In 2011, Apple released Siri, inaugurating the era of the digital assistant. Three years later, Amazon (AMZN -0.22%) brought out the Echo smart speaker featuring Alexa, and it wasn't long before Alphabet (GOOG -1.91%) (GOOGL -1.80%) jumped on board with Google Assistant and Microsoft (MSFT 0.06%) with Cortana. Today, the home voice assistant has become a fixture in roughly 120 million homes.
There's no doubt that the technology has grown very quickly from a novelty to a ubiquitous component of the modern household, yet none of the major companies involved -- Amazon, Apple, Microsoft, or Google -- has managed to finesse a revenue model for their smart speakers, even if the benefits to each company's core business seem clear enough. Although it's difficult to verify, none of the devices seem to be turning a profit yet. There's little data on the sales of specific devices, though a study conducted last year by market researcher Arizton found that $1.3 billion smart speakers were sold in 2017. It further suggested that the majority of those sales were made at a loss.
Home voice assistants may not be bringing in much cash to their makers, but they must be bringing something in. Amazon's Alexa division, for instance, boasts a team of some 10,000 employees, by some accounts, while Microsoft continues to pump money into Cortana (it patented something called "whisper mode" back in January), despite the product being a small fish in a big pond containing HomePod, Echo, and Google Assistant.
There are two critical reasons why big tech is continuing to pour resources into smart speakers despite having to regularly stomach losses.
For one thing, the technology acts as a perfect tool for drawing customers into each company's core business, whether that business is search (Google), e-commerce and subscriptions (Amazon), workplace solutions (Microsoft), or services (Apple). In all cases, the sheer amount of data generated by a user's daily interaction with their assistant will prove invaluable in the long run. For this reason, it's no wonder that Facebook (META -0.62%) has belatedly entered the race with its range of Portal smart displays.
2. UI shift
The second reason is the radical potential of voice-powered technology itself. In a recent report, the Harvard Business Review described the emergence of voice assistants as the "third key UI and technology platform shift of the past three decades," the other two being the World Wide Web and the smartphone. In the two previous cases (and especially the first one), users had to learn a variety of new tricks and words in order to feel like a "native" on the platform (think "click," "swipe," and "scroll"). When it comes to voice, however, this latest innovation is perfectly in line with pre-existing human behavior and can update itself as it adapts to its owner's speech patterns and accent. Behind this impressive technology lies sophisticated artificial intelligence, and in this sense, the smart-speaker battle can be seen as a front in the wider war for AI.
Of course, voice assistants are not confined to the speaker devices with which they are commonly bracketed. Siri, for example, was initially developed for the iPhone before it migrated to HomePod. It's impossible to tell what's going on in the research and development departments of Silicon Valley, but the continued investment across the board in talking computers would seem to suggest that smart speakers are only the beginning for voice technology.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Alphabet, Amazon, Facebook, and Microsoft. Read the full disclosure policy here.