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Market Insight

Amazon's Alexa Expands Footprint with Cheaper Echo Dot and European Launch; Pre-emptive move in advance of Google Home's expected debut

September 15, 2016  | Subscribers Only

Paul Erickson Paul Erickson Senior Research Analyst, Service Provider Technology

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Amazon has announced a new version of the Echo Dot, its least-expensive Alexa-enabled connected speaker, with a price drop from $89.99 to $49.99. Along with the reduced price, the revision adds upgraded processing power and improved voice recognition. Amazon also announced bundle pricing specials for the Dot, in two varieties: a 6-pack (buy 5, get 2 free), and 12-pack (buy 10, get 2 free). Echo Dot will be released for sale to the public in the United States on October 20, 2016.

Amazon also announced that both the Dot and the original Echo would be launched online in the U.K. and Germany beginning September 28, 2016. The new Dot will go on sale in Europe on the same date it becomes available in the U.S.

Our Analysis

Amazon's release of the cheaper, updated Dot is a positive move, moving the affordability of the device firmly into impulse-purchase territory. This more-affordable release is essential, given that the high prices charged for the company's other connected speakers inhibit their mass-market adoption – the same mass market that Amazon seeks to penetrate to maximize Alexa's potential revenue generation via its e-commerce and streaming media businesses.

Dot is a relatively simple and inexpensive device, with the significant exception of its microphone array and related processing power that enables voice-based interaction with the Alexa virtual assistant. As the original Dot was essentially the microphone array-containing top of the original Echo in its own standalone form factor, the new Dot's cost and performance improvements indirectly imply that a newer, cheaper Echo -- incorporating the Dot's new internals -- will also soon be released on the market.

Releasing bulk-pack discounts for Dot is also a strong move by Amazon, leveraging its affordability to anchor Alexa in households as quickly and firmly as possible. It is a clear pre-emptive move in advance of Google Home's and, by extension, Google Assistant’s arrival into the market in the fourth quarter of 2016. Once Alexa-enabled equipment is in multiple rooms, investment in a different voice assistant-enabled product ecosystem is unlikely.

The U.K. and German launches of the Echo line are logical moves. Western Europe is a natural market for the product line due to Alexa's tight integration with Amazon's e-commerce platform. Amazon's Echo product family is expected to be launched only in countries where Amazon possesses substantial presence, including the following: a country-specific Amazon portal; pre-existing Amazon service and delivery infrastructure; and pre-existing relationships with local merchants, content owners, and media properties. Doing so maximizes Alexa's potential abilities as a virtual assistant – and also maximizes Alexa's ability to generate revenue for Amazon.

Unlike Alexa, Google Assistant’s potential geographic reach is extensive, thanks to Google’s existing support for more than 50 languages for voice search, versus just three for Amazon's Alexa. There is no in-house direct e-commerce business that geographically limits the markets in which the Google Assistant platform can be deployed. Google Assistant builds on the established multi-lingual, multi-market capabilities of Google Now.

Amazon's Echo-Alexa combination is the first mover and frontrunner in a market that thus far has had no real competition, so it is not surprising that the Alexa platform has garnered impressive momentum among early adopters, technophiles, and Amazon Prime members. The real test will come, once players with more substantial ecosystems than Amazon's enter the market.

Amazon's launch of the new Dot, rollout of bulk-pack discounts, and geographic expansion of the Echo family can be collectively viewed as a deliberate attempt to entrench Alexa as deeply as possible, before Google's entry into the market -- an attack, with Google Home as the vanguard, clearing the way for multiple vendors fielding the Google Assistant banner on various form factors at multiple price points.

IHS Markit forecasts that thanks to the expected entry of Google and other players beginning in the fourth quarter of this year, the smart speaker category will grow from annual shipments of 1.26 million units in 2016, to nearly 8.7 million units in 2020.
 

Our Analysis

Amazon's release of the cheaper, updated Dot is a positive move, moving the affordability of the device firmly into impulse-purchase territory. This more-affordable release is essential, given that the high prices charged for the company's other connected speakers inhibit their mass-market adoption – the same mass market that Amazon seeks to penetrate to maximize Alexa's potential revenue generation via its e-commerce and streaming media businesses.

Dot is a relatively simple and inexpensive device, with the significant exception of its microphone array and related processing power that enables voice-based interaction with the Alexa virtual assistant. As the original Dot was essentially the microphone array-containing top of the original Echo in its own standalone form factor, the new Dot's cost and performance improvements indirectly imply that a newer, cheaper Echo -- incorporating the Dot's new internals -- will also soon be released on the market.

Releasing bulk-pack discounts for Dot is also a strong move by Amazon, leveraging its affordability to anchor Alexa in households as quickly and firmly as possible. It is a clear pre-emptive move in advance of Google Home's and, by extension, Google Assistant’s arrival into the market in the fourth quarter of 2016. Once Alexa-enabled equipment is in multiple rooms, investment in a different voice assistant-enabled product ecosystem is unlikely.

The U.K. and German launches of the Echo line are logical moves. Western Europe is a natural market for the product line due to Alexa's tight integration with Amazon's e-commerce platform. Amazon's Echo product family is expected to be launched only in countries where Amazon possesses substantial presence, including the following: a country-specific Amazon portal; pre-existing Amazon service and delivery infrastructure; and pre-existing relationships with local merchants, content owners, and media properties. Doing so maximizes Alexa's potential abilities as a virtual assistant – and also maximizes Alexa's ability to generate revenue for Amazon.

Unlike Alexa, Google Assistant’s potential geographic reach is extensive, thanks to Google’s existing support for more than 50 languages for voice search, versus just three for Amazon's Alexa. There is no in-house direct e-commerce business that geographically limits the markets in which the Google Assistant platform can be deployed. Google Assistant builds on the established multi-lingual, multi-market capabilities of Google Now.

Amazon's Echo-Alexa combination is the first mover and frontrunner in a market that thus far has had no real competition, so it is not surprising that the Alexa platform has garnered impressive momentum among early adopters, technophiles, and Amazon Prime members. The real test will come, once players with more substantial ecosystems than Amazon's enter the market.

Amazon's launch of the new Dot, rollout of bulk-pack discounts, and geographic expansion of the Echo family can be collectively viewed as a deliberate attempt to entrench Alexa as deeply as possible, before Google's entry into the market -- an attack, with Google Home as the vanguard, clearing the way for multiple vendors fielding the Google Assistant banner on various form factors at multiple price points.

IHS Markit forecasts that thanks to the expected entry of Google and other players beginning in the fourth quarter of this year, the smart speaker category will grow from annual shipments of 1.26 million units in 2016, to nearly 8.7 million units in 2020.
 

Our Analysis

Amazon's release of the cheaper, updated Dot is a positive move, moving the affordability of the device firmly into impulse-purchase territory. This more-affordable release is essential, given that the high prices charged for the company's other connected speakers inhibit their mass-market adoption – the same mass market that Amazon seeks to penetrate to maximize Alexa's potential revenue generation via its e-commerce and streaming media businesses.

Dot is a relatively simple and inexpensive device, with the significant exception of its microphone array and related processing power that enables voice-based interaction with the Alexa virtual assistant. As the original Dot was essentially the microphone array-containing top of the original Echo in its own standalone form factor, the new Dot's cost and performance improvements indirectly imply that a newer, cheaper Echo -- incorporating the Dot's new internals -- will also soon be released on the market.

Releasing bulk-pack discounts for Dot is also a strong move by Amazon, leveraging its affordability to anchor Alexa in households as quickly and firmly as possible. It is a clear pre-emptive move in advance of Google Home's and, by extension, Google Assistant’s arrival into the market in the fourth quarter of 2016. Once Alexa-enabled equipment is in multiple rooms, investment in a different voice assistant-enabled product ecosystem is unlikely.

The U.K. and German launches of the Echo line are logical moves. Western Europe is a natural market for the product line due to Alexa's tight integration with Amazon's e-commerce platform. Amazon's Echo product family is expected to be launched only in countries where Amazon possesses substantial presence, including the following: a country-specific Amazon portal; pre-existing Amazon service and delivery infrastructure; and pre-existing relationships with local merchants, content owners, and media properties. Doing so maximizes Alexa's potential abilities as a virtual assistant – and also maximizes Alexa's ability to generate revenue for Amazon.

Unlike Alexa, Google Assistant’s potential geographic reach is extensive, thanks to Google’s existing support for more than 50 languages for voice search, versus just three for Amazon's Alexa. There is no in-house direct e-commerce business that geographically limits the markets in which the Google Assistant platform can be deployed. Google Assistant builds on the established multi-lingual, multi-market capabilities of Google Now.

Amazon's Echo-Alexa combination is the first mover and frontrunner in a market that thus far has had no real competition, so it is not surprising that the Alexa platform has garnered impressive momentum among early adopters, technophiles, and Amazon Prime members. The real test will come, once players with more substantial ecosystems than Amazon's enter the market.

Amazon's launch of the new Dot, rollout of bulk-pack discounts, and geographic expansion of the Echo family can be collectively viewed as a deliberate attempt to entrench Alexa as deeply as possible, before Google's entry into the market -- an attack, with Google Home as the vanguard, clearing the way for multiple vendors fielding the Google Assistant banner on various form factors at multiple price points.

IHS Markit forecasts that thanks to the expected entry of Google and other players beginning in the fourth quarter of this year, the smart speaker category will grow from annual shipments of 1.26 million units in 2016, to nearly 8.7 million units in 2020.
 

Organization
Amazon Google Inc.
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