Amazon's Echo Strategy Is All About Creep

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When Amazon.com, Inc. (NASDAQ: AMZN) rolled out its voice-activated Echo in November 2014, it couldn't have imagined the response the smart speaker would get from the public. Driven by its Alexa digital assistant, the device became an instant hit with consumers, with a current installed base of an estimated 15 million devices, according to Consumer Intelligence Research Partners, though Amazon itself does not release sales figures. 

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With competition from Google Home by Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG) and HomePod from Apple Inc. (NASDAQ: AAPL) joining the fray, Amazon has decided to up its game, releasing devices with a variety of functions that can be placed in every room of the house. Amazon believes that by getting consumers to buy one device, it may be able to rope them into its ecosystem, in a strategy that has been successfully used by Apple.

Competition heating up

Late last year, Google announced the release of its Google Home smart speaker, which boasted features similar to Echo but with a few important differences. The Echo responds to commands using very specific syntax, capable of an incredible 25,000 skills.  But any queries outside its core skills go unanswered.

That left the door open for Google Home, whose understanding is rooted in natural language, rather than commands. A recent report by research firm 360i revealed that after posing 3,000 questions to both devices, Google Home is six times more likely to answer a question than Echo's Alexa. 

That hasn't stopped consumers from buying the Echo. CIRP reports that the Amazon Echo family of products controlled a stunning 75% market share in the U.S. Amazon has been able to capitalize on its two-year head start, capturing the imagination and mindshare of consumers with the new product category. 

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Apple's HomePod isn't even scheduled to be released until December, and the company has focused on high-quality audio for its device, making it more appealing to music lovers. We'll know more once it's released. 

Echo comes out swinging

Late last month, Amazon revealed new devices and price points for its Echo product line. To recap, the previous lineup included the flagship Echo, the smaller Dot, and the portable wireless Tap. The recent addition of the Show added a touchscreen for images and streaming and a front-facing camera for video calls. The Look added a hands-free camera to help consumers make fashion choices.

Joining the existing lineup is the Echo Plus, which contains a built-in hub for setting up and controlling smart-home devices. The new Echo Spot is a smaller version of the Show. Amazon also added the Echo Connect, which acts as a voice-controlled speakerphone, and the Echo Button, which works in conjunction with the Echo for playing games. 

Counting on creep

The pattern that emerges from this plethora of devices is that they target specific uses and even locations -- the Look, placed near the closet for fashion decisions; the Show, on the counter for calls and streaming; and the Plus, in the family room for music. The smaller devices, the Dot and the Spot, cost less and cater to price-conscious consumers. Overall, the Echo family of devices can help you with questions, play music, make calls, stream video, and help you decide what outfit to wear.

Amazon's strategy for the devices is becoming increasingly clear. With an expansive array of devices, a product designed for every room in the house, and multiple price points, Amazon is counting on the potential for "creep." Once you own an Echo, you may add another device for another room, and another. You may be compelled by the ease of reordering products using voice commands and spend more as a Prime shopper.

Once users have numerous devices, they may be reluctant to add a competing device, which is what Amazon wanted all along.

Well played, Amazon! Well played.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Alphabet (A shares), Amazon, and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.