A year ago, Amazon's Echo was the undisputed leader in the fast-growing smart speaker category. Will that still be the case a year from now?
What happens over the holidays could make a significant difference. Alphabet's Google Home products have been gradually chipping away at Amazon's lead in the smart speaker category. During the second quarter, Amazon's (AMZN - Get Report) share of the global market dropped to 41% from 76% during the second quarter of the previous year. In the same quarter, sales of the Google Home --the flagship smart speaker from Alphabet (GOOG - Get Report) , (GOOGL - Get Report) -- were up 420% year over year.
A lot has changed since then, however. For one, Amazon's universe of Alexa-compatible devices has exploded to several dozen. In September, Amazon rolled out eight new devices on top of the 11 Alexa-enabled devices it already sold, which included a microwave, a subwoofer and a gadget that goes in your car. In total, Amazon sells dozens of gadgets that either have Alexa built in, like its original Echo family of products, or can connect to an Alexa device. Meanwhile, Alphabet rolled out its Google Home Hub, a $150 device intended as voice-connected smart home hub.
"Voice is the gateway drug to smart-home anything," added Doug Robinson, CEO of the digital agency Fresh Digital. "We're at that point where we're about to hit phase two of the voice space. People are looking for more things to do with their devices, and they're going to keep buying devices."
That idea is corroborated in a survey by the research firm Consumer Intelligence Research Partners, which found that growth in smart speaker sales slowed in the September quarter: "We're pretty sure that as a novel consumer electronic product, right now it's subject to seasonal demand, so we'd expect slower sales in the July-September period," said CIRP's Michael Levin. "One big question is, where on the classic absorption curve it sits -- have we already seen all the significant demand, or is it earlier in the cycle?"
CIRP's analysis found that 70% of Google Home owners and 60% of Amazon Echo owners have at least one smart home accessory, and with consumers facing more choice than ever in smart home accessories, that could grow further in the seasonally strong holiday quarter.
"Given seasonal holiday demand, and also introduction of new models from Amazon and Google, we think sales should pick up on the Oct-Dec quarter," Levin added. "Half of all sales of Amazon Echo and Google Home are the lowest price Dot and mini, respectively, and we think this trend will continue -- these models allow consumers to try the device inexpensively, and also to purchase them for multiple rooms."
Voice research firm Voicebot.ai estimates that by the end of 2018, U.S. household penetration of smart speakers will exceed 25%. In the U.S. market, the firm estimated in September that 64% of units are Amazon smart speakers and 20% are Google's.
Devices with screens, such as Google Home Hub and Amazon's Echo Show, may be big winners over the holidays, Robinson speculated. Its superiority in delivering Youtube on the device, as opposed to the Echo Show, could wind up a big differentiator as consumers experiment with different uses for the device, such as recipe tutorials.
"I could see it selling five to ten million units pretty quickly," Robinson added. "For people that are interested in creating and connecting a smart home, they're definitely interested in buying one of the screen devices."
(Editor's Pick. Originally published Nov. 10.)