The smart speaker has become the cornerstone of many smart home setups, but as the economy slows, that vision may be in jeopardy.
Smart speaker leaders Amazon and Google, which together account for more than 90% of the US smart speaker market, according to CIRP data shared with us, have faced challenges in recent months. And according to IDC, the all-too-familiar tangle of inflation and supply chain issues caused worldwide shipments of smart home devices to drop an estimated 2.6% to 874 million units last year.
“While smart speakers have arguably helped launch the smart-home category, the luster on these products has largely faded for consumers in developed markets such as the United States and China, with shipments expected to decline over the long term, Jitesh Ubrani, research manager at IDC, said in a release about the research. “Smart speakers will now depend on emerging markets and places like Europe where language and lack of services have historically been barriers to adoption.”
Ultimately, analysts told us that the drop could only be a temporary setback, noting that decisions by major players like Amazon to cut related jobs and projects are part of the market’s overall response to pandemic-induced overload. For its part, IDC forecasts that the global market will return to growth in 2023 after last year’s decline, with shipments expected to rise 4.6% this year.
“It’s really the economic environment that’s driving this moment,” Jordan Marlatt, a technical analyst at Morning Consult, told me. “And with that, I think it’s temporary. We’re not going to see what happens now in terms of their decisions to invest less or be more cognizant of the cost of innovation and research and development in this space, sustain at that level for the next 10 or 15 years caution.”
Lose their voice?
When Amazon announced company-wide layoffs in November 2022, one division was reportedly hit particularly hard: Alexa.
Amazon, which dominates the US smart speaker market, is also reportedly on track to lose “about $10 billion in Alexa and other devices by 2022 alone,” according to Insider.
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But Amazon isn’t the only tech company that seems to be shrinking its voice assistant ambitions. Google is reportedly scaling back its investment in Google Assistant for “devices not made by Google,” according to The Information. And in 2021, Microsoft removed its own voice assistant app, Cortana, from iOS and Android devices.
Adam Wright, research manager for IDC’s home and office smart devices program, said “the smart speaker market will go through a period of correction.”
“The huge, huge number of smart speakers sold over the last three or four years means we’re at a saturation point,” Wright told us. “Most households that would be interested in one of these already have at least one, if not two, three, four, five.”
Marlatt said companies like Amazon and Google may be trying to change the monetization strategy around their voice assistants, which has traditionally focused on serving ads or encouraging shopping through the voice assistant. He said companies may need to focus on less hardware or consider raising the prices of speakers that are currently selling at a loss.
“If they can position Amazon Echo devices more as the heart of the smart home and boost sales of other devices, they will cover their own costs and make a profit [on], then they can multiply their earnings that way,” Marlatt said. “It’s much more of a hardware game than it adds to the shopping experience.”
According to Anshika Jain, senior analyst at Counterpoint Research, many features of smart speakers could eventually be replaced by other devices such as smart TVs.
“There are other smart-home products, which you basically use as a gateway device or remote control,” Jain told us. “Smart speakers are used to control your other smart home products, but now that functionality can be done with your mobile device itself. You just give it a command and you can directly control that other smart home product via various apps that are already there.”