Facebook, Inc. Might Also Jump Into Smart Speaker Fray

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Smart speakers are all the rage right now in tech, so it's not all that surprising that Facebook (NASDAQ: FB) is reportedly looking to enter the space. DIGITIMES reports that Facebook is exploring a smart speaker, but instead of being run by a voice-powered virtual assistant like other companies', it may use a 15-inch touchscreen as the primary interface. Prominent contract manufacturer Pegatron is expected to begin volume manufacturing the device ahead of a launch in Q1 2018. Pilot production has already begun, according to the report.

LG Display is said to be supplying the display in-cell display panels, and the speaker will feature a magnesium-aluminum alloy chassis. This all comes as Facebook has been ramping up its hardware efforts, a department known as Building 8. The company poached Regina Dugan from Alphabet subsidiary Google last year to lead the team, and scooped up engineering exec Rich Heley from Tesla a couple months later.

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A bigger Echo Show?

According to the rumored description of the device, it sounds a bit like Amazon.com's (NASDAQ: AMZN) new Echo Show, which also features a display, albeit a smaller 7-inch touchscreen. Echo Show also uses the display for video calling, which is a feature not available on other screen-less Echo devices (and may help explain why Amazon is exploring a consumer messaging service).

Echo Show uses a fairly low-resolution 1024 x 600 display, presumably to help keep costs down (even as the Echo Show is the priciest Echo device at $230). Displays are almost always the most expensive component in consumer gadgets, so including one will always jack up the price. That could suggest that Facebook's rumored device could be pretty expensive if it's including a 15-inch in-cell touchscreen. In-cell touchscreens enable thinner devices, but they're more expensive, so it may not make much sense to prioritize a thin form factor for a stationary smart speaker.

Premium pricing would be a mistake

If Facebook does choose to go high on price, it would be a mistake. Facebook would have a hard time justifying a premium price point to consumers, particularly since the social network is rather inexperienced with developing consumer hardware. (I'm excluding Oculus Rift since Oculus was acquired, and Rift isn't ramping to high volumes quite yet.) Facebook is working on augmented reality (AR) hardware, though. As a point of reference for premium pricing, we know that Apple's HomePod will be debuting at $350 later this year.

Facebook also doesn't have a music-streaming service of its own, so it would need to integrate third-party services for the actual music content for a speaker. The company is also behind in virtual assistants, which may be why it is shunning a voice-powered device. Facebook's "M" assistant was announced years ago, and its rollout has been glacial. Smart speakers are also widely expected to become hubs for the smart home, a feature that is directly related to virtual assistant integration. Rivals have been working on smart home frameworks for quite some time, but not Facebook, so the social network is a laggard there, too.

Including some type of social twist seems like the most obvious differentiator. Facebook integrated with Spotify many years ago, and many users didn't like how Facebook would automatically post how often they were listening to Justin Bieber. If Facebook goes this route, history suggests it may have limited value. More importantly, social features would hardly make up for Facebook's other deficiencies.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of AAPL, Facebook, and TSLA. Evan Niu, CFA has the following options: long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends GOOG, GOOGL, Amazon, AAPL, Facebook, and TSLA. The Motley Fool has a disclosure policy.