What’s ahead for the struggling smart-speaker market?

The smart speaker has become the cornerstone of many smart-home setups, but with the economy slowing down, that vision might be at risk.

Smart speaker leaders Amazon and Google, which together account for more than 90% of the US smart-speaker market, per CIRP data shared with us, have faced challenges in recent months. And according to IDC, the all-too-familiar tangle of inflation and supply-chain issues led global smart-home device shipments to shrink by an estimated 2.6% last year, to 874 million units.

“Though smart speakers arguably helped launch the smart-home category, the shine of these products has largely worn off for consumers in developed markets such as the United States and China, with shipments expected to decline in the long run,” Jitesh Ubrani, research manager at IDC, said in a release about the research. “Smart speakers will now rely on emerging markets and places like Europe where language and lack of services have been a barrier to adoption in the past.”

Ultimately, analysts told us that the decline might only be a temporary setback, noting that decisions by big players like Amazon to cut related jobs and projects are part of the overall market response to pandemic-driven overextension. For its part, IDC predicts the global market will resume growth in 2023 after last year’s decline, with shipments forecast to rise 4.6% this year.

“It’s really the economic environment that’s driving this moment right now,” Jordan Marlatt, a tech analyst at Morning Consult, told us. “And so with that, I think that it’s temporary. We’re not going to see what is happening now in terms of their decisions to invest less or be more cognizant of the costs that are going into innovation and research and development in this space, persist for the next 10 or 15 years at that level of caution.”

Losing their voice?

When Amazon announced company-wide layoffs in November 2022, one division was reportedly hit particularly hard: Alexa.

Amazon, which dominates the US smart-speaker market, is also reportedly on pace to lose “about $10 billion on Alexa and other devices” in 2022 alone, according to Insider.

But Amazon isn’t the only tech company appearing to shrink its voice-assistant ambitions. Google is reportedly scaling back its investment in Google Assistant for “devices not made by Google,” according to The Information. And back in 2021, Microsoft removed its own voice assistant app, Cortana, from iOS and Android devices.

Adam Wright, research manager for IDC’s smart-home and office devices program, said that “the smart-speaker market is going to go through a period of correction.”

“The sheer, massive volume of smart speakers that have been sold over the past three or four years means that we’re at a saturation point,” Wright told us. “Most households that would be interested in one of these already have at least one, if not two, three, four, five.”

Marlatt said that companies like Amazon and Google may look to change the monetization strategy around their voice assistants, which has historically centered around delivering ads or encouraging shopping via the voice assistant. He said companies may have to focus on fewer pieces of hardware or consider raising the prices of speakers that may currently sell at a loss.

“If they’re able to position Amazon Echo devices more as the heart of the smart home and drive sales for other devices that they themselves cover their costs and make a profit [on], then they can multiply their revenue that way,” Marlatt said. “It’s much more of a hardware play instead of feeding into the shopping experience.”

Many smart-speaker functions could eventually be replaced by other devices like smart TVs, according to Anshika Jain, a senior analyst at Counterpoint Research.

“There are other smart-home products, which you are basically using as a gateway device or remote-control device,” Jain told us. “Smart speakers are used to control your other smart-home products, but now that functionality can be done using your mobile device itself. You just give it a command, and you can directly operate that different smart-home product through different apps that are already there.”