Jan 10 2020
Bloomberg recently reported that Apple – which has lagged behind Amazon and Google in smart home – is undertaking a major hiring push in Cupertino and San Diego to overhaul its smart-home platform. The team is expected to work on projects that help extend Apple’s smart-home ecosystem and its own portfolio of smart-home devices. This renewed push by Apple is one among many by players – including Samsung and IKEA – that have fallen behind but are not going to cede the smart-home ground to Amazon and Google.
Whether a given player will be among the winners in the smart home will depend on if it has a sticky foothold with end-users, and the quality of its ecosystem and AI.
Jump to What It Means
The so-called “smart home” is far more than speakers, lights, and plugs these days. It extends to hubs, routers, printers, projectors, remote controls, security cameras, baby/pet monitors, pet feeders, dog collars, door locks, doorbells, garage doors, smoke/CO2 alarms, air quality monitors, air purifiers, thermostats, home energy management, ceiling fans, vents, air conditioners, leak detectors, solar panels, blinds, TVs, fridges, microwaves, cooktops, pressure cookers, slow cookers, sous vide, ovens, thermometers, mugs, blenders, coffeemakers, vacuum cleaners, sprinklers, outdoor hose faucets, rain/weather gauges, photo frames, home phones, electric fireplaces, clocks, mirrors, item trackers, wall decor, toys, gaming accessories, blood pressure monitors, sleep monitors, toilets, faucets, bathtubs, showers, home robots, and of course smartphones and tablets.
In short, if it’s meant for the home, there’s probably a “smart” version of it. There are even smart devices that will push a physical button based on a voice interaction. “Smart home” is somewhat of a misnomer since the same AI assistants also extend to vehicles (e.g. in-car assistant, vehicle diagnostics, oil gauges) and people using Alexa or Google Assistant on the go via their phones, watches, ear buds, glasses, and rings.
According to Canalys, the global market for smart speakers – a common interaction point for the smart home – grew 45% in Q3 2019, reaching 29M. More than 20% of shipments were smart displays, which grew 500% to 6.3M units in Q3 2019. While Amazon Alexa and Google Assistant are generally considered the leaders, Amazon appears to be increasing its lead against Google. In Q3 2019, Amazon shipped 10.4M smart speakers or 37% of the global market in terms of shipments, far exceeding Google’s 3.5M, which was just 12% of the market and saw a decline in absolute numbers vs. the prior year. Canalys attributes Amazon’s big jump during Q3 2019 (up 58% on the prior quarter, up 65% vs. the prior year) to the Echo Upgrade Program, a trade-in program that during Prime Day brought the price of a new Echo Show 5 down to as low as $2.49. In the US, Amazon’s installed base of smart speakers also continues to dominate with 100M+ Alexa-enabled devices sold so far and a 70% share (vs. 25% for Google Home and 5% for Apple).
The Chinese market is also booming, with now 35M households with smart speakers and 85% of non-owners expecting to buy one. In Q2 2019, the Chinese market had more than twice as many shipments as the US market. In Q3 2019, Alibaba and Baidu sold 3.9M and 3.7M smart speakers, respectively – each more than Google and enough to represent 13-14% of the global market in shipments (though the Chinese offerings are typically sold at a lower price point, for as little as $12). The battle in China is fierce, with Alibaba, Baidu and Xiaomi (who came in at 3.4M units in Q3 2019) often swapping places quarter over quarter. Baidu, which opened up its DuerOS platform to 3rd-party developers in 2017, is particularly notable with an installed base of 400M devices as well as 1,100+ skills. (DuerOS for Apollo, Baidu’s open-source autonomous vehicle platform, has 60+ partnerships with automakers across 300+ car models.) Other Chinese players such as Tencent, Huawei, and Mobvoi are also vying for position. The AI technology in the Chinese speakers, however, is reportedly still relatively nascent.
Microsoft has largely ceded the smart speaker market to other players, after a less than successful foray with the Harman Kardon Invoke and a Johnson Controls thermostat. It has its own virtual assistant Cortana, but Microsoft’s strategy is more focused on integrating Cortana into its own software products and partnering to extend Cortana’s reach elsewhere. Notably, it has partnered with Amazon to bring Cortana integration to Alexa-enabled devices, voice-activating with “Alexa, open Cortana,” as well as vice-versa. The partnership marries the leading AI assistant in the home with the AI assistant for the most popular desktop operating system (Microsoft claims 150M+ users for Cortana). Microsoft has been pulling back on putting Cortana in the hands of consumers as a standalone offering – for instance, recently signaling it will shut down its Cortana iOS and Android apps outside the US. Lately, Microsoft has been working on Cortana’s conversational AI to enable users to do work tasks like scheduling meetings and managing their To Do list more easily (via Microsoft products and partner integrations). Reports to date indicate that Cortana still lags Alexa and Google in capability.
The most likely up-and-coming contenders
While there are many companies and startups working to carve out space in the smart home (e.g. Linksys, Logitech, Sonos, Bose, LG, Zigbee, Ecobee, Hive, SimShine), few are likely to achieve the consumer-facing reach of Amazon Alexa and Google Assistant. The most likely contenders (besides the China-focused players) are Apple, Samsung and IKEA.
- Apple was early to the virtual assistant game with Siri but missed capitalizing on that lead, allowing Amazon Alexa and Google Assistant to move out front. Its 3rd-party smart-home ecosystem – a key focus area for the team it is currently hiring for – pales next to that of Google and Alexa, with just 450 Apple HomeKit-compatible devices vs. Google’s 10,000+ and Alexa’s 85,000+.
- In addition to its Siri virtual assistant, Apple has an array of compelling assets to leverage – the HomeKit smart-home platform (2014), native Home app (2016), SiriKit app integration with Siri (2016), and HomePod smart speaker (2018), not to mention a large global installed base of iPhones, iPads, Mac computers, Apple TV, Apple Watches, and AirPods headphones (with Apple Glasses to come).
- Apple’s services, apps and protocols will also likely serve as assets to be integrated in a smart-home play, especially given its emphasis on services over the past few years. Examples include AirPlay media-sharing, Apple Music, Apple News, Apple Maps, Weather, Podcasts, Apple Pay, Mail, Messages, Calendar, Contacts, Reminders, Notes, Find My, and iCloud. For instance, Apple plans on releasing secure storage on iCloud for security cameras – a major smart-home category – by end of 2019.
- Diversified consumer electronics giant Samsung Electronics ($200B+ revenue) holds significant positions in many sectors relevant to the smart home. It is the largest smartphone manufacturer, largest TV manufacturer, the #2 smartwatch maker, and a leading player in other home appliance categories such as refrigerators. Samsung has been investing in a “connected home” strategy since at least 2014, when it acquired connected-tech company SmartThings. Last year, it announced a $22B investment over 3 years in 4 growth areas including AI and 5G wireless.
- Samsung just announced at the 2019 Samsung Developer Conference that its SmartThings platform had passed 45M monthly active users. SmartThings allows users to control connected devices such as routers, sensors, fridges, and TVs from the cloud, through a centralized app. According to Samsung, 10M+ homes across 100+ countries are connected to SmartThings Cloud.
- Samsung’s SmartThings ecosystem encompasses 5,000+ devices from 100 manufacturers – including Google Assistant, Amazon Alexa, August, Yale, Schlage, Ecobee, Honeywell, Bose, Garmin watches, Apple Watch, and Leviton switches. These are expected to grow substantially in the coming months with Samsung’s new partner programs: Works as SmartThings Hub for OEMs (such as network operators) to integrate SmartThings software into their devices; the SmartThings Device SDK Beta program in 2020 for 3rd-party manufacturers looking to develop compatible devices; and Rules API, which helps developers create locally executed smart-home routines. Samsung also has an existing Works With SmartThings program that certifies devices that work with the Samsung ecosystem, though it plans on launching a new global certification program to fast-track devices to market. In parallel, Samsung is also building out its ecosystem of 100,000 developers, with a push towards helping them create and sell applications for Samsung devices.
- Samsung has been working to scale the ecosystem around its voice assistant Bixby since its 2017 launch. Bixby comes pre-installed across most of the Samsung product portfolio – including TVs, fridges, smartphones, smartwatches, and the coming Galaxy Home and Galaxy Home Mini smart speakers (currently in beta) – a total of 160M devices and in 8 languages. Bixby has 3 flavors – the Bixby Voice assistant, Bixby Vision for image recognition, and the Bixby Home activity stream.
- In late 2018, Samsung opened up Bixby to 3rd-party developers with the Bixby Developer Center, followed later by the Bixby Marketplace for 3rd-party apps (“capsules”) in the US and Korea. (There are only about 100 capsules on the marketplace so far.) Bixby Routines, announced earlier this year, can help learn user patterns and suggest automations for their life. More recently, at the developer conference a few weeks ago, it announced Bixby Templates to help make it easier to develop apps and Bixby Views for apps on visual surfaces.
- IKEA last month announced it was making its biggest investment in 22 years to become a leader in smart home tech, hiring software engineers at its hub in Sweden and potentially in the US and Asia in the future. Its current Home Smart line was originally launched in 2012 and expanded in 2015. The current Home Smart line is comprised of smart blinds, Symfonisk speakers (in partnership with Sonos), lighting, plugs and wireless charging. IKEA is planning on growing the line to incorporate new products such as air cleaners and air-purifying curtains. Earlier this year, it launched IKEA Home Smart (formerly under its Lighting division) as a separate business unit. IKEA also rebranded its connected-lighting TRÅDFRI app to IKEA Home Smart, with broader ambitions to make it a hub for control of the smart home.
- IKEA has been signaling a greater openness to ecosystem collaborations. Its Home Smart products are being designed to be compatible with Google Home, Amazon Alexa, and Apple HomeKit, though not all integrations will be available at the outset. IKEA’s smart lighting products also run on the Zigbee open standard for wireless home automation and are certified as Zigbee Light Link to be interoperable with other products in the Zigbee Alliance. It also has collaborations with Sonos, Xiaomi, and an extensive assortment of design collaborations ranging from Adidas to Lego Group.
- IKEA has been undertaking a broader digital transformation for the past few years. Initiatives have included turning space in its stores into distribution hubs for home delivery, rolling out small-format stores in urban centers, the IKEA Visa credit card with 5% rewards to encourage loyalty, furniture assembly through its TaskRabbit acquisition, and “furniture-as-a-service” subscriptions. In its most recent earnings, IKEA reported record sales driven by growth in ecommerce, with its Home Smart line demonstrating rapid growth from low levels.
Amazon and Google are not slowing down
Amazon, which leads the pack with 100,000+ Skills, just this year announced:
- Skills Blueprints, no-code templates that let anyone make their own Alexa app
- Alexa Skill Personalization, which helps developers provide personalized experiences
- Custom Interfaces, an API that allows developers to connect gadgets and smart toys with Alexa-enabled devices to create new interactions
- Native integration of Alexa into the Fitbit Versa 2 smartwatch
- Over a dozen new Alexa-integrated products – such as Echo Buds wireless earbuds, Echo Frames glasses, Echo Loop ring, Echo Studio high-end speaker, Ring Fetch pet tracker, Echo Glow night light, multifunction Amazon Smart Oven, among others
- Collaboration with the UK’s NHS to bring Alexa to patients, especially the elderly and blind
- Voice Interoperability Initiative with 30+ companies (though not Google, Apple, and Samsung) to work on device interoperability across multiple voice assistants
- The first Canadian Alexa accelerator, the Alexa Voice Tech Accelerator at the University of Waterloo
- New faster 2nd-generation version of Google Assistant, arriving first to Pixel phones
- Local Home SDK (software development kit), allowing developers to run their code locally on Google Home and Nest devices
- Stream Transfer, which enables transfer and continuous streaming of music, podcast, or YouTube video between compatible devices (e.g. Google Home, Nest smart speakers and displays, Chromecast-connected TVs) with voice command
- Home Routines giving users more flexibility to opt into useful routines suggested by Nest, built for themselves, or offered by partners
- Ambient mode for Android phones and tablets, turning them into “smart display” devices when docked
- Assignable Reminders that let households set task reminders for specific individuals
- Release of Android 10 which lets multiple apps that have certain privileges – such as Google Assistant – listen to the smartphone’s microphone at the same time
What It Means
At one point, smart home promised to be a winner-take-all market. The winner was going to be the one who had the most data about you and could leverage it to offer a contextual, personalized, ambient interface between you and all the services everyone else wanted to offer you. Now it seems like we’re steering towards a world where everyone opts into a few ecosystems – for instance, Amazon Alexa for at-home device control, Google Assistant for general questions, Samsung for smart appliances, and Apple to control the “inside iOS” ecosystem experience.
Whether a player will be among the winners will depend on whether it has a sticky foothold with end-users – e.g. ecommerce (Amazon), search (Google), home appliances (Samsung, IKEA), mobile (Apple, Google), business software (Microsoft) – and the quality of its ecosystem and AI. Amazon has the most extensive ecosystem, followed by Google, while Google has the most accurate AI and the best Q&A experience. These two are currently the clear frontrunners in the race for an “ambient AI.” The other players are working to catch up on both fronts but right now it’s looking unlikely. The most likely scenario is that the virtual-assistant players who are not Amazon or Google will vie for the larger niches such as home appliances, mobile experience, and business software.
While we’re calling these spaces “niches,” there is substantial upside for the players who can win them. For instance, if Samsung can find success with Bixby, it has the obvious potential gain from increased sales of electronics. It also has the possibility of additional revenue streams from Samsung Ads, Samsung Pay, and Samsung Apps, as well as new product lines that embed Bixby and increased loyalty from existing customers.
The mobile experience is an especially attractive opportunity, given how digital interactions (and ad spend) are moving there. Amazon’s main vulnerability is that it lacks a mobile position. Smartphones are the largest category of virtual-assistant devices, and Google’s Android and Apple iOS lead the mobile operating-system pack by a long shot. Both face challenges, however. Google’s control over the Android ecosystem has been loosening in response to regulatory activity, such as the EU’s antitrust decision and $5B fine that led to Google unbundling browser and search from Android in Europe. Apple, in contrast, has an incredible set of assets but hasn’t demonstrated that its AI can perform up to state-of-the-art standards. Its walled-garden approach and more stringent approval process for 3rd-party manufactured devices have also been limiting factors in extending its hardware ecosystem. On the other hand, Apple’s installed base isn’t going anywhere anytime soon, so it has some buffer as it works to catch up.
About a third of US households already have a smart speaker – a number likely to jump even higher in the Q4 2019 holiday season. With smart speakers now in the mainstream, we can also expect to see the continued expansion of “smart home.” While the term existed before Alexa’s 2014 release, it was the advent of smart speakers and AI-powered assistants that transformed the art of the possible. They sparked a new wave of connected technologies that have reached most electronic devices in the home, as well as the smartphone, the car (either natively integrated by the manufacturer or offered as an aftermarket bolt-on like the $50 Echo Auto), and on-the-go accessories such as smartwatches, ear buds, and even hearing aids. There are also more items such as IKEA’s Fyrtur blinds that are becoming electronic in order to enable smart-home control.
Smart displays comprise 20%+ of shipments and are the fastest-growing category of “smart speakers” – up 500% in the most recent quarter. These are requiring that AI assistant ecosystems offer developers new access and presentation language to build applications for smart displays. For instance, Google this year opened up its Smart Display platform (e.g. Nest Hub) to developers with the launch of the Interactive Canvas API to help them build Actions and games. Similarly, Amazon has the Alexa Presentation Language (APL) through two SDKs, Alexa Smart Screen and the TV SDK for Android. Smart displays open a new dimension of interaction between household residents and their AI, which has yet to be fully tapped. Visual display has the potential to change how users engage with, for instance, reminders, alerts, schedules, to-do lists, AI-powered games and learning, and how “human” (or animated character-like, for kids) the conversational AI may seem. It also opens up possibilities for those with hearing loss or for situations where sound is an issue (e.g. parents with napping infants).
While scale of the ecosystem can be meaningful for smaller players, we are moving past the point where the sheer number – beyond a certain level – offers a substantial edge. With 85,000+ devices in Alexa’s ecosystem vs. 10,000+ in Google’s, the more important differentiators are the quality of the partnerships and integrations. Do they connect devices that people already have in their homes? Do the integrations solve real problems for people? Is the experience magical or frustrating? The novelty of the first generation of virtual assistants has largely passed. Consumers are looking for technology that can answer everyday questions and solve everyday problems, while seamlessly fitting into their homes and lives – such as the new interactive fitness mirrors that are streaming classes and trainers into people’s homes while serving as “nearly invisible” full-length mirrors at other times. Right now, in contrast, interactions with smart speakers or other voice-assistant devices are still often stilted, frustrating and far from seamless. Setup of devices and automation systems can be frustrating as well – Amazon is trying to address the “ease of use” problem with the Alexa “Certified for Humans” testing program for devices.
It has driven the rise of a developer subculture and automation services industry dedicated to solving people’s problems – their own or others’. In one example described in the WSJ, a Jewish household spent $250,000 on a system custom-built by a home-automation services firm to adhere to Shabbat. The aging-in-place market – for seniors looking to stay in their home enabled by technologies – is another arena where people are looking to voice assistants for help with in-home care and chronic disease management. Brookdale Senior Living, one of the US’ largest senior-living operators, is exploring the use of voice assistants across its 80,000 residents and patients.
One aspect of problem-solving is the rise of features and services that let users create their own solutions – e.g. Alexa Routines and no-code Skills Blueprints, Google Home Routines and no-code Action Templates, Google’s Device Access for Individuals sandbox for developers, Bixby Routines. While some ecosystems are offering users routines suggested by AI or built by partners, they are increasingly realizing the challenges associated with serving the “long tail” of human needs and veering towards offering “do-it-yourself” tools rather than trying to solve every problem directly.
In seeking a better virtual-assistant experience for end-users, the respective ecosystems are offering developers greater access to personalization features and local execution on the device. Google Sign-In for Assistant and Alexa Skill Personalization, for instance, allow developers to build applications that access user preferences and context to offer a more personalized experience. Local execution can also enable a more responsive experience, even when offline, for areas and situations with poor connectivity – e.g. Amazon’s Local Voice Control, Google’s Local Home SDK, Samsung’s Rules API.
The growing power of voice assistants and expanding scope of the smart home is giving rise to concerns about potential hacking and security. Hackers and researchers have more incentive to invest in uncovering vulnerabilities, such as laser-powered “light commands” to smart devices, exposed wifi networks through smart doorbells, and smart locks triggered to unlock doors. Users are also concerned about the possibility of big tech employees listening in to voice assistants or watching their video footage. With the scrutiny of big tech over the past year, ecosystem owners are instituting greater controls over who can access the devices and how – e.g. Google’s Device Access controls for Nest, new user-controlled privacy preferences for Google Assistant and Amazon Alexa. A proposed Anti-Eavesdropping Bill in California would stop smart-speaker makers from storing or sharing recordings with outside parties without consent. Privacy and security is looking to be another front in the smart-home battle – one where Apple might have an advantage.
Disclosure: Contributors have investment interests in Microsoft. Amazon and Google are vendors of 6Pages.
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