Smart speaker sales on pace to increase 50 percent by 2019

It seems Amazon didn’t know what it had on its hands when it released the first Echo in late-2014. The AI-powered speaker formed the foundation of the next been moment in consumer electronics. Those devices have helped mainstreaming consumer AI and open the door to wide scale adoption of connected home products. 

New numbers from NPD, naturally, don’t show any sign of flagging for the category. According to the firm, the devices are set for a 50-percent dollar growth from between 2016-2017 to 2018-2019. The category is projected to add $1.6 billion through next year.

The Echo line has grown rapidly over the past four years, with Amazon adding the best-selling Dot and screen enabled products like the Spot and Show. Google, meanwhile, has been breathing down the company’s next with its own Home offerings. The company also recently added a trio of “smart displays” designed by LG, Lenovo and JBL.

A new premium category has also arisen, led by Apple’s first entry into the space, the HomePod. Google has similarly offered up the Home Max, and Samsung is set to follow suit with the upcoming Galaxy Home (which more or less looks like a HomePod on a tripod).

As all of the above players were no doubt hoping, smart speaker sales also appear to be driving sales of smart home products, with 19 percent of U.S. consumers planning to purchase one within the next year, according to the firm.

Digging deeper into smart speakers reveals two clear paths

In a truly fascinating exploration into two smart speakers – the Sonos One and the Amazon Echo – BoltVC’s Ben Einstein has found some interesting differences in the way a traditional speaker company and an infrastructure juggernaut look at their flagship devices.

The post is well worth a full read but the gist is this: Sonos, a very traditional speaker company, has produced a good speaker and modified its current hardware to support smart home features like Alexa and Google Assistant. The Sonos One, notes Einstein, is a speaker first and smart hardware second.

“Digging a bit deeper, we see traditional design and manufacturing processes for pretty much everything. As an example, the speaker grill is a flat sheet of steel that’s stamped, rolled into a rounded square, welded, seams ground smooth, and then powder coated black. While the part does look nice, there’s no innovation going on here,” he writes.

The Amazon Echo, on the other hand, looks like what would happen if an engineer was given an unlimited budget and told to build something that people could talk to. The design decisions are odd and intriguing and it is ultimately less a speaker than a home conversation machine. Plus it is very expensive to make.

Pulling off the sleek speaker grille, there’s a shocking secret here: this is an extruded plastic tube with a secondary rotational drilling operation. In my many years of tearing apart consumer electronics products, I’ve never seen a high-volume plastic part with this kind of process. After some quick math on the production timelines, my guess is there’s a multi-headed drill and a rotational axis to create all those holes. CNC drilling each hole individually would take an extremely long time. If anyone has more insight into how a part like this is made, I’d love to see it! Bottom line: this is another surprisingly expensive part.

Sonos, which has been making a form of smart speaker for 15 years, is a CE company with cachet. Amazon, on the other hand, sees its devices as a way into living rooms and a delivery system for sales and is fine with licensing its tech before making its own. Therefore to compare the two is a bit disingenuous. Einstein’s thesis that Sonos’ trajectory is troubled by the fact that it depends on linear and closed manufacturing techniques while Amazon spares no expense to make its products is true. But Sonos makes speakers that work together amazingly well. They’ve done this for a decade and a half. If you compare their products – and I have – with competing smart speakers an non-audiophile “dumb” speakers you will find their UI, UX, and sound quality surpass most comers.

Amazon makes things to communicate with Amazon. This is a big difference.

Where Einstein is correct, however, is in his belief that Sonos is at a definite disadvantage. Sonos chases smart technology while Amazon and Google (and Apple, if their HomePod is any indication) lead. That said, there is some value to having a fully-connected set of speakers with add-on smart features vs. having to build an entire ecosystem of speaker products that can take on every aspect of the home theatre.

On the flip side Amazon, Apple, and Google are chasing audio quality while Sonos leads. While we can say that in the future we’ll all be fine with tinny round speakers bleating out Spotify in various corners of our room, there is something to be said for a good set of woofers. Whether this nostalgic love of good sound survives this generation’s tendency to watch and listen to low resolution media is anyone’s bet, but that’s Amazon’s bet to lose.

Ultimately Sonos is strong and fascinating company. An upstart that survived the great CE destruction wrought by Kickstarter and Amazon, it produces some of the best mid-range speakers I’ve used. Amazon makes a nice – almost alien – product, but given that it can be easily copied and stuffed into a hockey puck that probably costs less than the entire bill of materials for the Amazon Echo it’s clear that Amazon’s goal isn’t to make speakers.

Whether the coming Sonos IPO will be successful depends partially on Amazon and Google playing ball with the speaker maker. The rest depends on the quality of product and the dedication of Sonos users. This good will isn’t as valuable as a signed contract with major infrastructure players but Sonos’ good will is far more than Amazon and Google have with their popular but potentially intrusive product lines. Sonos lives in the home while Google and Amazon want to invade it. That is where Sonos wins.

The 9 features Amazon and Google must add to the Echo and Home

The Amazon Echo and Google Home are amazing devices and both have advantages over the other. In my home, we use the Amazon Echo and have them around the house and outside. I have the original in the living room, a Dot in bedrooms, my office and outside, a Tap in my woodworking workshop and Spots in the kids’ room (with tape over the camera). They’re great devices, but far from perfect. They’re missing several key features and the Google Home is missing the same things, too.

I polled the TechCrunch staff. The following are the features we would like to see in the next generation of these devices.

If you’re on desktop, click the “start here” button to the right. If you’re on mobile web, just scroll down. If you are reading this from anywhere else (Google News, Yahoo, etc), click here to jump into the slideshow.

Amazon’s next conquest will be apparel

Late last year, after Amazon announced it had acquired the rights to J.R.R. Tolkien’s epic “Lord of the Rings” saga for $250 million, I wrote how the move underscored Amazon’s relentless pursuit to build one platform to “rule them all.” Now that Amazon is investing half a billion dollars into developing a Middle Earth show – making it the most expensive TV series ever made – it won’t be a surprise to see Jeff Bezos front and center at the Emmys soon.

But Hollywood isn’t the only industry Amazon wants to upend. Based on the company’s great ambitions in apparel, it may not be long before we also see Bezos at New York Fashion Week next to Anna Wintour.

The 800-Pound Gorilla in the Fashion World

 

As traditional retail continues to recede, direct to commerce fashion brands continue to emerge. I’ve previously shared how Stitch Fix, Warby Parker, Everlane and Allbirds are just a few innovative companies proving the success of this model. As the master of D2C commerce, Amazon has been fine-tuning its fashion operation for over 15 years.

Amazon originally got into apparel all the way back in 2002 and acquired online shoe retailer Zappos for $1.2 billion in 2009, marking the largest purchase in its history at the time. But the company’s quest to dominate fashion has faced several historical obstacles, chief among them that people have not trusted buying apparel online out of a desire to try on the items first and that Amazon was not perceived as a “cool” brand.

Headwinds are now tailwinds. Online shopping for apparel took off and is now the highest online-penetration CPG sector; the majority of women have shopped for clothing online. E-commerce accounts for nearly twice as big a proportion of total clothing sales as it does for retail more broadly (17 percent vs. 10 percent). Amazon, meanwhile, has honed its apparel strategy, providing free returns, better photography and greater selection. Today, the company is the largest apparel retailer by gross merchandise volume. Mission accomplished? Not quite.

Building A Private-Label ‘Fashion House’

An actual Amazon fashion shoot

Bonobos CEO Andy Dunn once said, “Selling a bunch of other people’s stuff is a low margin game that requires a lot of capital and, ultimately, it’s hard to beat Jeff Bezos at that.” This is true, but when it comes to apparel, Bezos has greater ambitions than selling other people’s stuff. Currently, though, that’s mostly what Amazon does.

According to analysis from Coresight Research, nearly 14 percent of listings on the U.S. Amazon Fashion site are from Amazon itself, while third-party sellers account for the remaining 86 percent. Amazon is highly incentivized to increase its share of that pie. Apparel is a highly profitable category for the company, with 40 percent peak gross margins in the last 10 years. Additionally, Prime members heavily overindex for buying apparel on Amazon – nearly two-thirds have done so in the past year.

As it ramps up its private-label offerings, Amazon is clearly keen to move beyond selling the apparel equivalent of batteries and diapers through its Amazon Essentials brand. It started selling thigh-high velvet boots in September, and Coresight’s analysis indicates that the company is focusing on higher-value categories.

If its recent Lord of the Rings rights acquisition was an attempt to further capture young affluent consumers’ eyeballs, and Whole Foods an attempt to lock down their stomachs, it follows that Amazon would want to ensnare their wardrobes as well. Acquiring a hot digitally native vertical brand – or brands – would be a speedy way to accomplish that. Walmart has already pursued this strategy by buying Bonobos, Modcloth and others; Amazon could take a similar path and seek to bring buzzy brands like Everlane into the everything store. This could also go a long way in helping Amazon shed its “uncool” label.

Becoming A Fashion (Power)House

The Echo Look is just one sign Amazon is serious about dominating fashion

Last year, Amazon introduced a number of innovations designed to turbocharge its apparel business and make the online shopping experience as frictionless as possible. It launched Prime Wardrobe, a Stitch Fix-style service that allows you to try three or more items on at home before sending back the items you don’t want for free in a resealable box with a prepaid label.

 It also debuted Echo Look, a new Alexa-powered device that the company dubs a “hands-free camera and style assistant.” The addition of a camera enables the device to record and comment on its owner’s clothing choices, using a combination of machine learning and human stylist feedback. This advice also takes the form of recommendations, which can drive revenue to Amazon Fashion, and specifically its private-label brands.

Amazon is iterating on and rolling out more features for the Echo Look, including curated content and even crowdsourced (human!) style feedback. It also created an AI algorithm for designing clothes and patented an AR mirror that lets you virtually try on clothes. The value of such a mirror was validated recently by L’Oreal’s acquisition of ModiFace, a company that produces technology that powers similar applications in beauty AR.

Analyzing all these moves together, Amazon’s apparel strategy begins to crystallize. First it sells tons of clothes to learn how clothes are sold. Then it starts selling its own clothes to generate higher gross margin. And now has it has Prime Wardrobe to increase lock-in and reduce points at which customers can choose not to buy Amazon’s own clothing (all while gathering more data about individual preferences); and Echo Look to be its data collection and voice-commerce portal (and as an added bonus, it can route ambiguous purchase requests to its growing inventory of private-label items). If this strategy is successful, it will give Amazon an enormous data moat to drive high-margin sales – a competitive advantage that will be extremely difficult for fashion retailers and brands to replicate.

Bezos doesn’t need to even ask.

Amazon has become increasingly dominant in several increasingly important arenas: cloud services, voice assistants, self-serving brick-and-mortar stores with Amazon Go, and of course its now-traditional role as the online everything store. The company is poised to add apparel to this growing list as it changes the way people shop for clothing (again) and entices more of its customers to buy Amazon’s own threads. And it bears mentioning that Amazon Fashion will get a helpful hand from Amazon Studios as well. Bezos once shared that, “When we win a Golden Globe, it helps us sell more shoes.” If he has his way, Amazon will be doing a lot more of both in the coming years.

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