I previously wrote a few posts about intelligent assistants. Personal Assistants Enter a New Phase (1), Personal Assistants (2) – Amazon vs. Google, and Personal Assistants (3) – Google Responds cover these insights.
Now we’ve heard from Android Police that the pricing for Google’s Echo competitor will be a big price cut from Amazon’s – $129 (vs. $179 for Echo). This is all but certain to be announced on October 4th, along with a new 4k Chromecast and Google OnHub successor product.
This pricing doesn’t surprise me at all. If you tear apart an Echo, (build one up via the instructions Amazon published), it becomes readily apparent that this device is incredibly simple – a true cloud powered device consisting of a case, speaker, inexpensive microphones, a radio, and a teensy computer. The bill of materials (BOM) cost of the Echo (and presumably also the Google Home) is comfortably under $75. Google can easily come out at $129 and be margin positive.
Why Amazon has atypically kept the price and margin on Echo so high at the expense of greater volume and sockets is a bit of a mystery. I would suppose it’s for some of the following reasons:
- They’ve had limited production so they couldn’t fulfill more volume if they generated it.
- The Echo team thinks they’re in a hardware/gross margin business like Apple, not a sockets business like Google (in which case they are confused).
- They’ve essentially got a monopoly on the category for now, so they’ve been willing to harvest device margin while they can.
- They believe that the Echo’s value prop currently appeals to a limited, wealthy market and lowering the price wouldn’t generate much additional volume.
(1) was likely at first, but surely they’ve ramped now. (2) is a confusion that appears rectified, as indicated by the 3rd party Alexa licensing that’s going on. (3) ends October 4. (4) may well be true. Most of my geek friends really want a Echo, but when I talk about it to others they tend to just stare.
These are the perfect setup for a price war:
- A monopoly player has been harvesting 50% or higher gross margins
- A new player enters with an equivalent product that also has fat margins
- Neither player really cares about the hardware gross margins. These are just sockets/Trojan horses for Amazon Prime and Google Search.
- Both realize that once a home goes Alexa or Google Assistant, they’re unlikely to switch or mix solutions. So grab the homes now, aggressively!
Google will launch, undercutting Amazon by $40. Amazon will match or go lower immediately. They should both rapidly chase each other down to just above the cost of goods, so you could see these products drop below $100 in the next 12 months.
Of course there will also be a feature war. Google has some new wrinkles I find interesting, especially around search and Chromecast, but lacks retail scenarios and surely other features. Each will innovate furiously to out-market the other.
It’s going to be fun as a consumer. And I’d advise everyone to not buy any new devices for a few months…