Jorge Serna

@jorge.serna

How Amazon is winning the battle for the Home Operating System

Amazon, Google and Apple are all trying to become the fundamental mechanism to interact with your home, but Amazon advantage is significant.

Amazon has just announced a lot of new Alexa devices (6 in total), while Google is expected to launch a new cheaper Google Home and maybe a high-end model soon, and Apple will launch HomePod in December.

All these plays are not just about selling hardware, but about changing the way we do things at home and how we interact with computers. Voice interaction is the critical element, with Amazon’s Alexa, Google’s Assistant and Apple’s Siri being at the front. Each of these companies want to create the standard by which home entertainment, home communications and home automation evolve. The Home Operating System.

Amazon is currently taking 70% of that market, so let’s take a look how they are winning the battle to become the standard in each of these categories.

The Home Entertainment Front — Music

The presentation of the Echo line, the Google Home and the upcoming HomePod as “smart speakers” puts a lot of weight into the music offering as part of the value proposition. And here a difference is already clear:

  • Apple is betting on the strength of Apple Music as part of their offering, and it is the central feature in the current promotion of HomePod.
  • Both Amazon and Google are going a different way, enabling their own music services in their devices (Amazon Music and Google Music respectively), but also being open to other services like Spotify and Pandora.

And currently the market reach from supporting Spotify significantly excedes Apple Music:

Tying the HomePod to Apple Music may make it attractive for current Apple Music subscribers but, on the other hand, not being able to use other music services on it means an additional investment of $120/year for the Apple Music subscription. And that can be too much, specially for users that are already paying that amount to get a Spotify subscription.

While this is still a quite open battlefront, and Apple deep knowledge of the music market may create some advantage for HomePod, I think addressing a bigger user base with Spotify is key, and until Apple opens the HomePod to support third party music services it will be at a disadvantage.

Between Amazon and Google, the advantage is currently on Amazon:

Maybe this will change and with new Google Home devices, and other manufacturers like Sonos supporting Assistant and not Alexa, but currently Amazon is ahead.

The Home Entertainment Front — TV

But if the aim is to become the Home Operating System, music is not enough, as the TV is the device currently centering the entertainment experience in the living room.

And that is why these companies are also introducing their voice-controlled assistants there:

  • Google with its Chromecast, which integrates with Google Home.

None of them are leading the connected TV market, that place belongs to Roku, but both Amazon and Google are close. And both Alexa and Google Assistant can be used to control a Roku, thanks to the ability for third parties to provide skills/actions for their respective ecosystems.

Apple is way behind, and the analysts response to the latest Apple TV 4K is that the value is not enough to justify the premium pricing, which is another opportunity for the Chromecast Ultra or the new Fire TV 4K to reinforce their position.

But Amazon has another advantage here, with their Echo Show device, because while not intended as a replacement for a TV, it can be used to consume video content. And that is also probably part of the reason why Google is currently blocking YouTube access from the Echo Show.

The Communications Front

Communication was a functionality that both Amazon and Google initially left out of their respective connected speakers. But they have realized that communications are a very relevant part of the experience for a device aiming to become a Home OS.

That is why both companies have recently launched communication capabilities in their devices, but with very different approaches:

And now Amazon has also extended their offering to match and surpass Google’s proposition. Now Echo will also support the same free calls to the US and Canada, but on top of that has launched a new device, the Echo Connect, which allows to plug your Echo to your landline phone, so that you can make and receive any regular call with your existing number.

This is an interesting approach that might bring more use to the dying fixed lines, and that instantly makes the Echo a device that can reach or be reached by anyone in the world. And there is still the open question about the rumors around an Amazon Anywhere communication service, that I believe would make much more sense if available in the Echo too.

Apple offering in communications for its HomePod is still to be seen, but it may have an opportunity here. Apple could leverage iMessage and FaceTime audio, which provide a quite popular communication network. And not only that, but they can also leverage their existing position with iPhone and its integrations with operator’s networks and do something similar to what they are doing with the LTE Apple Watch. Using their Wi-Fi Calling for iCloud devices capabilities, they could get the HomePod to make and receive the calls and messages of the main iPhone line. They would need to address the multiple users/identities issues (the iPhone is a personal device, while the HomePod is a family one), and make sure presence is considered to avoid privacy problems, but solving this could get them a great differentiation in value. Apple controlling the phone, which Amazon has not been able to do, can bring some advantage to them.

But, in my opinion, the defining element will be openness, which can enable relevant communication players into these devices. It is probably more interesting to get WhatsApp or Facebook Messenger in your smart speaker than the decaying SMS (and even if there are rumors that Facebook is building their own device, I believe the more relevant bet for them would be to ensure their presence in the existing ones).

But Apple has not yet opened HomePod to third party applications, and Google is not providing notifications support, which prevents any reasonable communication application there.

Amazon has already enabled notifications in Echo for third party services, which opens the opportunity for messaging, and I expect they will allow VoIP calling too at some point.

And what about video communications? Apple could leverage their FaceTime network here, but it is Amazon that has already two devices (the Echo Show and now the Echo Spot) that offer this service. And Google may be planning something there too.

So in summary, the overall advantage is for Amazon, but let’s keep a look at Apple’s play with iMessage and Wi-Fi Calling.

The Home Automation Front

Home Automation, also known as Smart Home, is a quite open scenario too. The main barrier is that having smart devices that can be controlled is still mostly a hobbyist market. Technology curiosity is driving demand, rather than an actual customer need.

But the expectation is that technology becoming simpler will make the convenience value to be better perceived, and drive mass demand for the Smart Home. That is why Amazon, Apple and Google are betting on this, and their smart speakers are prepared to control these smart devices. The approach, though, has been slightly different for each player.

Apple has focused its efforts around their own standard initiative: HomeKit. The problem with this approach has been the required hardware adaptations for devices, which has left many manufacturers out of their ecosystem for a while. For instance, Belkin’s WeMo is currently not supported, and Belkin has announced an additional device will be required to connect via HomeKit, making adoption that more difficult. Philips Hue System, a product frequently featured in the Apple Stores, had to issue an upgrade (that customers had to pay for) for its hardware bridge to be compatible with HomeKit. This limitation has become so obvious that Apple has already announced that in iOS 11 the requirements to connect to HomeKit will be simplified and rely on software.

On the other hand Amazon has worked to support as many devices as possible via software with the out-of-the-box Echo device and through their Alexa cloud, and has also allowed developers to create Skills that can connect to any device.

Google Home’s approach has been similar, both working with specific partners and providing APIs to create “Google Actions for SmartHome apps”. And although Google does sell their own home Smart Devices, through their Nest brand, this is currently not making a real differentiation in becoming the Home OS. The reason is that these devices are not providing Assistant functionality (while there are Nest competitors that integrate Alexa), and in fact you can actually control them via Alexa too, which simply makes them another element of the ecosystem that both players benefit from.

But Amazon is now making a huge difference with their new Echo Plus. Not only the device incorporates hardware to behave like a SmartHome Hub (which reduces the number of gadgets users would have to buy to control their home), but it actually includes a Philips smart bulb in the box.

This way, by just buying the Echo, customers get a “gateway drug” into home automation. I would have suggested also adding an IR emitter function to the Echo device, so that without having to buy anything else, customers could also control devices already in their home, like their TV, Home Theater system or Air Conditioning. This could further create the appetite into control and automation, accelerating this market.

And if we also consider that Alexa is already available in other smart devices, like the Ecobee Smart Thermostat, we can see how in this field the advantage is also for Amazon.

Alexa-powered Ecobee Thermostat

The Shopping Front

But the main reason why Amazon wants to become the Home Operating System is because being the center of what happens around the home makes them also the main provider for the things that need to be bought there. And this space is where Amazon strength is much superior to the rest, because retail is at the heart of their whole operation.

Buying things from Amazon using the Echo products is not only simple, but the core of the functionality. And their recent acquisition of the Whole Foods chain, which they are already using to sell more Echo devices, will only make this fully-vertically-integrated model more powerful.

Obviously that is why Google is trying to follow up by making a deal with Walmart, so they can also provide this value to customers. This is a smart move, but it reinforces how Amazon is still at the lead.

Apple does not have anything like this, and unless something is announced in their official presentation of the HomePod, that will leave the value of their device as a Home Operating System way behind.

The Openness Front

Throughout this post, the relevance of opening the Home OS model to developers and other partners has appeared constantly:

  • The current advantage of Amazon in Home Entertainment comes from their Spotify support, their ability of theirs Skills to enable Roku control or their licensing of Alexa to be integrated in other smart speakers.
  • Their communications advantage comes from connecting to a standard communications system (the traditional phone line) and the expectation of new communication applications appearing as Skills.
  • The Smart Home advantage is coming from their Skills enabling any device to connect to Alexa, and the ability of other device manufacturers to integrate Alexa in their own devices. Including some really unusual ones!!
Not sure if Alexa here is really a good idea…

This is leaving the (initial) Apple approach behind, which will have to accelerate their plans to open the HomePod to developers.

Google understands this is critical, and that is why they are trying to get developers to embrace creating actions for their Assistant. But the complexity of the approach of Assistant as a chatbot vs Assistant as “conversations with a smart speaker” is making this more complicated than the focused Alexa Skills approach.

And let’s not lose sight that this is a competition too, because just being open does not drive developers: they need to see the right ratio on difficulty for the platform, value provided and number of users reached. So the additional value provided by Amazon (eg.notifications) and the current bigger market share create a potential virtuous cycle to attract more developers that in turn will keep increasing the value of the Alexa platform.

The Internationalization Front

Interestingly, the fight for the Home OS is still focused in a very limited number of markets:

And this is where Amazon may be at a disadvantage, because big internalization efforts are needed for intelligent assistants to speak and understand other languages and accents. And Alexa at the moment only works in English (and not all variants) and German.

In this space Google Assistant and Siri are better positioned, as they already cover more languages and geographies, so — without giving up in the US market, which is always the main ambition for these companies — if Apple or Google get their devices into markets where Amazon is not yet present, that could bring them further opportunities.

The Life OS

But the ambition of these players does not limit to becoming the Operating System in your Home. They want to become the Operating System for your life.

The expected revolution in the human-computer relationship is that intelligent assistants will become the main way to interact with services, content and the physical world. Today this kind of thing is happening sporadically: you ask Google Assistant for directions, you ask Alexa for a song, you turn your lights off with Siri. But the big players think it may become the natural way to do everything in the future, specially as more people get connected, and that is why, while Amazon is currently leading the Home OS battle, there will be a lot more action in the Life OS war.

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