Amazon Pushes Further Into the Home
At its virtual product launch event, Amazon unveiled more than a dozen new or updated hardware/service offerings. While Alexa remains the cornerstone of Amazon’s hardware strategy, the event emphasized the company’s increasing ambitions around security and gaming. Seven of the 12 new offerings were related to those two categories. This year’s offerings come at a good time for the company, as consumers are spending more time at home. Here are our takeaways:
- Amazon increased the starting price for its new Echo offerings by an average of about 11%. This is a surprise, given we were expecting price reductions. We see the pricing move as evidence of favorable demand for Echo. That said, we expect Echo to continue losing smart speaker market share to Google in the years to come. Specifically, we estimate Echo will exit 2020 with 54% (48m units) global market share (excluding China), and 44% (55m) in 2021. Conversely, we expect Google’s smart speaker lineup to increase its 36% (32m) 2020 share to 48% (60m) in 2021. The reason we expect Google to gain share is because it is the more intelligent device, with a growing brand and increasing distribution.
- The company announced five new security hardware/software products as part of its Ring platform. Most notably was the expansion into auto security.
- Luna, a new cloud-gaming subscription service, was announced starting at $6 per month, and it will compete loosely with Microsoft and Google’s offerings. Users can play games with Amazon’s new dedicated Luna gaming controller ($50) or with an Xbox or PlayStation controller. Games are compatible on Fire TV, PCs, tablets, and phones. Luna will have the advantage of being integrated with Twitch, which will allow users to migrate seamlessly between playing and watching games. We estimate there are roughly 45 million monthly Twitch users. Assuming 10% of Twitch MAUs subscribe to Luna, that equates to about $300m of high-margin revenue. As a point of comparison, we expect Amazon will generate about $18B in high-margin advertising revenue this year.
- The new Eero 6 WiFi router is likely to be an important piece of Amazon Sidewalk (to launch later this year), a low-band wireless network that will begin to power the company’s first IoT ecosystem.
Walking a fine line
The strength of the lineup has some drawbacks. While smart speakers and security products are offering increasing value to consumers, they come with privacy concerns, which could soften initial demand. That said, over the long term we expect consumers to become progressively more comfortable that the value these devices offer outweighs the risks to privacy.