Smart-home technology promises to make our lives easier. We can now control our security, lighting, heating, air conditioning, and entertainment systems remotely via internet-connected devices, giving us the type of convenience that was only possible in science fiction movies in years past.
As this technology becomes increasingly affordable, consumer adoption is poised to grow rapidly. In fact, eMarketer projects that 74 million people will use a smart speaker this year in the U.S. alone. Moreover, the global smart-home market will top $150 billion by 2024, according to Markets and Markets, up from $77 billion in 2018.
Businesses that cater to this surging demand for smart-home tech could see their sales soar in the coming years -- and one company stands to profit from this megatrend more than any other. Read on to learn more about it.
No discussion of smart-home stocks should fail to include Amazon.com (NASDAQ:AMZN). The e-commerce and cloud computing juggernaut dominates the smart speaker market with a greater-than-60% share, according to eMarketer.
Amazon's Echo smart speakers are powered by its Alexa voice assistant technology. Alexa integrates with more than 50,000 "skills" (voice-based apps), 20,000 compatible devices, and 3,500 brand partners. This ever-expanding ecosystem forms a powerful competitive moat around Amazon's smart-home business -- one that will be difficult for its rivals to penetrate.
Hardly one to rest on its laurels, Amazon is pressing its advantage with new Alexa-powered devices and upgraded software. By expanding into areas such as home appliances and high-end audio equipment, the company is attempting to extend its beachhead further into its customers' homes and daily lives.
Just beginning to monetize
Amazon CEO Jeff Bezos highlighted the success of the Alexa voice-assistant in the company's earnings release Thursday.
"Alexa was very busy during her holiday season," Bezos said in a statement. "Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year."
Yet despite its success, Amazon has only just begun to monetize Alexa. It sells its Echo devices at near-cost, and it just recently began to give developers more ways to promote their products and services to Alexa users. Amazon has long been willing to sacrifice short-term profits in order to enter -- and eventually dominate -- new industries, and it appears to be taking the same approach with the rapidly growing smart-home market.
In fact, Amazon's ultimate strategy may not be to maximize the profitability of its smart-home devices, but rather use them as a means to further strengthen its massive e-commerce empire. If Alexa can increase transactions on Amazon's e-commerce platform by making it easier to place voice-based orders, its impact could reach into the tens of billions of dollars. Early signs in this regard are promising; Echo owners spend about $700 more per year than the average Amazon customer, according to Consumer Intelligence Research Partners. Better still, when combined with device sales and in-app purchases, these Alexa-based transactions could generate $10 billion in revenue for the company by 2020, according to RBC Capital Markets.
All told, Amazon has built what appears to be an insurmountable lead in the smart-home arms race. As such, its stock remains the best way for investors to profit from this megatrend in the years ahead.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.