Amazon’s Echo Strategy

I have read over the Internet that some pundits are estimating that Amazon sold tens of millions of Echo devices – much more than their closest rival, Google’s Home.

Impressive as this may sound, it is not the first time that Amazon has used a strategy of dumping a cheap/subsidised device onto the market with the goal of winning market share early on in the game. The original Kindle Fire tablet that was introduced in 2011 shared the same strategy and was also a hit during the holiday shopping season, topping Amazon’s best seller charts as well. The Kindle Fire never became dominant though.

The lesson that I would learn from this is that flooding the market early on with cheap devices will not win you a strong position for the future. The tech market constantly evolves and products reliably get better and better each year, almost like clockwork. Even though smart speakers may look completely cloud-dependent with very few requirements for local hardware, I can reliably predict that in the next few years, this will no longer be the case. If the market for smart speakers persists (which is by no means a given), they will for example at least evolve to incorporate some local AI features to allow them to become smarter while maintaining a certain level of privacy. Cheap devices that are a few year’s old and do not have these improvements will not provide any kind of significant moat, and customers will be eager to switch to the new ones.

  • obarthelemy

    I’m not sure how much we can extrapolate from Fire tablets because a) I’m not sure what the goal was (*) and b) I’m not sure if it was reached. The few Fire tablets around me have been jailbroken to get Google’s PlayStore, so I can’t suss out what lock-in, if any, Amazon manages to create from pure Fire tablets. One thing though: they’ve kept refreshing the devices, so unless they’re masochists we can assume they’re reasonably happy with whatever they’re achieving. As opposed to what happened with the Fire phone.

    I’m wondering if we shoukdn’t look for an analogy in the TV-stick segment instead. Both are cheap doodads that get their value from the ecosystem they’re plugged into, which is almost identical except for videos: AI, home automation (w/ custom aps/skills), Audible, Music,…

    I think there’s stickiness, differentiation and lock-in in those features/uses (“moat” also implies an objective technical advantage I think ? That isn’t there). Once you’ve got your Videos playing, your bulbs lighting, your morning newsfeed all set up, you need a darn good reason to throw that out and start over, spending lots of money and time and re-learning skills. Especially since most of that is proprietary.

    As for the need/desire for privacy… I’m not seeing it materialize in a significant way. There’s talk of it at the fringes and PR about it from Apple (who gather about as much data, and are as sneaky/hypocritical about it, so it’s a talking point mostly, doesn’t stand up to scrutiny). We’ll see what trade-off users are willing to make between privacy, price and service. I wouldn’t assume it’s any different than for smartphones and PCs and Cloud/web/social…

    Edit (*) I mean: it was probably not selling tablets, but hooking people into Prime, Prime Videos, their Kids program, Audible, their app store. I read somewhere simply getting a household to sign up for Prime generates a lot of extra orders.
    Plus looking forward they probably need the whole enchilada of TV sticks, tablets, speakers, phones if they want to leverage proprietary media and services, assistants, home automation… That’s one of my main issues with Apple’s no-OEM way of doing business: that’s a lot of things you need to be good at. And it’s much harder to build the ecosystems only from the premium space.

    • I agree that Amazon’s strategy itself is probably not about market domination but about Prime subscribers. The discussion about domination on the one hand and Apple being to late on the other, is something the pundits are talking about. I doubt that Amazon is so naive.

      As to what Amazon’s real intentions are, I tend to think that it’s more complicated than selling media or home automation. I suspect it’s more like their fulfilment services (logistics) and AWS in the sense that they created a moat around their investments in warehouses and IT infrastructure. Likewise, Echo and Alexa are probably more about building an AWS for AI, accessible to small startups with ideas for the future.

      https://developer.amazon.com/alexa-voice-service

      • obarthelemy

        I’m thinking Amazon wants to make ordering anything with them really seamless. It feels creepy to me (for example, Alexa offering to order sugar after I remark to my S.O. that we’re running out). Not just home automation stuff.
        I think Apple will, as always, come out with a device that’s on the whole more limited (Siri vs Google Assistant has been adjudicated everywhere except I assume techpinions), but shines in a very relevant area (probably music quality).

        • If the end goal is to make ordering from Amazon easy, and I think the same way, then there is no need to dominate the smart speaker market. Amazon dominates in ecommerce today, but that is despite not owning neither the desktop nor mobile platforms. Amazon could thrive on the HomePod when Apple inevitably opens up the platform, and that does not even have to be on Alexa – it could easily be on Siri.

          Interestingly, when you look at Amazon’s documentation, it appears that the bulk of developing a “skill” is figuring out how many ways humans might make requests. The actual programming seems to be quite minimal. This does suggest that the work of cross-platform development might be minimal, further indicating that lock-in or early mover advantages in smart speakers will probably be slight.

          • obarthelemy

            What if Apple decides to take a 5% cut of any order placed via Siri, just as they’re taking 30% not just of apps but also of media sales on iOS ?

            Same as Android’s main goal is to make sure Google has free access to ‘net users, Alexa/Echo’s goal is to make sure Amazon has free access to ‘net buyers (and for both, to grow and intensify those populations). The home automation issue is separate, probably a minor sideshow.

          • I think you raise a valid point, but I don’t think that it applies to Amazon’s current strategy. It maybe a concern long term.