The evolution from voice to services

Consumers, for the most part, still use smart speakers for the features listed above. But while natural language processing (NLP) has improved over the years, we are still many years away from emotional and contextual conversations with our in-home AI.
     
So, to fill the void, brands like Amazon and Google are looking to go beyond parlor tricks and provide paid services attached to smart speakers, such as sleep tracking, security, and senior care. And now that smart speakers are in almost three out of every five U.S. homes, it’s a good time to switch strategies. Instead of selling boxes, it’s time to sell services.
           
Plus, the overall smart speaker market has peaked. Globally there were 56 smart speakers introduced to the market in 2019, but only 33 in 2021. Another sign is that brands that embedded voice assistants into their smart speakers — like Sonos, Bose, JBL, and Harman — haven’t introduced new products with integrated voice assistants in nearly three years.

It may be a difficult time to introduce paid content and services for smart speakers. Other subscription services, such as Netflix, are experiencing an exodus. In its latest earnings report, Netflix said it lost 200,000 subscribers in the first three months of the year and is expected to lose up to 2 million subscribers during the second quarter. CNN+, meanwhile, never even made it off the ground. It's also easy for hard-pressed consumers to cancel a streaming service or other form of discretionary spending. And an average U.S. household currently has seven streaming subscriptions!

Security services, on the other hand, have been notoriously resilient. For the last few decades, the number of U.S. households with paid professional alarm monitoring has remained at a steady 25%-30%, even despite the rise in DIY systems that are mostly free. Amazon has already taken advantage of this, starting in 2020, with Alexa Guard. And once smart speaker brands became able to identify sounds, like breaking glass or smoke detector sirens, Amazon in September 2020 started charging $4.99 a month for Guard Plus, which offers notifications. 

For senior care, Amazon in December 2021 replaced the free Alexa Care Hub with a new paid subscription service called Alexa Together. This premium service costs $19.99 a month, and includes access to a professional emergency helpline and fall detection with proactive emergency support.
    
Wellness services delivered via smart speakers are also on the horizon. Google announced sleep tracking via its Soli chip in its latest Nest Hub, in early 2021. While Google says it aims to focus on sleep duration as well as consistency and quality of sleep using a combination of radar and microphones, in 2023, the company is expected to roll Sleep Sensing into Fitbit Premium, which costs $10 per month.

Will consumers spend on services?

Paid services are the holy grail for smart speakers, but will they succeed? Once consumers start paying for services delivered via a smart speaker, these devices will become content carriers. Which will be different from consumers’ original expectations of smart speakers as fun providers of free content detached from paid applications.
     
What a viable business model looks like, and how to get advertising and paid services on smart speakers, remains unclear, but as more speakers are replaced with smart displays, the opportunities for brands become more obvious. For instance, advertising on a display could be interpreted by consumers as less invasive relative to advertisements at the tail end of a response from Google or Amazon, and developers could create shopping experiences on a display, like Instagram does. Netflix and other streamers are already adding service tiers with advertising to serve hard-pressed households.
 
At first, smart speaker services will continue to rely on security and peace of mind, but will morph quickly into health monitoring and senior services. Smart speakers will also become part of an omnichannel approach for care provided by hospitals and physicians. Chatbots and SMS communications are already popular, but smart speakers could introduce a new level of service. To be sure, there is a macro trend in health care to provide services outside of the traditional clinical environment, which is creating a strong tailwind for devices in the home like smart speakers and other IoT devices. In the longer term, as AI assistants aggregate more data, their makers could then offer insurance, fintech, transcription, art creation (NLG), and other services that are highly personalized based on vast amounts of shared data across ecosystems.
     
Among the questions that remain are: Will consumers allow — and trust — smart speakers to become more than fun and free content providers? If so, will the offered services be updatable and sustainable over the long term? And will consumers see the benefit of them? Finally, as competition for a portion of a consumer’s subscription budget increases, will there be enough left over for the smart speaker market?
          
If the answer to any of these questions is no, then I believe smart speakers risk becoming the new digital photo frames, which are low touchpoint devices with a single purpose. Digital photo frames don’t link consumers to other ecosystem services or feed data to machine learning algorithms. Nor do they lead to lucrative opportunities with other industries like health care, automotive, hospitality, and education.

Blake Kozak is a smart home analyst at Omdia.

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