Reuters is reporting new data from ABI Research which suggests Amazon and Google were losing money on their respective Echo Dot and Google Home Mini products over the 2017 holiday. In a battle for market share, the entry-level smart speakers were both priced at $29 at numerous outlets, including each company’s online store. However, that is near to or less than the cost of parts for the devices.
ABI Research says the cost of part for Echo Dot is about $31 and for the Google Home Mini is $26. Those costs do not include overhead such as sales, marketing, logistics, or finance. So, the landed cost is clearly higher than the discounted retail price for each of these products during the holidays. The Echo Dot has a list price of $49.99 and Google Home Mini is $49.
It Was All About Market Share
The heavy discounting was about winning market share not for the devices, but the voice assistants inside. Both companies are focused on getting users to adopt Alexa or Google Assistant and make them part of consumers’ daily habits. It’s not about device sales at all. In fact, Amazon and Google are also rushing to get third-party device manufacturers to embed their voice assistants into other products. Voicebot recently published a list of 60 devices with embedded voice assistants. Alexa is in 17 third-party devices and Google Assistant in 14. Amazon Alexa and Google Assistant will generate value beyond device sales by facilitating voice commerce transactions, placing advertisements and funneling consumers to other services offered by the companies.
Apple, Facebook and Microsoft Take Note
A smart speaker forecast by research firm Arizton suggested about $1.3 billion in smart speaker sales in 2017. The data from ABI shows us that much of those sales were made at a loss. Amazon and Google are playing a long game to control as much of the mass market as possible. They are willing to sacrifice revenue now for long term market share gains.
In terms of product sales volume, both companies appear to have met their objectives. Amazon reported that Echo Dot was the top selling product on Amazon.com over the holiday season. A Google spokesperson indicated to Reuters that “it was very happy with holiday performance.” Competitors like Apple, Facebook, and Microsoft must contend with the fact that Amazon and Google will take a loss to push their voice assistants into as many homes as possible, as quickly as possible. You should expect this behavior to extend to other devices with voice assistants in 2018.