by Blake Kozak
After less than a decade of existence, the smart speaker market is already mature. But unless smart speakers are released with services or features that bridge industries, they risk becoming the next digital photo frame.
Since the first smart speaker hit the market in 2014, these devices have promised experiences that could never be achieved with a smartphone alone. Voice was the new user interface. And for the next six years, this would be mostly true as smart speakers aimed to supplant, or at least complement, the usage of smartphones, PCs, and laptops inside the home. As it turned out, smart speakers were fun and interesting content providers that talked to people, played games and music, and, as the smart home grew, controlled devices like smart lights. But smart speakers now need to evolve.
The evolution from voice to services
Consumers, for the most part, still use smart speakers for the features listed above. But while natural language processing (NLP) has improved over the years, we are still many years away from emotional and contextual conversations with our in-home AI.
So, to fill the void, brands like Amazon and Google are looking to go beyond parlor tricks and provide paid services attached to smart speakers, such as sleep tracking, security, and senior care. And now that smart speakers are in almost three out of every five U.S. homes, it’s a good time to switch strategies. Instead of selling boxes, it’s time to sell services.
Plus, the overall smart speaker market has peaked. Globally there were 56 smart speakers introduced to the market in 2019, but only 33 in 2021. Another sign is that brands that embedded voice assistants into their smart speakers — like Sonos, Bose, JBL, and Harman — haven’t introduced new products with integrated voice assistants in nearly three years.
It may be a difficult time to introduce paid content and services for smart speakers. Other subscription services, such as Netflix, are experiencing an exodus. In its latest earnings report, Netflix said it lost 200,000 subscribers in the first three months of the year and is expected to lose up to 2 million subscribers during the second quarter. CNN+, meanwhile, never even made it off the ground. It’s also easy for hard-pressed consumers to cancel a streaming service or other form of discretionary spending. And an average U.S. household currently has seven streaming subscriptions!
Security services, on the other hand, have been notoriously resilient. For the last few decades, the number of U.S. households with paid professional alarm monitoring has remained at a steady 25%-30%, even despite the rise in DIY systems that are mostly free. Amazon has already taken advantage of this, starting in 2020, with Alexa Guard. And once smart speaker brands became able to identify sounds, like breaking glass or smoke detector sirens, Amazon in September 2020 started charging $4.99 a month for Guard Plus, which offers notifications.
For senior care, Amazon in December 2021 replaced the free Alexa Care Hub with a new paid subscription service called Alexa Together. This premium service costs $19.99 a month, and includes access to a professional emergency helpline and fall detection with proactive emergency support.
Wellness services delivered via smart speakers are also on the horizon. Google announced sleep tracking via its Soli chip in its latest Nest Hub, in early 2021. While Google says it aims to focus on sleep duration as well as consistency and quality of sleep using a combination of radar and microphones, in 2023, the company is expected to roll Sleep Sensing into Fitbit Premium, which costs $10 per month.
Will consumers spend on services?
Paid services are the holy grail for smart speakers, but will they succeed? Once consumers start paying for services delivered via a smart speaker, these devices will become content carriers. Which will be different from consumers’ original expectations of smart speakers as fun providers of free content detached from paid applications.
What a viable business model looks like, and how to get advertising and paid services on smart speakers, remains unclear, but as more speakers are replaced with smart displays, the opportunities for brands become more obvious. For instance, advertising on a display could be interpreted by consumers as less invasive relative to advertisements at the tail end of a response from Google or Amazon, and developers could create shopping experiences on a display, like Instagram does. Netflix and other streamers are already adding service tiers with advertising to serve hard-pressed households.
At first, smart speaker services will continue to rely on security and peace of mind, but will morph quickly into health monitoring and senior services. Smart speakers will also become part of an omnichannel approach for care provided by hospitals and physicians. Chatbots and SMS communications are already popular, but smart speakers could introduce a new level of service. To be sure, there is a macro trend in health care to provide services outside of the traditional clinical environment, which is creating a strong tailwind for devices in the home like smart speakers and other IoT devices. In the longer term, as AI assistants aggregate more data, their makers could then offer insurance, fintech, transcription, art creation (NLG), and other services that are highly personalized based on vast amounts of shared data across ecosystems.
Among the questions that remain are: Will consumers allow — and trust — smart speakers to become more than fun and free content providers? If so, will the offered services be updatable and sustainable over the long term? And will consumers see the benefit of them? Finally, as competition for a portion of a consumer’s subscription budget increases, will there be enough left over for the smart speaker market?
If the answer to any of these questions is no, then I believe smart speakers risk becoming the new digital photo frames, which are low touchpoint devices with a single purpose. Digital photo frames don’t link consumers to other ecosystem services or feed data to machine learning algorithms. Nor do they lead to lucrative opportunities with other industries like health care, automotive, hospitality, and education.
Blake Kozak is a smart home analyst at Omdia.
I do not want services from Alexa other than music, and they keep messing with music I can get free with Prime. Every time the device says “By the way…” and tries to sell me something, I’m tempted to throw it across the room. K.I.S.S.!
I have to respectfully disagree. Smart speakers have reached their maturity and perfection. Their only logical move is to be come less intrusive. The round balls are more pleasing to look at than the Pringle’s can on the shelf.
They can be matched with all our favorite audio sources. Nothing like Apple Music on an Amazon Echo or Google Home.
They can control just about any smart home device. Between this years model and the last two or three generations we can place our AI overlords in every room of the house. Need to remember detergent starting that next load of laundry? no problem that old 2nd Gen dot is right there to hear you add it to your list.
I have a box of assorted digital frames that havent been used because they were replace by Smart Speakers with Displays long after they were last used.
I don’t think smart speakers have anything to fear other than being handed down eventually to the friend or family member who won’t use them. Its a Toy Story nightmare, instead of being sent to the nursery school, Alexa ends up in a troglodytes home.
CNN+? Did anyone really think people would want to pay for a subscription to television news?
I largely agree with @LawrenceK. Smart speakers do what they do very well and they have very high levels of customer satisfaction. Something may eventually come along that displaces them, but it’s not here yet. And they don’t need to change what they’re doing because they are already being sold at a profit.
No question that the manufacturers will explore additional lines of revenue, why not? But they don’t have to, and nobody’s going to throw away a smart speaker who’s happy with the one they have now. And most people are happy.
It is the fact that people are happy with the smart speakers that they have now that has been driving the entire Matter initiative, to make sure that any smart device someone buys will work with whatever smart speaker they happen to prefer.
Smart speakers could unquestionably get better at what they are doing now. Better voice recognition, better identification of individual users, more services, both free and paid, for those who want them. And so far that’s happening. But they don’t need to morph into something else to keep the customer base they already have.
Netflix membership numbers are really skewed by the impact of the pandemic, so they don’t really apply to most other businesses. And as for CNN plus, that decision was because of the acquisition by discovery, which had an entirely different business model in mind. The new owners don’t want to chop up things into individual paid offerings, they want an all in one streaming service with channels inside of it. So that one was just bad timing impacted by the acquisition, again, not something that will apply to many other businesses.
Also, the article fails to mention the marketplace for third party paid Alexa skills. Sure, a lot are free to the user: but there’s also a whole category of paid and subscription skills, and Amazon takes a cut of every sale. It’s like an App Store model. Some reports indicate that Amazon is already making about $500 million a year in profit from its cut of paid Alexa skills. Some are for entertainment, a fair number are for education including homeschooling, and another popular category is for health. You can already pay $4.99 to get a Samuel L Jackson voice for your echo. $8/month for Song Quiz. Or $75 for a Teladoc visit. These skills have been around for several years, there’s nothing new. but it’s easy money for Amazon.
On top of that, people with a smart speaker are buying more audiobooks and music than people without, another easy source of revenue, for both Amazon and Apple.
So even if the smart speaker market is already mature, it’s also already profitable. I have no doubt that there will be additional services added overtime, but the current business model is already working.
Submitted with respect.