Apple’s new gadget will be crushed by Amazon

Apple has a long way to go to catch up.

Apple announced the next big thing yesterday: a voice activated speaker called the HomePod. It looks sleek, and by all accounts the speaker sounds great.

But there’s a problem: Apple is two and a half years behind on this. Amazon has beaten it to the punch. The next big thing arrived in 2015, and it’s called the Amazon Echo.

The Echo is Amazon’s voice activated speaker. Amazon launched it out of the blue in 2015, and it’s been a surprise smash hit.

I know voice recognition isn’t exactly new. It’s been around on smartphones for five years already. And I know, on smartphones, voice recognition is a bit of a gimmick. It’s rarely easier to ask a phone – which is already in your hand – to do something, which could be done by touching the screen.

But the thing is, voice recognition makes a lot of sense when you’re at home.  When you’re at home you don’t carry your phone around with you. At home, bossing a computer around verbally isn’t a gimmick. It’s a convenience.

You can tell the Echo to do all kinds of stuff: play music, set an alarm, remind you when to check the oven, order paper towels on Amazon, turn on the central heating, switch off the lights… and about 5,000 other jobs.

The people love it. The Echo is on track to ship more than 10m units by the end of this year (and for what it’s worth, it has a 4.3 star rating on Amazon.co.uk, based on 7,152 customer reviews).

Apple has a long way to go to catch up.

Amazon’s ace in the hole

Three of the big technology companies, Apple Amazon and Google, are going for this market hammer and tongs. Each have their strengths and their weaknesses, but I think Amazon is going to win out.

Google’s new speaker, which is called Assistant, has the cleverest, most flexible voice recognition technology. Google excels at voice recognition, because it’s been interpreting human speech and text commands since forever.

Apple’s new speaker, the HomePod, doesn’t have the best voice recognition. That’s because Apple’s been focused on making great phones and selling them to the richest 25% of the population. In doing so, it’s had to restrict the amount of data it takes in. If you’ve used Siri on an iPhone, you’ll know it’s not up to much. But Apple’s new speaker looks great, in true Apple fashion, and it has the best sound quality. It’s also about five times the price of Amazon’s.

Which takes me to the Amazon echo. Why do I think it’ll win?

It comes back to Amazon’s business model, something I’ve written about recently. Amazon doesn’t so much make products as make the building blocks of products. It builds services anybody can use. Then it opens those services up to anybody.

For example, instead of building a giant “Amazon IT department”, it build Amazon Web Services (AWS). Amazon uses AWS for its own IT, and sells it to other companies too. Now AWS handles IT for tens of thousands of companies and brings in £12bn per year.

It’s the same with fulfillment. Amazon doesn’t build “Amazon warehouses”. It builds fulfilment centres, which can be used by anyone. Likewise with delivery. And customer services. And soon, overseas cargo.

So how would you expect Amazon to approach voice recognition?

Naturally, it’s opening up its technology for anyone else to use. Amazon’s making it really easy for other companies to program voice recognition commands into the Echo. That’s why the Echo has such a huge range of “skills” – over 5,000 already. You can use it to order food via JustEat or an Uber, or play music on Spotify. Amazon doesn’t care if other companies are making money off the Echo, so long as they make the Echo more useful for customers.

And it goes further than that. Amazon is also offering the “brains” of the Echo, its voice recognition software, to any developer who wants to use it for their own products. That means tiny developers can use Amazon’s technology to power their own voice-activated car stereos, or hoovers, or whatever.

Business models matter

That’s why the Amazon Echo is going to win. Amazon is going to beat Apple and Google in this market because its business model is better suited to this market. It doesn’t need to make any profit margin on the speakers themselves. It can sell them at cost because Amazon knows it’ll make money by flogging paper towels, Amazon music and any other stuff people will buy through the speakers.

Amazon might not have super clever, flexible voice technology like Google (the Echo gets flummoxed if you vary your voice command in a weird way). But that doesn’t matter so much, because thanks to an army of third-party developers, the Echo is getting smarter and more useful all the time. And of course, just by sitting in people’s living rooms listening to voice commands, it’s getting better at interpreting awkward commands. The stuff Google is already good at.

So what’s the moral of the story? The moral is that, when you have ridiculous economist of scale as Amazon has, that can be leveraged in all kinds of ways. It can build an unbeatable ecommerce operation, or a cheap convenient voice activated speaker, or the backend of companies’ IT.

It must be fun to be Bezos. Plotting which old industry to destroy next, or new industry to capture.

By now, you’ll have seen my new Amazon investment strategy. It’s about capturing a small slice of Amazon’s growth… in a way that generates potentially huge returns.

Click here to learn how I’m doing it.





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