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Will the smart speaker market cool off?

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The news at the start of this year that Tencent had suspended its smart speaker project ‘Tingting’ sent chills down the spines of many. What’s more, statistics show that half of the 50 Chinese companies that had invested in smart speakers when it became the next big thing in 2015 are now out of business or have transitioned into other markets.

A game for key players

However, the latest market data tells a different story about China’s smart speaker industry. According to the research of All View Cloud (AVC) To include the details of the quote in the footnote, 16.25 million smart speakers were sold in China in 2018, and retail sales totaled RMB3.65 billion, up 823% and 645% respectively compared to the same period last year.

After weighing up both these facts, we can safely deduce that only a few players are getting a piece of the growing smart speaker market. According to the 2018 Q4 sell-in volume data on China’s smart speaker market released by Canalys, Alibaba’s Tmall Genie, Baidu’s DuSmart Speaker and Xiaomi’s MI AI Speaker account for nearly 90% of market share. Clearly, two years of rapid development have seen the smart speaker market become an oligopoly.

The global market tells a similar story. Strategy Analytics predicts that global smart speaker sales will reach 135 million units in 2019, of which Amazon Alexa and Google Assistant will account for 62% of market share – 31.7% and 31.4% respectively. Even Apple has been relegated to a follower in this highly competitive market.

Figure 1. Sell-in volume of the top three companies in China’s smart speaker market in 2018 Q3 (Source: Canalys)

Anxiety over the price war

If we were to use one key phrase to describe the smart speaker market over the past year, it would have to be ‘price war’. Alibaba, the likely instigator of this ongoing war, broke all records by selling over 1 million Tmall Genie X1 smart speakers, after a drastic price cut from RMB499 to RMB99, on Singles Day (Nov. 11th 2017). The same formula proved to be successful for Xiaomi with a RMB99 Mi Fan Festival special on MI AI mini speakers, and likewise for Baidu with a trial price of RMB89 for its DuSmart Speaker. Literally, ‘RMB100’ is a matter of life and death for Chinese manufacturers of smart speakers. Only companies that are able to price their products under RMB100 have a fighting chance of success in this mercilessly price-sensitive market. It is estimated that only by burning through RMB1.5 billion over three years can a company expect to clock up an annual sales of RMB20 million each year.

China is not the only market dominated by a price war. Google has long been trying to achieve the first place in the global market, and has used massive subsidies to increase its market share. Many research institutes expect the balance of power to shift over the next two years.

Though this is clearly a typical ‘IoT tactic’, history tells us that it can easily become a Catch-22 situation. While vast sums of money can be invested to  position a brand or product in a shorter time as ‘value for money’, often the true value of a product or company is not determined by the manufacturers’ monetary investment.

It’s fair to say that the leading players in the smart speaker market must be rather anxious.

#1 Source of anxiety: Are smart speakers necessities or novelties?

The results of a survey of Chinese users by AVC show that a significant percentage of consumers purchased smart speakers for their novelty value. Case in point – the market penetration of smart home appliances is still low, and cloud voice services leave much to be desired. How many impulsive buysprompted by price discounts, are now collecting dust in some forgotten corner of their owners’ homes? This is pondering over everyone’s head.


#2 Source of anxiety: Exactly how long will the demand for smart speakers continue?

Data shows that the smart speaker market is growing even faster in the U.S., and penetration has already reached 41%. Will sales growth decelerate as market penetration increases? If we look at the current functions of smart speaker products, there is little incentive for consumers to make repeat purchases or upgrade their products.

The future of smart speakers

How do you overcome this market anxiety? To answer that question, we should go back to basics and revisit the essential purpose of smart speakers. Basically, smart speakers are front-end carrier and user interfaces that are designed to provide AI smart voice services. Ultimately, regardless of how cool the exterior looks or how low the price, only products that deliver seamless connection to user applications will survive and prosper.

Players in the smart speaker market obviously know this. After gaining a steady foothold in the market by winning the price war, they are now making scenario-based products. In other words, they are developing smart speaker products based on a specific group of users or situations, such as speakers for children, car speakers and TV companions, in order to integrate smart speaker services into the daily lives of users.

Figure Baidu’s launch of the DuSmart Speaker car mount marks a new attempt to make smart speakers that are scenario-based (Source: Internet)

This market development, or rather product trend, may be good news for small and medium-sized enterprises that wish to enter the smart speaker market. The proliferation of voice services will drive the segmentation of application scenarios. Smart speakers will need to be integrated into different products to meet users’ demands for voice services, anytime and anywhere, and these embedded smart voice functions may only be a sub-module, not a complete product. Inevitably, niche markets will emerge that will be too small to pique the interest of the big companies, thus creating opportunities for smaller players to find their place in the market.

Smart speakers may be a product category that will cool off one day soon, but the market for smart voice services is just about to heat up and the end is nowhere in sight.


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