviews. Regardless, the main takeaway here is that Apple is, at least for now, positioning HomePod primarily as a premium wireless speaker as less as a Siri vehicle. Apple’s subsequent marketing for HomePod continued to drive home this message.

However, that doesn’t mean Apple is not doing anything significant in smart home, an emerging platform that is so much more than just smart speakers. The huge market share it has in the upscale mobile market provides a strong pole for Apple to vault itself into the smart home space with. Since late 2016, the company has been partnering with various home builders to get HomeKit-ready technology installed in some homes from the start. Homebuilding companies like Brookfield Residential and Trivselhus have made Apple’s HomeKit default standard for their new smart home developments. This one-stop-shop play by teaming with housing developers points to a unique B2B-driven strategy that sets Apple apart from the other two players in the smart home space.

Different Goals, Different Home Strategies

Right now, the U.S. smart home platform battle is a three-horse race, with Amazon in the leading position and Google and Apple not too far behind. How this race to win the home platform evolves will heavily shape the media and communications in the emerging post-mobile era dominated by IoT-powered ambient computing.

In this regard, it’s helpful to examine how the different business models of these major players are reflected in their respective approach towards the smart home space. Simply put, how each of the three tech giants makes money greatly informs their smart home strategy and determines their intrinsic advantages and disadvantages in the space. Let’s take a look one by one.

Amazon’s Balancing Act

Amazon is, without a doubt, primarily an ecommerce company, and it is no surprise that it entered the smart home space to make shopping on Amazon sites even easier for you. The company has done so not just by enabling voice shopping as early as 2015, but also by making the best user experience of Alexa-enabled devices available only with a Prime membership. Studies have show that Prime members spend on the site nearly twice as much as non-Prime members, and Alexa plays a key role in growing and retaining Amazon Prime households.

Digging a little deeper, Amazon is, at its core, a platform provider that ultimately aims to, as analyst Ben Thompson puts it, “take a cut of all economic activity.” This long-term goal is what’s driving Amazon into various new industries from grocery to healthcare, and its ambition at becoming the owner of your smart home platform also aligns with that larger plan. Prime membership may be mostly limited to shopping perks and streaming content at the moment, but could be soon expanded to cover much more, such as home services and home security. To that end, Amazon could grow into the all-purpose platform that all aspects of our domestic lives depend on.

To pursue that powerful position of owning the home platform, Amazon has been leveraging two of its strongest advantages — its popularity among U.S. consumers as well as its robust AWS cloud services — to further scale its smart home platform by getting more third-party IoT device manufacturers on board. Being statistically the most trusted U.S. tech company, Amazon has the brand affinity it needs to gain access to people’s private home space. And with Alexa being a big part of more and more users’ day-to-day routines at home, their trust of Amazon also naturally grows, thus creating a virtuous growth cycle for Amazon.

That being said, Amazon’s approach is not without weakness. First of all, not owning a mobile or wearable platform could ultimately hurt its home ambitions. While it does a great job of pushing Alexa-enabled connected devices into more homes, it is important that the home life does not happen in a vacuum. Whenever we leave the house, Amazon has limited ways of replicating that home experience on the go for customers like Google and Apple can. And as great as hands-free voice interfaces are, they are not the best interface for every scenario. Sometimes a quick glance at your smart watch or a few taps on your phone are simply quicker and much more convenient than having a verbal back-and-forth with Alexa.

In a sense, Alexa is to Amazon what Android was to Google in the beginning of the mobile OS war. The (justifiable) fear of getting locked out by Google and Apple’s smart home initiatives is what drove Amazon to develop Echo and Alexa in the first place. Now that Alexa-powered devices are leading the market, it will be interesting to see if Amazon can achieve its short-term goal in the home space (to sell you more stuff) without losing sight of its long-term goal of becoming the platform powering all aspects of your home life.

Amazon’s fragmented app offerings. Screencap from App Store

In addition to that balancing act, another big question mark sterns from Amazon’s incredibly modular organizational structure, which gave birth to a rather fragmented software lineup. Different teams at Amazon typically attend to their own products independently, resulting in a very siloed approach to its services. Various Amazon services, including Prime Now, Instant Video, Alexa, and Cloud Cam, all have standalone apps that are seperate from the main Amazon app, not to mention the newly acquired Ring. The challenge for Amazon is to overcome its company culture and build a more unified and integrated service platform that makes things easier for customers.

Google’s Data Play

Compared to Amazon’s layered motives in the home space, Google’s reasons for entering the home space seem a lot more straightforward. The rise of voice search and visual search, respectively exemplified in the past few years by the roll out of Alexa and Pinterest Lens, chips away at Google’s dominance in search and thus threatens the long-term prosperity of its key revenue source. If even a fraction of searches shift from mobile and desktop to voice interfaces, then that is where Google services need to be. Hence the Google Home lineup and the company’s lavish marketing push to catch up with Amazon.

One inherent challenge that comes with this platform shift, however, is that search ads work very differently on voice interfaces than on a screen. Due to the conversational nature of voice interfaces, those connected home devices are ill-suited to carry traditional audio ads as they inevitably come off as intrusive and off-topic. The alternative then, is to either amp up the relevancy of the ads through better targeting or pass them off as sponsor messages or branded content. Either way, they will require a lot more customization and tons more data to power.

Therefore, it is not hard to see that the easiest course of action for Google to take now is to leverage its various home products, whether it’s the Home speakers or Nest products, primarily as data input to fuel its ad targeting and inform its ad products on other platforms. Unlike Amazon, whose customer data mostly concentrate in the ecommerce domain, Google already knows a lot about its users’ digital habits. The additional amount of data it will gain from the home platform will only further solidify its dominance in digital advertising. However, given the recent backlash against big tech companies and, in particular, Facebook, (who also happens to be the sole rival to Google in digital ads), Google will need to tread carefully in terms of the data they collect and share with third parties.

Apple’s Unclear Motive

Of the three major players in the burgeoning home OS market, Apple’s motive is the hardest one to nail down. As Tim Cook puts it, Apple will only enter a new market where it can “make a significant contribution.” And so far, it is hard to discern just what significant contribution that HomePod made to the smart home market, or even the premium speaker market.

To that end, one may argue that Apple’s key motivation to be in this space is likely a spill-over of the iOS vs. Android mentality. Apple will continue to have a strong offering in mobile and wearables which it can leverage into the home space without relying on creating its own connected home products. But if the post-mobile world does manage to do away with personal gadgets (a stronghold for Apple) and instead run on omnipresent ambient computing powered by shared IoT devices, then it would be Apple’s best interest to secure a place in the home platform so as not to be left behind.

Fundamentally, Apple is a hardware company, and it wants to lock users into its ecosystem to keep buying more Apple products. And HomePod does have a strong lock-in effect that works well for its ecosystem play. However, it is highly unlikely that one tech company will be able to build connected versions for every home appliance, the battle for the Home OS is primarily a competition at the software and service level. Apple’s best chance at winning this home battle, therefore, lies in becoming the the best interface to a wide range of third party devices so as to achieve the same effect.

(Update 4/16/2018: a new report from The Information claims that an increasing number of home builders—including Lennar, Meritage Homes, and Shea Homes—have agreed to partnerships with Amazon to build homes with preinstalled Alexa-enabled accessories, rather than HomeKit-based products from Apple.)

In addition, Apple’s closed ecosystem can be a double-edged sword — for every user it managed to lock in, it dissuades another due to low incompatibility with other services and IoT devices. Therefore, it makes perfect sense for Apple to pursue the aforementioned B2B strategy when it comes to the home space, as it works with housing developers to sell homeowners on a bundle deal upfront. This allows Apple to ensure the best user experience for those households while also guarantees their OS loyalty and sidestep the gap of the upgrade cycle inbetween varying home appliances.

For Apple to truly conquer the home OS space, it will need to get better at services. Siri has been lagging behind Alexa and Google Assistant, at least in consumer perception, due to Apple’s reluctance of opening it up to developers. In that regard, the recent hiring of John Giannandrea, Google’s former chief of search and artificial intelligence, to head its AI and Siri department provides an encouraging sign that Apple is starting to take Siri more seriously.

Potential Dark Horses

In one of our trend recaps of CES 2018, we mentioned the rumor of Facebook buying Roku to jump into the home OS battle and analyzed the potential ramifications. Fast forward to now, it seems unlikely that Facebook will have much incentive to enter the home market considering the brand trust crisis it is facing right now, as evidenced by Facebook’s decision to delay the launch of its smart speaker.

Facebook’s withdraw means that Roku remains an potential free agent for other players to team up to enter the smart home space. Microsoft, Samsung, and even IBM all have their own AI assistants that can piggyback off Roku’s high market penetration to jump into millions of U.S. households. And look out for Spotify, a company that has a great ad product alignment with Roku and has also started developing its own voice assistant.

Looking a bit further, one could also make a case for the ISPs like Comcast, Verizon, and Spectrum (formerly known as Time Warner Cable) to become the dark horses in this race to control the smart home platform. All major ISPs already offer some home security services that they usually bundle with their home internet services, which gives them a valuable entry point. With the impending rollout of 5G technologies over the next few years, we could even begin to see wireless connectivity replacing landlines, which typically comes with data caps, even with the so-called unlimited plans. When that happens, the ISPs would gain enormous power in dictating which home platform you choose by offering free data to partner devices and services (at least unless net neutrality rules get reinstated).

Needless to say, this battle for the home will be a fascinating one to watch.

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