Amazon is Still Crushing Google in this Red Hot Market

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The worldwide smart speaker market could grow from $2.7 billion this year to $11.8 billion by 2023, according to Research and Markets. That's why many tech and consumer electronic companies are all rushing to establish a presence in this growing market.

However, Amazon (NASDAQ: AMZN) remains the king of this market in America according to recent estimates from CIRP. The research firm, which surveyed 500 US users, estimates that the Echo controls 69% of the market with 31 million installed devices, while Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Home controls the remaining 31% with 14 million devices.

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Why Amazon is ahead

Amazon enjoys a first mover's advantage in the smart speaker market. After introducing the Echo in an invitation-only launch in late 2014, it was launched widely across the United States in mid-2015. Google Home didn't arrive until late 2016.

Amazon leveraged the strength of its online marketplace and Prime ecosystem to sell Echo speakers, which could easily reorder products from Amazon. However, Echo's Alexa could also answer questions; play music, podcasts, and audiobooks; make to-do lists; set alarms; and provide real-time updates on weather, traffic, and news. Subsequent updates also enabled it to control smart home devices.

Recognizing Echo's potential to lock users into its ecosystem, Amazon expanded its Echo lineup with cheaper versions like the Dot and Tap, the LCD screen and camera-equipped Show and Spot, the outfit-scanning Echo Look, and the Echo Plus, an upgraded version of the first generation Echo. It also introduced Echo Buttons for playing games with Alexa.

Amazon focused heavily on the low-end market during last year's holiday season. The company claimed that the Echo Dot, which was discounted from $50 to $30 during Black Friday, was its top-selling product across all its product categories. Amazon also stated that its Dot, Spot, and Echo Buttons had all sold out during the holiday season. CIRP estimates that the Dot accounts for over half of Amazon's Echo sales.

The Echo's strong ties to Amazon's e-commerce backbone, its widespread availability across multiple price tiers, Alexa's growing list of compatible smart home devices, and its first mover's advantage all make it tough for newer rivals like Google to gain ground.

Why Google is still behind

Google's late entry into the market already put it at a disadvantage against Amazon. Moreover, some consumers were concerned about putting Google -- a company that generates most of its revenues from targeted ad sales -- in their homes. Google's previous smart home efforts, the Nest thermostat and Nest Cam, also didn't gain much momentum with mainstream consumers.

But that doesn't mean Google can't catch up. Google Home syncs quickly with mobile devices, its Chromecast dongles for video and audio streaming, and a wide range of smart home devices. Google is also chasing Amazon into the low-end market -- its newer Google Home Mini speaker, which accounted for about 40% of Google Home sales during the holiday quarter, costs just $50.

CIRP also found that 20% of Echo users and 13% of Google Home users own more than one smart speaker, so there could be room for both devices to thrive, with users using Echo for Amazon purchases and services and Google Home for online queries.

Google is also enlisting a growing list of third-party hardware vendors, including JBL, Lenovo, LG and Sony, to develop camera and screen-equipped Google Home devices to counter Amazon's Show and Spot. Google also recently blocked Amazon's devices from directly accessing YouTube, but Amazon introduced a workaround by simply adding a link to the browser-based version of YouTube.

But other challengers are on the horizon...

Amazon is still beating Google in the smart speaker market, but it shouldn't claim victory yet. Google is surprisingly resilient, and it still has plenty of other ways -- like Chromecast and Android TV -- to turn its Home speakers into smart home hubs.

Both companies will also face plenty of new challengers, like Apple's HomePod and Microsoft's Cortana speakers, in the near future. Therefore, it's unclear if Amazon and Google will keep controlling this market as a duopoly as those new speakers arrive.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Amazon. 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.

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