Can Anyone Catch Alexa?

Amazon’s third-party developer strategy has Alexa looking like the Gingerbread Man of digital assistants. After taking over CES in January with multiple Alexa-enable devices, there’s been little pause in Alexa skills and device-enabled growth. As of this writing, we count more than 12,000 Alexa skills (apps) and roughly 100 manufacturers with integrated Alexa IP across multiple smart home categories. And yesterday, Amazon opened its Echo voice processing IP to third party developers, extending Alexa’s lead in smart devices. Given our belief that natural language processing is one of a few core technologies that will enable the screen-less future of computing, we think it’s important to track the pace of the key players in the field.

Source: Amazon

Skills growth impressive, but getting the basics right remains the key for scale.

One measure of Alexa’s increasing utility is the growth in skills that can be downloaded to Echo devices. In just the last 3 months, nearly 5,000 skills have been added to Alexa’s repertoire, which now tops 12,000. Roughly a third of Alexa’s skills are knowledge-based – from education apps like the Old Farmer’s Almanac to trivia categories like Lesser Known Star Wars Facts. Other growth categories include health and fitness with skills like answers to common medical questions and workout suggestions. In addition, nearly 100 smart home skills are available today, an important catalyst for scaling the Alexa-enabled device ecosystem. It’s too early to tell how much scalable utility these skills bring to Alexa usage, particularly the nearly 500 knowledge/trivia skills categories. There is a fun-factor with a lot of these skills and voice access is seamless relative to paging through dozens of apps on your phone. However, Alexa needs to get better at answering basic information-related queries, which we believe will produce sustained utility and growth in Alexa-enabled devices. In a recent test, we found the Echo answered only 41% of information queries correctly.

We found the Echo answered only 41% of information queries correctly.

Device integration pacing well ahead of Google Home.

We count close to 100 manufacturers across several categories that are compatible with Alexa IP today. Smart home coverage, perhaps the most seamless hands free utility Alexa offers, continues to grow – from lighting to locks to thermostat control. Included on this list is Google’s own Nest device, a collaboration that began early last year; however, the relationship has been anything but seamless as a preponderance of Nest skill reviews suggest. We wonder if after a year of collaboration, whether Alexa and Google will ever nest together. Contrasting Echo’s ~100 smart home partners with Google Home, we find a much shorter list. Only around two dozen device manufacturers are integrated with Google’s Assistant IP. Amazon has taken advantage of Echo’s head start on Google Home by pushing integration across many manufacturers and platforms. Google Home will likely follow, but has a long road ahead.

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Feedback Loup: Google Daydream

Google’s smartphone-powered VR platform, Daydream, represents the company’s most significant push to date in its effort to accelerate the adoption of VR. We’ve spent the last few weeks testing the platform with a Pixel phone and a Daydream View headset. Bottom line: Daydream isn’t there yet, but the platform establishes a solid foundation for the future of “low-immersion” VR.

Along with Samsung’s Gear VR  platform and Google Cardboard, we continue to believe these smartphone-powered, low-immersion platforms will drive the global VR user base above 100m by 2018. We expect the vast majority of VR users will be using low-immersion VR over the next several years. Low-immersion platforms are the on ramp for high-immersion VR platforms like the Oculus Rift and HTC Vive, so it is important to understand the low-immersion platforms of today in order to anticipate broader high-immersion use and the future of VR more broadly.

Hardware, software and content are all critical components for the future of VR, but our experience with Daydream left us feeling that content represents the biggest near-term opportunity to show the power of VR.

Hardware: Daydream is powered by Daydream-ready Android phones running the Nougat operating system. Currently, there are 4 Daydream-ready phones, including Pixel, with (many) more on the way. After a month-long wait, we used a Pixel ($649) for our testing of the Daydream platform. These phones pair with the Daydream View headset ($79), which is the best smartphone-powered VR headset we’ve ever used.

Daydream View is the best VR headset we’ve ever used.

Unlike some headsets we’ve tried, Daydream View is wearable. The soft fabric and angled head strap are clear signs of thoughtful design, built for wearability. Plus, in what seems like an industry first, it’s even comfortable for users with glasses. Daydream View comes with a remote control that we found easy to set up and intuitive to use. The remote conveniently nests in the viewer when not in use. Sound can be heard directly from the phone’s speakers, but it’s more immersive to use the easily accessible headphone jack on the Pixel.

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The Five Senses of Computing

The trend in computing towards more natural user interfaces is unmistakable. Graphical user interfaces have long been dominant, but machines driven by more intuitive inputs, like touch and voice, are now mainstream. Today, audio, motion, and even our thoughts, are the basis for the most innovative computer-user interaction models powered by advanced sensor technology. Each computing paradigm maps to one or more of the five human senses; exploring each sense gives us an indication of the direction in which technology is heading.

Sight – Graphical User Interface

The introduction of the graphical user interface (GUI) drove a step function change in computers as productivity tools, because users could rely heavily on sight, our dominant sense. The GUI was then carried forward and built on with the advent of touchscreen devices. The next frontier for visual user interfaces lies in virtual reality and augmented reality. Innovations within these themes will further carry forward the GUI paradigm. VR and AR rely heavily on sight, but combine it more artfully with other inputs like audio, motion, and touch to create immersive interfaces.

Touch – Touchscreen Devices

PCs leveraged basic touch as a foundational input via the keyboard and the mouse. The iPhone then ushered in a computing era dominated by touch, rejecting the stylus in favor of, as Steve Jobs put it, “the best pointing device in the world” – our fingers.  Haptics have pushed touchscreen technology further, making it more sensory, but phones and tablets fall well short of truly immersive computing. Bret Victor summarized the shortcomings of touchscreen devices in his 2011 piece, A Brief Rant on the Future of Interaction Design, which holds up well to this day.

More fully integrating our sense of touch will be critical for the user interfaces of the future. We think that haptic suits are a step we will take on the journey to full immersion, but the best way to trick the user into believing he or she is actually feeling something in VR is to manipulate the neurochemistry of the brain. This early field is known as neurohaptics.

Hearing – Digital Assistants & Hearables

Computers have been capable of understanding a limited human spoken vocabulary since the 1960s. By the 1990s, dictation software was available to the masses. Aside from limited audio feedback and rudimentary speech-to-text transcription, computers did not start widely leveraging sound as an interface until digital assistants began to be integrated into phones.

As digital assistants continue to improve, more and more users are integrating them into their daily routines. In our Robot Fear Index, we found that 43% of Americans had used a digital assistant in the last three months. However, our study of Amazon Echo vs. Google Home showed that Google Home answered just 39.1% of queries correctly vs. the Echo at 34.4%. Clearly we’re early in the transition to audio as a dominant input for computing.

Hearables, like Apple’s AirPods, represent the next step forward for audio as a user interface.

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Feedback Loup: College Panel

We recently hosted a panel of 8 college students from the University of Minnesota. The goal was to better understand how millennials think about social media, communications, video, VR, AR, the selfie generation, the future of work, and privacy. Here’s a summary of what we learned:

Text Is Dying

  • Quote: “Texting replaced email, and photos have replaced text messages”.
  • Message: Text is being used less frequently by each of our panelists. They view text as a formal way to communicate. Snap, Facebook and Instagram are the preferred communication platforms, with Facebook settings being switched to photos only. The panelists mentioned tech platforms promoting messaging within games as a way to maintain usage.
  • Takeaway: Text is slowly going away, replaced by video and photos. Text is viewed more as a formal way to communicate.

Fake News

  • Quote: “I like Snap for news.”
  • Message: Our panelists get their news from a wide variety of sources. 7 of 8 panelists are not concerned about fake news. Snap was the most popular way to aggregate news from traditional sources (3 of 8), followed by mainstream news outlets; e.g., CNN and WSJ.
  • Takeaway: Professional news is still respected but not paid for by these college students.

The Future of Work

  • Quote: “It’s scary. If we can’t have cashiers, truckers and fast food jobs. . . how will people live?”
  • Message: College students know they are entering a workforce that will have dramatic changes over the next 30 years. They have concerns about who’s going to control everything as resources become more concentrated. The University of Minnesota offers a class titled “Size of the Future” that addresses the risk of job loss to automation. The group did consider these changes when thinking about a career, with an increased interest in a more technical education that feels more defensible. Ultimately these students believe that the negative impact of lost jobs will be partially offset by the positive impact of new industries being formed.
  • Takeaway: College students understand that the workforce is changing. They envision social challenges emerging from displacement of workers with lower levels of education. But they believe a college education will ensure that their futures are safe.

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Jump Ball for the OS of the Future

As we watched the run up in SNAP shares since its IPO last week, we wondered how much of the move was based on potential revenue growth of more than 2x in 2017 or investors buying in to Snap’s long term vision as a camera company. Their vision suggests Snap wants to expand its position as an AR platform and compete for the jump ball of the next computing paradigm. That led to a bigger question: who is best positioned to win in AR and own the OS of the future? Here we weigh in on who’s most likely to grab that jump ball.

Counting Down to Tip Off

One of our core beliefs is that every 10-15 years a new computing paradigm emerges that changes the way humans interface with technology. Each paradigm shift creates an opportunity to own a new OS layer. In the late 80s it was the PC, ultimately powered by Windows, Mac and Linux. In the late 90s it was the Internet. We would argue that Google and Amazon provided the closest thing to an OS for the web. In the mid 2000s it was mobile, which is owned by iOS and Android. It’s obvious that the biggest value lies in owning that OS layer as evidence by the market caps of Apple ($730b), Google ($575b), and Microsoft ($490b).

What We Know About The AR OS Layer

We know that over the next few years, most AR functionality will happen through existing mobile OSes (iOS and Android); however, we also know that AR wearables – in order to drive a true paradigm shift – will need their own OS. It seems likely that there are 2-3 winners as the AR OS given what we saw in PC, Internet and mobile.

This is necessary because developers and hardware manufacturers need reach and scale to maximize profits, so they will only build for the biggest audiences. If there are more than 3 OSes, reach and scale will be difficult to achieve.

We also know that there will likely be at least one OS solution that is closed and one that is open. This is another commonality across the PC, Internet, and, mobile. Mac, Amazon, and iOS represent closed or integrated systems. The end-to-end experience is largely controlled by one player that allows some restricted development on the platform. Windows, Google, and Android represent open systems that allow broader utilization by third parties. Closed systems tend to be first to market, and the tight integration of software and hardware offer a user friendly experience that promotes early adoption. Open systems tend to follow, enabling third-party developers to innovate on hardware or software features while utilizing a standard, consumer-adopted OS. This means that hardware tends to become a commodity and, while there are definite challenges around miniaturization and battery today, we expect AR wearables to go the same way.

AR Is A Culmination Of Several Core Disciplines

Another core belief we hold is that the future of computing must build on prior technologies while introducing revolutionary changes; the AR OS will be no different. The winners of the AR OS layer will combine camera hardware with an OS that uses computer vision to map the real world and augment it with a layer of information and present it in a user-friendly interface. The OS will also need to incorporate artificial intelligence including the ability to interpret and interact with user speech as well as environmental sounds. But camera and UX design are just two of the more visible pieces of the AR stack. Supporting those elements are maps with points of interest, organized informational data, social data, a developer community, content, and payments. Unsurprisingly, that definition of the AR tech stack puts established companies like Google, Apple, Microsoft, Facebook, and Amazon in the best position to be AR platform winners because they already have many of the big pieces in place.

Below is a scorecard that ranks many of the major players in AR in each of these core disciplines. We note that low scores in the table represent categories of potential M&A for the corresponding company.

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