The Alexa Empire: Apple's pre-loss

by Uluroo — January 1, 2018

The first Apple failure of 2018 has already been predicted. Apple's first foray into the smart speaker business is higher-priced and represents Apple's longtime strategy of taking profit share rather than market share — and it proves that even more than ten years after the high-priced iPhone was unveiled, some people don't understand how Apple works.

Writing for PCMag, David Murphy declares, "Sorry Apple, Amazon's Alexa Already Dominates Smart Speakers."

Much like Blackberry dominated smartphones a decade ago and continues to do so to this day.

What? Aren't you all reading this on your BlackBerrys?

Apple's HomePod might be in trouble. We're not talking about its design, or even its delays—annoying and expected as they might be. There's the simple fact that Amazon, at this moment, is a smart home juggernaut, and that will make Apple's first steps into the smart speaker space that much trickier.

If the fact that a company is already controlling a product category is all you're using to predict the HomePod's doom, Uluroo would like to introduce you to Blackberry, the smartphone juggernaut that, um, squashed the iPhone like the bug it is.

... that's what M.G. Siegler, general partner at GV, argues in a Medium post highlighting a telling statistic from The Economist: Amazon has sold 75 percent of the world's smart speakers and is now the largest speaker brand worldwide.

Wait... you mean that one of Apple's rivals is selling more affordable devices in a bid to take market share? They might be on to something!

Additionally, Amazon's Echo Dot at Amazon was its top-selling device for holiday shopping and the Fire TV Stick, with its Alexa smart assistant built-in, took second place. That's a lot of Alexa in a lot of hands and a huge milestone for Amazon, Siegler says.

Come on. Market share means nothing unless a company has the profits to back it up. Uluroo could sell a million hot dogs for a dollar each, but he'd make less money than someone who sold five hundred thousand burgers for three dollars each. This is simple math. Market share can only measure how many of a device a company sells. It is not a metric of success.

"... As we're all well aware, Apple had to delay their foray into the space, the HomePod, into 2018. But not only did they miss the all-important holiday shopping season, I'm increasingly thinking that they may have missed the boat," [Siegler] writes.
"Believe me, I know how dangerous this line of thinking is with regard to Apple. Apple is almost never the first-mover in a market. Instead, they prefer to sit back and let markets mature enough to then swoop in with their effort, which more often than not is the best effort (this is both subjective in terms of my own taste, and often objective in terms of sales). But again, I increasingly don't believe that this will be the case with their smart speaker."

Okay, so why is it any different in the smart speaker category?

According to Siegler, Amazon's advantage comes from its attempts to get Alexa in as many hands as it possibly can. When it's selling an Echo Dot for $29, that's low enough to make shoppers much more interested in giving the smart device a try—not so much for a smart speaker that costs hundreds of dollars.

Oh, you mean the same advantage that every one of Apple's competitors has. Amazon is like all other companies that seek market share. There's no difference in the Echo's case.

"All I know is that I love Amazon's Alexa strategy right now. And I think Apple is in for a rude awakening with the HomePod if they wish to ever compete in this space — which they obviously do. Apple doesn't mind being late to the game. In fact, they prefer it. But it feels like the game has changed ahead of their entry, for once," Siegler writes.

The game has shifted away from profits and toward market share. So why do we think Apple wants to play this game? Here is a very simple question. Which of these two companies is the most valuable company in the world?

(A) Apple

(B) Amazon

The success of Apple's non-market-share strategy shows in its profits. In the end, that's what any company is looking for.

In fact, not only is the Echo not giving Amazon nearly the same profits as Apple seems set to get, it's a huge cash drain. Amazon may have lots of Alexa devices all over the place, but its profits are nowhere to be seen.

We have no idea how the HomePod is going to sell. Uluroo doesn't know if the high price will drive customers away. But if it's anything like the iPhone, it will make more money from fewer sales. The argumentation of the market share beast is practically begging for a BlackBerry reference, and although HomePod sales are up in the air right now, it's pretty easy to say that Apple is set to take in a ton of cash if the HomePod is the iPhone of the smart speaker category.

It seems that 2018 is another year of misunderstanding Apple's strategy. Whatever pundits say, Apple will continue to seek money rather than market share. Based on where things stand right now, Uluroo thinks that's a pretty good strategy.