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Google Blindsided Amazon on This One, Increasingly Important Front

James Brumley

Credit has to be given where it’s due … Amazon.com (NASDAQ:AMZN) has largely defined the current era of smart speakers. Although voice-activated assistants have been offered on some smartphones and newer computers, Amazon’s stand alone Echo has raised the bar to an impressively high level. Some Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) investors were expecting Google to take — and keep — that lead.

Nevertheless, current and prospective owners of GOOGL stock have good reason to cheer. Even without knowing exactly how or why its smart speakers are going to be leveraged into sales or profit growth, Alphabet just made a huge dent in Amazon’s dominance within the AI assistant market.

And it happened at a crucial time.

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GOOGL Is Catching Up

Technically speaking, Apple (NASDAQ:AAPL) got there first.

Apple unveiled Siri as an app in 2010, and then began integrating it into the iPhone, with the 4s, the following year. But, Siri wasn’t seen as the basis for a standalone device until well after other tech giants began making them. Neither was Cortana, from Microsoft (NASDAQ:MSFT), when it debuted in 2014. At the time, it was only meant to be a means of manipulating an OS’s features with greater ease.

Amazon saw the full potential of an artificial intelligence powered platform early on, however, launching the Alexa-powered Echo in mid-2014. It would be another two years until Google Home would launch, leveraging its Google Voice Search and then Google Now platforms into a competitive smart speaker.

That two-year gap allowed Amazon to develop a wide lead in this fast-growing market. During the third quarter of 2017, sales of the Amazon Echo accounted for nearly 75% of the global smart-speaker market. Google accounted for only a little less than one-fourth of smart-speaker sales.

Much has changed in the meantime. During the third quarter of last year, Amazon was the brand name behind just a tad under 32% of smart-speaker sales, while Google’s piece of the market wasn’t far behind at nearly 30%. Alibaba (NYSE:BABA) and Xiaomi, impressively enough, accounted for a fair amount of the remainder. Neither had an AI-powered digital assistant on the market a year earlier.

Installed User Base Is Still the Key

GOOGL shareholders don’t need to take a full victory lap just yet.

Although Google Home is now selling almost as well as Amazon’s Echo, Amazon’s unchecked early dominance means most of the smart-speakers still in use today are previous versions of the Echo. As of the middle of last year, industry research outfit CIRP believes 70% of smart speakers in use in the United States are powered by Amazon’s Alexa, with Google making up another 24%. Apple, late to the party, serves roughly 6% of the United States’ smart-speaker market.

The data is fuzzier when looking at the global numbers, though undoubtedly Xiaomi and Alibaba lower the relative size of both Amazon’s and Alphabet’s smart-speaker market share.

Nevertheless, to the extent it matters, GOOGL is making inroads at Amazon’s expense.

And that’s the core of the question at hand … to what extent does it matter?

Hardware sales count to be sure, but device sales aren’t apt to be viewed as the endgame for any of these organizations. The goal is to place a device in as many living rooms or bedrooms as possible that can readily connect those consumers with a data-gathering algorithm. That data, of course, will eventually be used to build a profile of said user and ultimately be used as a means of selling that individual or family more goods or services.


Bottom Line for GOOGL Stock

Turning consumer-specific information into revenue is anything but an exact science, to be fair.

Most companies understand that data is valuable, perhaps without even fully understanding how it may be effectively leveraged. Certainly repeat purchases are a flag to Amazon or Google that a consumer uses a given quantity of a consumable. But, it’s very likely that consumers are going to make repeat purchases on their own without any nudging from the company behind their hardware. The real power of information is driving revenue that may not have otherwise been driven. That’s the underlying importance of smart speakers.

To that end, the next philosophical question investors should be asking is which of these two companies can best monetize what is mostly arbitrary data?

It matters. Voicebot.ai expects that by 2022, voice-driven e-commerce will reach an annualized pace of $40 billion. That, however, may still only scratch the surface of what smart-speakers are capable of facilitating.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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