by Adam Hartung | May 8, 2018 | Computing, Growth Stall, Innovation, Investing, Software, Trends, Web/Tech
One in five American homes with wifi now has an Amazon Alexa. And the acceptance rate is growing. To me that seems remarkable. I remember when we feared Google keeping all those searches we did. Then the fears people seemed to have about Facebook knowing our friends, families and what we talked about. Now it appears that people have no fear of “big brother” as they rapidly adopt a technology into their homes which can hear pretty near everything that is said, or that happens.
It goes to show that for most people, convenience is still incredibly important. Give us mobile phones and we let land-lines go, because mobile is so convenient – even if more expensive and lower quality. Give us laptops we let go of the traditional office, taking our work everywhere, even at a loss of work-life balance. Give us e-commerce and we start letting retailers keep our credit card information, even if it threatens our credit security. Give us digital documents via Kindle, or a smart device on the web grabbing short articles and pdf files, and we get rid of paper books and magazines. Give us streaming and we let go of physical entertainment platforms, choosing to download movies for one-time use, even though we once thought “owning” our entertainment was important.
With each new technology we make the trade-off between convenience and something we formerly thought was important. Such as quality, price, face-to-face communications, shopping in a store, owning a book or our entertainment – and even security and privacy. For all the hubbub that regulators, politicians and the “old guard” throws up about how important these things were, it did not take long for these factors to not matter as convenience outweighed what we used to think we wanted.
Now, voice activation is becoming radically important. With Google Assistant and Alexa we no longer have to bother with a keyboard interface (who wants to type?) or even a small keypad – we can just talk to our smart device. There is no doubt that is convenient. Especially when that device learns from what we say (using augmented intelligence) so it increasingly is able to accurately respond to our needs with minimal commands. Yes, this device is invading our homes, our workplaces and our lives – but it is increasingly clear that for the convenience offered we will make that trade-off. And thus what Alexa can do (measured in number of skills) has grown from zero to over 45,000 in just under 3 years.
And now, Amazon is going to explode the things Alexa can do for us. Historically Amazon controlled Alexa’s Skills market, allowing very few companies to make money off Alexa transactions. But going forward Amazon is monetizing Alexa, and developers can keep 70% of the in-skill purchase revenues customers make. Buy a product or service via Alexa and developers can now make a lot of money. And, simultaneously, Amazon is offering a “code-free” skills developer, expanding the group of people who can write skills in just minutes. In other words, Amazon is setting off a gold rush for Alexa skills development, while simultaneously making the products remarkably cheap to own.
This is horrible news for Apple. Apple’s revenue stagnated in 2016, declining year over year for 3 consecutive quarters. I warned folks then that this was a Growth Stall, which often implies a gap is developing between the company and the market. While Apple revenues have recovered, we can now see that gap. Apple still relies on iPhone and iPad sales, coupled with the stuff people buy from iTunes, for most of its revenue and growth. But many analysts think smartphone sales may have peaked. And while focusing on that core, Apple has NOT invested heavily in Siri, its voice platform. Today, Siri lags all other voice platforms in quality of recognition, quality of understanding, and number of services. And Apple’s smart speaker sales are a drop in the ocean of Amazon Echo and Echo Dot sales.
By all indications the market for a lot of what we use our mobile devices for is shifting to voice interactivity. And Apple is far behind the leader Amazon, and the strong #2 Google. Even Microsoft’s Cortana quality is considered significantly better than Siri. If this market moves as fast as the smartphone market grew it will rob sales of smartphones and iTunes, and Apple could be in a lot of trouble faster than most people think. Relevancy is a currency quickly lost in the competitive personal technology business.
by Adam Hartung | Jul 14, 2017 | In the Rapids, Innovation, Marketing
Amazon just had another record Prime Day, with sales up 60%. And the #1 product sold was Amazon’s Echo Dot speaker. At $34.99 it surpassed last year’s unit sales by seven-fold. And the traditional Echo speaker, marked down 50% to $90, broke all previous sales records.
Amazon just took a commanding lead in the voice assistant platform market
These Echo sales most likely sealed Amazon’s long-term leadership in the war to be the #1 voice assistant. Amazon already has 70% market share in voice activated speakers, nearly 3 times #2 provider Google. And all other vendors in total barely have 5% share.
While it may seem like digital speakers are no big deal, speaker sales are analogous to iPhone sales when evaluating the emergence of smartphones and apps. The iPhone seemed like a small segment until it became clear smartphones were the new personal technology platform. Apple’s early lead allowed iOS to dominate the growth cycle, making the company intensely profitable.
Echo and Echo Dot aren’t just speakers, but interfaces to voice activated virtual assistants. For Echo the platform is Amazon’s Alexa. Alexa is to voice activated devices and applications what iOS was to Smartphones. By talking to Alexa customers are able to do many things, such as shopping, altering their thermostats, opening and closing doors, raising and lowering blinds, recording people in their homes — the list is endless. And as that list grows customers are buying more Alexa devices to gain greater productivity and enhanced lifestyle. Echos are entering more homes, and multiplying across rooms in these homes.
Do you remember when early iPhone ads touted “there’s an app for that?” That tagline told customers if they changed from a standard mobile phone to a smartphone there were a lot of advantages, measured by the number of available apps. Just like iOS apps gave an advantage to owning an iPhone, Alexa skills give an advantage to owning Echo products. In the last year the number of skills available for Alexa has exploded, growing from 135 to 15,000. Quite obviously developers are building on Alexa much faster than any other voice assistant.
By radically cutting the price of both Echo Dot and Echo, and promoting sales, Amazon is creating an installed base of units which encourages developers to write even more skills/apps.
The more Alexa devices are installed, the more likely developers will write additional skills for Alexa. As more devices lead to more skills, skills leads to more Alexa/Echo capability, which encourages more people to buy Alexa activated devices, which further encourages even more skills development. It’s a virtuous circle of goodness, all leading to more Amazon growth.
For marketers it is important to realize that success really doesn’t correlate with how “good” Alexa works. Google’s Assistant and Microsoft’s Cortana perform better at voice recognition and providing appropriate responses than Alexa and Siri. But there are relatively few (almost no) devices in the marketplace built with Assistant or Cortana as the interface. Developers need their skills/apps to be on platforms customers use. If customers are buying speakers, thermostats and televisions that are embedded with Alexa, then developers will write for Alexa. Even if it has shortcomings. It’s not the product quality that determines the winner, but rather the ability to create a base of users.
It is genius for Amazon to promote Echo and Echo Dot, selling both cheaper than any other voice activated speaker. Even if Amazon is making almost no profit on device sales. By using their retail clout to build an Alexa base they make the decision to create skills for Alexa easy for developers.
It is genius for Amazon to promote Echo and Echo Dot, selling both cheaper than any other voice activated speaker. Even if Amazon is making almost no profit on device sales. By using their retail clout to build an Alexa base they make the decision to create skills for Alexa easy for developers.
This is a horrible problem for Google, #2 in this market, because Google does not have the retail clout to place millions of their speakers (and other devices) in the market. Google is not a device company, nor a powerful retailer of Android devices. The Android device makers need to profit from their devices, so they cannot afford to sell devices unprofitably in order to build an installed base for Google. And because Android’s platform is not applied consistently across device manufacturers, Google Assistant skills cannot be assured of operating on every Android phone. All of which makes the decision to build Google Assistant skills problematic for developers.
Can Apple Stop the Alexa juggernaut?
The game is not over. Apple would like customers to use Siri on their iPhones to accomplish what Amazon and Alexa do with Echo. Apple has an enormous iPhone base, and all have Siri embedded. Perhaps Apple can encourage developers to create Siri-integrated apps which will beat back the Amazon onslaught?
Today, Apple customers still cannot use Siri to control their Apple TV (Though as of August, 2017, it’s been improved.), or make payments with ApplePay, for example. Nor can iPhone users tell Siri to execute commands for remote systems which are controlled by apps, like unlocking doors, turning on appliances, shooting remote security video or placing an on-line order. Apple has a lot of devices, and apps, but so far Siri is not integrated in a way that allows voice activation like can be done with Alexa.
Additionally, as big as the iPhone installed base has become, when comparing markets the actual raw number of speakers could catch up with iPhones. Echo Dot is $35. The cheapest iPhone is the SE, at $399 (on the Apple site although available from Best Buy at $160.) And an iPhone 7 starts at $650. The huge untapped Apple markets, such as China and India, will find it a lot easier to purchase low cost speakers than iPhones, especially if their focus is to use some of those 15,000 skills. And because of the low pricing ($35 to $90) it is easy to buy multiple devices for multiple locations in one’s home or office.
Will we look back and call Echo a Disruptive Innovation?
Innovator’s Dilemma
Recall the wisdom of Clayton Christensen‘s “Innovator’s Dilemma.” The incumbent keeps improving their product, hoping to maintain a capability lead over the competition. But eventually the incumbent far overshoots customer needs, developing a product that is overly enhanced. The disruptive innovator enters the market with a considerably “less good” product, but it meets customer needs at a much lower price. People buy the cheaper product to meet their limited goal, and bypass the more capable but more expensive early market leader.
Doesn’t this sound remarkably similar to the development of iPhones (now on version 8 and expected to sell at over $1,000) compared with a $35 speaker that is far less capable, but still does 15,000 interesting things?
The biggest loser in this new market is Microsoft
This week Microsoft announced another 1,500 layoffs in what has become an annual bloodletting ritual for the PC software giant. But even worse was the announcement that Microsoft would no longer support any version of Windows Phone OS version 8.1 or older – which is 80% of the Windows Phone market. Given that Microsoft has less than 2% market share, and that less than .4% of the installed smartphone base operates on Windows Phone, killing support for these phones will lead to sales declines. This action, along with gutting the internal developer team last year, clearly indicates Microsoft has given up on the phone business for good. This means that now Microsoft has no device platform for Cortana, Microsoft’s voice assistant, to use.
Microsoft ignored smartphones, allowing Apple’s iOS to become the early standard. Apple rapidly grew its installed base. Microsoft could not convince developers to write for Windows Phone because there weren’t enough devices in the market. Without a phone base, with tablet and hybrid sales flat to declining, and with PC sales in the gutter Cortana enters the market DOA (Dead On Arrival.) Even if it were the best voice assistant on the planet developers will not create skills for Cortana because there are no devices out there using Cortana as the interface.
So Microsoft completely missed yet another market. This time the market for voice activated devices in the smart phone, smart car or any other smart device in the IoT marketplace. It missed mobile, and now it has missed voice assist. As PC sales decline, Microsoft’s only hope is to somehow emerge a big winner in cloud storage and services (IaaS or Infrastructure as a Service) with Azure. But, Azure was a late-comer to the cloud market and is far behind Amazon’s AWS (Amazon Web Services.) Amazon has +40% market share, which is 40% more than the share of Microsoft, Google and IBM combined.
Build the base and developers will come…
by Adam Hartung | Sep 19, 2013 | Current Affairs, In the Swamp, Innovation, Leadership, Television, Web/Tech
Apple announced the new iPhones recently. And mostly, nobody cared.
Remember when users waited anxiously for new products from Apple? Even the media became addicted to a new round of Apple products every few months. Apple announcements seemed a sure-fire way to excite folks with new possibilities for getting things done in a fast changing world.
But the new iPhones, and the underlying new iPhone software called iOS7, has almost nobody excited.
Instead of the product launches speaking for themselves, the CEO (Tim Cook) and his top product development lieutenants (Jony Ive and Craig Federighi) have been making the media rounds at BloombergBusinessWeek and USAToday telling us that Apple is still a really innovative place. Unfortunately, their words aren't that convincing. Not nearly as convincing as former product launches.
CEO Cook is trying to convince us that Apple's big loss of market share should not be troubling. iPhone owners still use their smartphones more than Android owners, and that's all we should care about. Unfortunately, Apple profits come from unit sales (and app sales) rather than minutes used. So the chronic share loss is quite concerning.
Especially since unit sales are now growing barely in single digits, and revenue growth quarter-over-quarter, which sailed through 2012 in the 50-75% range, have suddenly gone completely flat (less than 1% last quarter.) And margins have plunged from nearly 50% to about 35% – more like 2009 (and briefly in 2010) than what investors had grown accustomed to during Apple's great value rise. The numbers do not align with executive optimism.
For industry aficianados iOS7 is a big deal. Forbes Haydn Shaughnessy does a great job of laying out why Apple will benefit from giving its ecosystem of suppliers a new operating system on which to build enhanced features and functionality. Such product updates will keep many developers writing for the iOS devices, and keep the battle tight with Samsung and others using Google's Android OS while making it ever more difficult for Microsoft to gain Windows8 traction in mobile.
And that is good for Apple. It insures ongoing sales, and ongoing profits. In the slog-through-the-tech-trench-warfare Apple is continuing to bring new guns to the battle, making sure it doesn't get blown up.
But that isn't why Apple became the most valuable publicly traded company in America.
We became addicted to a company that brought us things which were great, even when we didn't know we wanted them – much less think we needed them. We were happy with CDs and Walkmen until we discovered much smaller, lighter iPods and 99cent iTunes. We were happy with our Blackberries until we learned the great benefits of apps, and all the things we could do with a simple smartphone. We were happy working on laptops until we discovered smaller, lighter tablets could accomplish almost everything we couldn't do on our iPhone, while keeping us 24×7 connected to the cloud (that we didn't even know or care about before,) allowing us to leave the laptop at the office.
Now we hear about upgrades. A better operating system (sort of sounds like Microsoft talking, to be honest.) Great for hard core techies, but what do users care? A better Siri; which we aren't yet sure we really like, or trust. A new fingerprint reader which may be better security, but leaves us wondering if it will have Siri-like problems actually working. New cheaper color cases – which don't matter at all unless you are trying to downgrade your product (sounds sort of like P&G trying to convince us that cheaper, less good "Basic" Bounty was an innovation.)
More (upgrades) Better (voice interface, camera capability, security) and Cheaper (plastic cases) is not innovation. It is defending and extending your past success. There's nothing wrong with that, but it doesn't excite us. And it doesn't make your brand something people can't live without. And, while it keeps the battle for sales going, it doesn't grow your margin, or dramatically grow your sales (it has declining marginal returns, in fact.)
And it won't get your stock price from $450-$475/share back to $700.
We all know what we want from Apple. We long for the days when the old CEO would have said "You like Google Glass? Look at this……. This will change the way you work forever!!"
We've been waiting for an Apple TV that let's us bypass clunky remote controls, rapidly find favorite shows and helps us avoid unwanted ads and clutter. But we've been getting a tease of Dick Tracy-esque smart watches.
From the world's #1 tech brand (in market cap – and probably user opinion) we want something disruptive! Something that changes the game on old companies we less than love like Comcast and DirecTV. Something that helps us get rid of annoying problems like expensive and bad electric service, or routers in our basements and bedrooms, or navigation devices in our cars, or thumb drives hooked up to our flat screen TVs —- or doctor visits. We want something Game Changing!
Apple's new CEO seems to be great at the Sustaining Innovation game. And that pretty much assures Apple of at least a few more years of nicely profitable sales. But it won't keep Apple on top of the tech, or market cap, heap. For that Apple needs to bring the market something big. We've waited 2 years, which is an eternity in tech and financial markets. If something doesn't happen soon, Apple investors deserve to be worried, and wary.
