When Amazon (NASDAQ:AMZN) first introduced the Echo, it was a bit of a novelty -- little more than a voice-controlled music player that had some very rudimentary digital assistant features. Slowly and steadily, though, the company has increased what Alexa, the name used to address the artificial intelligence (AI) voice assistant in the device, can do.
Echo and its sister product, Dot, can now serve as the base that controls your home. Developers from hundreds, perhaps thousands, of companies have been rolling out products that integrate with Echo, and countless more have been embedding Alexa into their devices. In addition, the Amazon devices and their AI "brain" were one of the big topics at January's Consumer Electronics Show, with Alexa-enabled or controllable devices being very well represented.
Amazon has jumped to a lead in the race to control the smart home of the future, which, for some people, has become the smart home of the present. What's hard to know, since the online retailer does not share much, if any, data on devices sold, is exactly how big the market for Echo has become.
How big is Echo?
While Amazon does not share sales data, Consumer Intelligence Research Partners (CIRP) has analyzed the company's user base and come up with an estimate as to how many Echos have been sold. The research firm said its analysis indicates that 8.2 million Amazon customers in the United States have purchased an Echo device since its late-2014 introduction.
CIRP also found that awareness of the Echo has risen dramatically among the online retailer's customers. The research company estimates that among U.S. Amazon customers, awareness of the devices increased to 82% as of Dec. 31, 2016, up from 47% a year before that and 20% on March 31, 2015 (the first quarter after its introduction).
"Amazon efforts to promote the expanded Echo product line appears to have paid off," said CIRP Partner Josh Lowitz in a statement. "With traditional media advertising and prominent placement at the Amazon.com website, Echo product awareness among Amazon customers continued its rapid ascent in the fourth quarter of 2016."
Echo has benefited from Amazon cleverly building the user base. It did that by first making the device exclusively available to Prime members, selling to early adopters for $99, half its normal price. It then kept adding features, built word of mouth, and added the cheaper Dot to further grow the brand.
"The installed base of homes with Amazon Echo devices has grown dramatically, and close to tripled in the past twelve months," said CIRP Partner Mike Levin in a statement. "Amazon promoted Echo aggressively over the holiday shopping season, with especially aggressive pricing for the Echo Dot. The new models account for close to half of sales since Amazon introduced them earlier in 2016."
Amazon has created a market
Amazon has the lead and it has a customer base that it can market to, but it will face challenges to its dominance in this space. Alphabet's Google released an Echo knockoff for the holiday season and other major players including Microsoft have their own speaker plus voice-controlled AI devices either available or planned.
The online retailer does have two big advantages. First, it has the 8.2 million customers CIRP estimates own an Echo device. That can (and should) be a word-of-mouth army taking some of the fear out of buying a product that many people may be aware of, but not quite understand. Second, Amazon has hundreds of millions of customers in its database that it can market to. Those are people whose shopping habits the retailer knows well, which should allow it to customize offers to get people to buy an Echo.
Other competitors will certainly succeed in this space, but Amazon has made the category viable. The retail giant has built a smart, useful product that has gotten better literally every week since its introduction. That should make Echo/Alexa a growth business for Amazon, giving it a valuable beachhead in millions, eventually tens of millions of homes.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Daniel Kline owns shares of Microsoft. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon.com. The Motley Fool has a disclosure policy.