Richard Windsor
16 March 2017

Amazon vs. Google - Homefront pt. II

Amazon is pre-emptively moving to keep Google out.

Amazon is pulling out all of the stops to ensure that it is Alexa, rather than Google Assistant, that ends up becoming the nerve centre for controlling the smart home. In its latest move, Amazon is offering credits for AWS that are likely to ensure that connecting one’s smart home device to Alexa remains free in almost every circumstance. As the scope of Alexa improves and users can do more with Alexa, it is likely that creators of smart home devices will require more space on AWS that will require them to start paying Amazon. Most device developers are small start-ups with very limited funds meaning that this will be a big incentive to do more with Alexa. At the moment, the free tier gives developers 1m AWS Lamda requests and 750 hours of EC2 compute time per month. Beyond that, developers end up incurring a monthly charge which is something that Amazon is wisely keen to avoid.

With this new program, Amazon is offering a one-time credit of $100 as well as $100 per month towards any charges that they incur as a result of usage of their devices. This is likely to ensure that almost all developers of smart home devices will not have to pay anything to Amazon until they are generating so much usage that they are making plenty of money themselves. This is a very shrewd move as it encourages more developers to sign up to make their devices work with Alexa and also encourages them to make the skills deeper and more intuitive. Currently, most skills are very basic and as a result they suffer from usability problems which in most cases makes it easier to turn the device on manually rather than using Alexa. This looks like a pre-emptive move to keep Google at bay as we see Google making rapid moves to improve its Google Home developer program after being all but wiped out at CES 2017.

Even though Amazon has close to 10m devices installed in the houses of users compared to Google at 0.5m – 1m, the Google Home experience is so superior to Alexa that we still see a risk of Amazon losing this race.  This is why we see Amazon doing everything that it can to show developers love and support which is something that to date, Google has badly neglected. The result is that very few of the smart home device developers are making sure that their devices works with Google Home giving many users more reason go with Amazon’s Echo devices rather than Google. Amazon is also very fortunate that the market’s view of Alexa is so positive as a side by side test of the Amazon Echo against Google Home shows how inferior Amazon is compared to Google. This is why it is still Google’s battle to lose but Amazon is clearly doing everything that it can to ensure that it is Alexa rather than Google that dominates the potentially extremely lucrative market for intelligent home automation.
From an investment perspective, neither of these two companies are desperately appealing leaving us preferring Baidu, Microsoft and Tencent with Apple for long-term income based investors

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