Smart Speaker Satisfaction High, but It’s Early Days

We recently surveyed 520 US consumers about smart speakers and found that 89% of respondents were satisfied with them. A closer look at the results reveals the reason for this high satisfaction; early use cases are simple (Music, weather, general questions). While questions remain simple today, we expect what users demand from their smart speakers to become more complex. The survey covered smart speaker ownership, satisfaction levels, and common uses. Here are the key takeaways:

  • 31% of respondents own a smart speaker.
  • Amazon Echo dominates the market with 55% share, followed by Google Home at 23%. See more below.

  • 89% of smart speakers owners are either satisfied (59%) or very satisfied (30%) with their device.
  • Music, weather, and general knowledge questions dominate smart speaker usage. See more below.

In line with expectations. At roughly 1/3 of the U.S. population, smart speaker penetration is in line with our current estimations. Other than Cortana being slightly over-represented and Echo being slightly underrepresented, we believe the market share in the survey data also resembles the current landscape. In terms of smart speaker use cases, our survey finds the most common activities to be listening to music, getting the weather, and asking general questions. This is consistent with studies like the one from Quartz here.

It comes as no surprise, consequently, that 89% of respondents were satisfied or very satisfied with their smart speakers. This is due in large part to the relatively simple tasks that the majority of users demand of their devices. For example, Cortana scores a 57% on our comprehensive smart speaker test. On a standard report card, this is a failing grade, but Cortana is well suited to play your music from Spotify, tell you the weather, and answer any simple question you have, so it’s easy to see why the typical user would be plenty satisfied. Put simply, people aren’t using their smart speakers for anything all that smart. But we expect that to change.

Changing use over time. The top use cases for smart speakers today make sense because they are well defined and they work consistently. Benedict Evans put it well in a blog post early last year: “You can now use an audio wave-form to fill in a dialogue box – you can turn sound into text and text into a structured query, and you can work out where to send that query.” This works really well for simple ‘google-able’ questions or fetching info from a weather app, but as the use cases broaden, it is not always clear where to send a query. Just because calling up a Spotify playlist is a well built-out process doesn’t mean the same is true for a YouTube video or Podcast. It takes a huge amount of human time and energy to make these processes run smoothly. AI assistants are a new technology, so this is not a long-term concern, but until the voice ecosystem is more robust, users will have to settle for somewhat simple use cases.

The reason we are excited about smart speakers, however, involves the much wider use of voice as a computing input to remove friction. We believe the preferred interface for countless smart home devices and software services is not countless apps or small touchscreens, but your voice. This will involve drastically increasing the number of defined places you can send those queries and the number of connected devices in your life. Music, weather, and general questions won’t go away, but other activities will increasingly take place via voice. The desire for the voice interface is there. Smart speaker adoption is outpacing that of the smartphone, and the majority of users say they wouldn’t want to go back to their life without their smart speaker. We think it’s only a matter of time until voice cements itself into our everyday lives.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

We Ran HomePod Through the Smart Speaker Gauntlet

Conclusion. Yesterday, we put HomePod through the smart speaker gauntlet which included 782 queries along with comprehensive tests of sound quality and ease of use. Our methodology was comprised of 3 HomePods being tested throughout the day by the Loup Ventures team. Here are four key takeaways.

  • HomePod is hands down the best sounding smart speaker.
  • As a smart speaker, it answered 52.3% of queries correctly compared to recent tests of Google Home at 81%, Alexa at 64%, and Cortana at 57%.
  • The user experience of HomePod is measurably better than its competition (setup, communication style, listening ability).
  • We have added HomePod to our Apple financial model. For CY18, we’re expecting HomePod unit sales of 7 million (12% global smart speaker market share) with a $349 ASP, which adds approximately 1% to revenue and earnings. In CY19, we expect unit sales of 10.9 million, which adds just over 1% to our model. While only factional revenue contribution, we expect HomePod units to grow between 40% and 45% per year over the next 3 years. Link to model here.

Query results. Siri understood 99.4% of queries and answered 52.3% of them correctly. This places HomePod at the bottom of the totem pole in terms of AI assistant performance. Siri is particularly strong in Local (where can I find a good cup of coffee around here?) and Commerce (help me buy some new shoes.) queries, handily beating Alexa and Cortana, but still falling short of Google Home in those areas. Overall, Siri performed above our expectations given the limited scope of HomePod’s music focus.

Adding domains will quickly improve Siri’s score. Some domains like navigation, calendar, email, and calling are simply not supported. These questions were met with, “I can’t ___ on HomePod.” Also, in any case that iPhone-based Siri would bring up Google search results, HomePod would reply, “I can’t get the answer to that on HomePod,” which forces you to use your phone or give up on the question altogether. Removing navigation, calling, email, and calendar-related queries from our question set yields a 67% correct response, a jump from overall of 52.3% correct. This means added support for these domains would bring HomePod performance above that of Alexa (64%) and Cortana (57%), though still shy of Google Home (81%). We know Siri has the ability to correctly answer a whole range of queries that HomePod cannot, evidenced by our note here. Apple’s limiting of HomePod’s domains should change over time, at which point we expect the speaker to be vastly more useful and integrated with your other Apple devices.

Other observations

  • HomePod has superior listening skills to other smart speakers. This is partly due to a noise cancellation feature which allows you, even at a volume where you would have to raise your voice to talk to others in the same room, to use your regular speaking voice with Siri. This was HomePod’s most stellar feature.
  • Wireless setup was super easy. In fact, it was the easiest of any of digital assistant we have used (Alexa, Google Home, Cortana, etc.). You already have a companion app and don’t need to wrestle with wifi networks.
  • Siri’s voice sounds smoother and more human than it does on your iPhone.
  • Her communication is also more human-like. Specifically, after asking a question, she does not repeat the whole thing back to you as is the case with Google Assistant and Alexa, which makes for a subtly smoother process.
  • The tap UI on the touch-sensitive display requires a small amount of instruction, as it is not immediately obvious that you tap to play.pause, double tap for next track, triple tap for previous track, and touch and hold to bring up Siri.
  • HomePod’s packaging is a new level of perfection for Apple. The perfectly fitted box requires you to open it at “reveal” pace, and even the external plastic wrap is pleasing to remove.
  • As a speaker, it sounds incredible – mission accomplished. As a digital assistant, whether it is a direct competitor or not, it is better than what we expected for version 1, but still lags behind Alexa and Google Home.

Survey suggests demand for HomePod similar to Apple Watch. Last week we surveyed 500 people in the U.S. and found 3.3% said they would purchase a HomePod in the next year. Among those surveyed who already own an Apple product, 5.2% planned on buying a HomePod. This is similar to 7% of Apple product owners planned to buy an Apple Watch ahead of its launch in Spring of 2015 (survey was conducted in December of 2014, four months ahead of the Apple Watch launch). While Apple does not disclose Watch unit sales, we estimate in its first 12 months Apple sold 10.2m Watches at an ASP of $475. This compares to our first 12 months of HomePod sales estimate of 7m units with an ASP of $349.

Smart speaker market share. We see Google Home as the long-term smart speaker unit share winner, but Alexa and Apple as the two other key players. In 2018 we expect HomePod will capture 12% of the global smart speaker units, compared to our estimate of Alexa at 52% share, Google Home at 32% and others at 4%. In 2022, we expect HomePod will hold a similar 12% market share (HomePod ASP estimate declines to $149 from $349 today), Google Home at 48% and Alexa at 37%.

Apple’s grander vision around HomePod.  Don’t be fooled by HomePod’s sound quality-focused first step into smart speakers; Apple has a grander vision than delivering a better sounding Echo. While not present in the first version of HomePod (i.e. you can’t even make a phone call with HomePod), we believe Apple’s goal is to make Siri a ubiquitous, ambient presence that connects and controls all your connected devices and services – and to make a leap forward in the transition to voice-first computing.

The way humans interact with computers is changing. Today, we use our keyboards, mice, and touchscreens to interact with computers, but in the future, we’ll simply rely on our voice, gestures, or even our thoughts. Voice is quickly becoming a preferred interface. Apple’s device ecosystem delivers a frictionless experience, which will only get better with the adoption of voice and with the addition of HomePod supported domains (9 supported domains today). Interestingly, Apple has included an A8 chip in its HomePod, the same chip included in an iPhone 6. The A8 chip is much more powerful than the chips competing home assistants run on, which poses the question: what else is Apple planning with the HomePod?

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Investing in Enjoy

We’re investing in Enjoy as a counter-automation play on the future of retail. Read our thesis on retail’s future here. In short: retailers must either embrace full automation or compete on experience by focusing on uniquely human capabilities: creativity, community, and experience. We call it “empathic retail.” Enjoy delivers the future of retail by focusing squarely on empathic retail. Enjoy hand delivers products bought online from the world’s premier companies and delivers them with an experience. The service comes at no additional cost to consumers and it’s fast, with nearly 50% being delivered the same day.

Amazon is changing consumer expectations related to the price, availability, and delivery of products and services. But the in-person retail experience is outside of Amazon’s core competencies. Enjoy offers its premier companies (including AT&T, Sonos, DJI, and others) a high-touch, personalized delivery and setup service. Enjoy optimizes the customer experience, reduces returns, and increases customer satisfaction.

At the same time, automation technologies are already replacing retail jobs. Enjoy offers its team of Experts (delivery and setup employees) flexible work, salaried, with benefits – a transformative employment model for the new retail workforce. In our view, Enjoy is creating the optimal go-to-market channel for premium brands in the automation age.

Enjoy’s CEO, Ron Johnson, has spent his career innovating in retail. His experience as VP of Merchandising at Target, SVP and head of retail at Apple, and as CEO of JCPenney, along with his network of leaders at consumer electronics and luxury goods brands, uniquely positions Enjoy for success in these markets and beyond.

We’re excited to be a part of delivering retail’s future with the team at Enjoy.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

3 Reasons Amazon Will Buy Target This Year

Amazon is the world’s largest online retailer, about five times bigger in that space than Walmart and its Jet.com subsidiary. Yet despite Amazon’s deep online roots and dominance over Internet shopping, I believe it will buy Target in 2018.

After digging into the realities of both companies, it becomes clear that Amazon buying Target isn’t as bold of a prediction as one might think. Here are three reasons why a merger makes sense.

Offline sales will always be a big part of retail.

It’s no secret that online retail is slowly killing offline. My firm, Loup Ventures, estimates that in the fourth quarter of 2017, about 10% of total U.S. retail sales, or about $125 billion, were online. The longer-term question is: How much of total retail will eventually happen online? Based on our analysis of U.S. retail sales by category (excluding gas and restaurant expenditures), 55% of total retail sales should eventually happen online.

Even if half of commerce shifts to online, that still leaves a massive market offline at 45%. People in the future will still want to pick up groceries at a local store. As retail changes dramatically going forward, the biggest winners will promote both online and offline opportunities.

They both pursue affluent customers.

 Amazon’s acquisition of Whole Foods last year confirmed that the online giant’s focus is on the high-income consumer. Market research firm GfK MRI estimates the median household income for an Amazon shopper is $90,100, similar to Whole Foods at $95,200. Target reports its average shopper earns $87,000. These far exceed the U.S. median household income of $55,322.

By buying Target, Amazon would solidify its dominance of the high-income consumer. Conversely, if Amazon were to acquire a company targeting lower-income customers, such as Dollar Tree, Amazon would steer its focus away from its core consumers. In my years of observing tech companies, I’ve seen that owning a demographic usually yields the best results.

Brick and mortar will get more advanced.

Over the following 10 years, I’d expect Amazon to convert Target and Whole Foods stores to an automated model with few employees. Stores would be monitored by computer vision systems; shelves would be stocked by robots; customers would be helped by service robots that understand natural language; and checkout would resemble Amazon Go locations, where customers simply walk out with their purchases. In this future, the lines between online shopping and automated brick and mortar stores would blur, as cost-focused stores become more like smart warehouses. The few employees working in stores would focus on delivering personalized service based on mutual understanding and empathy, which would enable retailers to differentiate themselves.

Any number of factors could derail such a combination, including government intervention. But sometimes mergers make too much sense to ignore. Amazon buying Target is one such situation.

This note was originally published on Fortune.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

8 Tech Predictions for 2018

Loup Ventures’ predictions of 2018:

  1. AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative.
  2. VR gets untethered but it still takes another year to take off.
  3. Google Home continues to gain market share in smart speaker market.
  4. Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.
  5. Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021.
  6. Bitcoin pulls back.
  7. iPhone ASP’s $740 vs. Street at $710.
  8. Amazon will acquire Target.

AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative. We believe the hype around AI is justified given it’s hard to understate the significance that AI will have on the future. In 2018 we expect the AI momentum to continue. In July of 2017, we counted 11% of Fortune 500 companies mentioned AI on their quarterly conference calls. We expect that number to grow in 2018. As for leaders, it’s clear that Google CEO Sundar Pichai is trying to get his point across: AI is the future of Google. We went back and looked at his opening comments over the last year and found he has led his prepared remarks by asserting Google’s evolution from a mobile to an AI-first company on each of the past four earnings calls. The company is pushing its AI into hardware devices (Google AI hardware note) and seeing its work pay off (Google Home’s the smartest smart speaker). Artificial narrow intelligence (ANI) is being mastered and we expect more news about the next frontier in AI, artificial general intelligence (AGI, the ability of a machine to think like a human), to be top of mind in 2018. We expect Google to play a thought leadership role in AGI with its Deepmind platform, but keep in mind true AGI is likely another 20 years away.

VR gets untethered but it still takes another year to take off.  The Wall Street Journal said it best in their Dec 30 article titled “Virtual Reality Needs to Cut the Cord”.  Oculus Go ($199 untethered) which comes out early in 2018 will be a step forward in ease of VR use, but it won’t be until 2019 until more powerful untethered hardware lay the groundwork for content developers and consumers to fully embrace VR. For those disappointed VR won’t be mainstream in 2018, you can at least look forward to Ready Player One’s release on March 30th. Here’s our Facebook in VR outlook.

Google Home continues to gain market share in smart speaker market.  In 2017 the smart speaker market was led by Amazon with the release of 3 new Echo devices (Echo, Echo Plus, Echo Spot), Alexa for Business, sub $50 pricing, and the Alexa app being the #1 downloaded app on Christmas Day vs. Google Home at #6 across Android and iPhone. That said the market is still up for grabs, as evidenced by Amazon and Google collectively spending more than $70m on TV ads from Thanksgiving through Christmas to push the theme. Despite Alexa owning 75% (Loup Ventures) of the global smart speaker market today, we expect in 2018 Google Home will be a share gainer in smart speakers given its performance lead. Here are the details of our recent face off between the smart speaker players.

Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.  Near-term, we expect another miss in Model 3 production, but in 2018 we predict production will turn the corner. We continue to stress that Model 3 production over the next several quarters will be largely a guessing game and that short-term production numbers do not materially affect the long-term story. The last update on Model 3 production calls for “a production rate of 5,000 Model 3 vehicles per week by late Q1 2018,” which we believe is ambitious. That said, we’re encouraged by hundreds of Model 3s have been spotted at delivery centers and at the Fremont factory shown in a video here, along with several suppliers reporting that they are back to delivering Model 3 parts at volume.

The reason we remain upbeat on the Tesla story despite the prolonged Model 3 production problems is that EV and autonomy are the future. Tesla is fighting to gain production scale to create that future. While other car manufacturers build gas-powered vehicles at scale, building autonomous EVs is a vastly different process that will require traditional auto manufacturers to re-engineer their production facilities. That means every automaker that wants to compete in the future needs to go through the production pain Tesla’s experiencing today. Here’s our recent note on Model 3 production outlook.

Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021. 2018 will likely be the year of announcements around expanded EV lineups from traditional automakers. The Detroit Auto Show (Jan 13-28th) is an obvious window for these announcements and we expect a steady drip of EV model announcements throughout the year. We don’t believe these new vehicles will be available until 2019 or 2020. The autonomy theme will be equally top of mind in 2018, lead by likely updates from Apple around their autonomous shuttle project. We continue to expect 2021 as the year autonomy begins to ramp, and our bet is Waymo, GM’s Cruise, and Tesla will be first to market.  Here’s our autonomous vehicle industry model.

Bitcoin pulls back. We feel cryptocurrencies are in a bubble, but something can be in a bubble and still over time become a foundational technology, just like the internet. Those who jumped on history’s greatest “get rich quick” event enjoyed 1409% increase in value in 2017 as the world watched a coin formerly synonymous with the “Silk Road” break into Wall Street. We believe that blockchain technology and cryptocurrencies are here to stay and represent the future of storing value, however, we anticipate that increased oversight (banking and government), speculation amongst institutional investors along with operational difficulties on trading platforms will trigger a crypto sell-off in 2018.  Here’s our recent Bitcoin outlook note.

iPhone ASP’s $740 vs. Street at $710. We remain optimistic that iPhone units in FY18 will be inline with the Street (~242m up 12% y/y), but the mix of iPhone X will exceed Street expectations and have a higher ASP of $740, up 13% y/y compared to the Street ASP of $710. Our ASP estimate is based on a 30% mix of iPhone X and iPhone 18% mix of iPhone 8 (iPhone 8+ and iPhone 8). In a typical iPhone cycle, the newest phone represents about half of the mix, in line with our FY18 outlook of a 48%new phone mix. Here’s our recent note on why we remain comfortable with our iPhone estimates.

Amazon will acquire Target. We saved our boldest 2018 prediction for last, Amazon acquiring Target. Getting the timing on this is difficult, but seeing the value of the combination is easy. Amazon believe’s the future of retail is a mix of mostly online and some offline. Target is the ideal offline partner for Amazon for two reasons, shared demographic and manageable but comprehensive store count. As for the demographic, Target’s focus on moms is central to Amazon’s approach to win wallet share. Amazon has, over the years, aggressively pursued moms through promotions around Prime along with loading Prime Video with kid-friendly content. As for retail stores, Amazon’s acquisition of Whole Foods 470 stores along with testing of the Amazon Go retail concept is evidence that Amazon sees the future of retail as a combination of mostly online and some offline. Despite gaining Whole Foods, Amazon’s ~470 store presence still dwarf’s Walmart at 11,695 (global).  If Amazon acquires Target’s that would jump its store count to about 2,300.  As for anti-trust, the Trump administration won’t do any favors for Jeff Bezos, but the market share numbers suggest the deal will be approved. Walmart will reach about $315B in U.S. sales in 2017 (total 2017 Walmart is expected to be $500B, up 2.6% y/y), and Amazon North American ($105B in 2017 up 31% y/y) and Target ($71B, up 2.4% YoY) would equal about $176B in U.S. revenue. Looking at the top 18 U.S. retailers (including grocery), Walmart has about 23% share and an Amazon/Target combination would have about 13% share. Lastly, Amazon can afford Target. If you assume they pay a 15% premium to the current TGT trading level would imply a take-out valuation of $41 billion, about 8% of the value of Amazon’s current $564 billion market cap.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.