The smart Wi-Fi speaker market is booming right now, thanks in large part to Amazon.com's (NASDAQ:AMZN) wildly popular Echo. The e-commerce giant has now displaced Sonos to become the No. 1 vendor within the Wi-Fi speaker market, according to Strategy Analytics. In 2016, shipments of wireless speakers that utilize Wi-Fi (as opposed to alternative wireless technologies like Bluetooth) collectively jumped by 62% to 14 million units, with Amazon accounting for an incredible 77% of the increase in demand. The market researcher estimates that Amazon shipped over 5 million Echo speakers in 2016 -- accounting for more than a third of the market.
This is a space that has long been dominated by privately held Sonos, and one that Apple (NASDAQ:AAPL) is about to enter with its $350 HomePod later this year. But can the Mac maker make a dent?
Smart Wi-Fi speakers with virtual assistants are expected to take over the market
Strategy Analytics' estimates provide some context. While Sonos is expected to maintain its dominance within the high end of the market with products like its $300 Play:3 and $500 Play:5, Amazon's success shows that there is a growing market for smart speakers that are powered by virtual assistants. Sonos products don't include virtual assistants and instead offer high-quality audio at those price points.
It's important to point out that high-quality audio is not the defining characteristic of Amazon Echo. The headline selling feature is Alexa and its growing array of third-party Skills that it can perform, controlling a wide range of smart home devices. In contrast, high-quality audio will very much be Apple's pitch on why consumers should buy a HomePod at nearly twice the cost of an Echo.
"Amazon has hit upon a winning formula with its Alexa-powered series of Echo speakers and its rapid success has clearly sent shock waves through the industry," says Strategy Analytics. Apple's forthcoming HomePod is positioned smack dab in the middle between Amazon and Sonos, hoping to offer high-fidelity audio at a lower price point than Play:5 combined with Siri as the virtual assistant. That's partially why Strategy Analytics considers the HomePod to be more of a threat to Sonos than to Amazon.
If smart home speakers with virtual assistants are to gobble up the market, which the market researcher expects (at 90% penetration of all Wi-Fi speakers by 2022, compared to 42% penetration in 2016), then Amazon and Apple could both stand to benefit at the expense of traditional Wi-Fi speaker manufacturers like Sonos or Bose.