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August 21, 2018 • Volume 22


Voice-powered commerce is overrated... for now

recent article in The Information revealed new data about Amazon's Alexa line of voice-powered devices, most prominently represented by Echo Smart speakers. First, we learned that about 50 million devices have been sold to date globally. That's a lot of voice-powered digital assistants, most of which Rakuten Intelligence data tells us were the less expensive Echo Dot devices. 

The datapoint that caught my attention, though, was the article's contention that only about 2 percent of Alexa device owners have purchased WITH their devices during 2018. A ComScore survey from 2017 found that 11 percent of smart speaker owners had purchased through their devices at least once, probably a bit of an overstatement [surveys often make us appear more tech savvy than we really are], but not entirely incompatible with The Information's data, which found that 90 percent of those that bought with their smart speakers made only one purchase.  

My own reading of our own data and the data "tea leaves" that I've seen elsewhere tell me this:

  • Roughly one third of U.S. households have at least one voice-powered speaker in their house. That is an incredibly fast penetration for an entirely new type of device in only three years. It took electricity about 20 years to reach that same level of household penetration.
  • The vast majority of usage of those devices is listening to music, checking the weather, and setting alarms and timers and such. A consumer doesn't need to use the device for much more than that to justify the expense.
  • A brave few have purchased with those devices. Many consumers realized that it isn't easy to buy the types of things they buy from Amazon [electronics, apparel, home goods] via voice and didn't do so again. I'm guessing that somewhere between 5 and 10 percent of Echo owners have purchased at least once and that a vast majority of those people did so just once. I completely believe that the 2 percent figure cited in The Information report was in the right ballpark, unless Amazon gives us something more tangible.

Let's make some sense of voice-commerce hype

What's happened, I think, is that the crazy fast penetration of smart speakers caused us all to get caught up in a smart speaker "hype cycle." Because ownership of these devices was "growing like crazy," we assumed that everyone was taking advantage of the full range of functionality despite the inherent limitations of the technology and concerns of consumers.

It reminds me of the beginning of the Internet era when Wall Street and Silicon Valley invested too heavily in all things Internet-based, despite limited consumer usage of features such as video and e-commerce, well before consumers were prepared to embrace these use cases. 

Fast forward to today and Amazon, Google, Apple, and Microsoft have invested significantly in the development of voice-based platforms. With 50 million devices sold and the average Echo price at $71 -- as reported by Rakuten Intelligence -- Amazon would've made between $3 and $4 billion in revenue, undoubtedly less than it has invested. But these investments are likely on a far smaller scale than we saw during the first .com bubble 20 years ago. 

I believe, though, that as we saw with Internet video and e-commerce, it is highly likely that consumers will adopt voice purchasing over time. At this point, I'm much less interested in the absolute number of voice purchasers than I am with the growth in engagement with smart speakers, and with the growth in buyers and sales through voice speakers. 

Every single new technology that has ever existed went through a period where a small percent of people were using it. The chart below tracks household penetration of various technologies over time. The telephone was invented in 1876, but it didn't hit 33 percent household penetration until about 1910 -- that's 35 years! 

With voice commerce, we went through a hype cycle which is now being knocked back down to earth. But just because there has been too much hype around voice commerce doesn't mean that there wasn't substance in the first place.

Here are my predictions around voice commerce:

  • Most product categories will not lend themselves to voice commerce. We will not buy flat screen TVs, sweaters, and dining room furniture with our smart speakers. Items that require regular replenishment are highly amenable to voice commerce, and will ultimately thrive in that environment. As a user of subscriptions, Dash buttons, and voice purchasing, I can comfortably say that voice replenishment of items that I have purchased previously (in mobile or desktop environments at first) is the best mousetrap of the three. Dash buttons are a pain in the neck to set up, and subscriptions strip away too much control.
  • The best rough benchmark for the three to five year potential of voice commerce is to look at subscription penetration in a category. Fifty-four percent of diapers, 27 percent of pet food, and 24 percent of paper towels and bath tissue are bought through subscription on Amazon. This is despite the lack of control that subscriptions offer, where we wind up accumulating lifetime supplies of these items in short order if we're not diligent.
  • Introduction of voice-powered user interfaces like having Alexa hardwired into our cars, where we are captive for an average of nearly 300 hours per year, is going to dramatically escalate the opportunity for voice commerce.

Hey Alexa, don't abandon all hope

Skeptical brand marketers and retailer CIOs might be tempted to view this new data as an excuse to ignore the voice commerce opportunity, but they will do so at their own peril. Retailers and brands that sell replenishable products must keep their foot on the gas in the v-commerce space, which is poised to grow and change dramatically as consumers gain comfort with devices that we can talk to. And they should begin to add marketing opportunities to their v-commerce strategies.

No, voice is not the future of computing, but it is a means of interfacing with computers that will supplement [not replace] keyboards. Voice commerce is not the future of commerce, but it is a component of how consumers will replenish. 

Hype cycles drive both overreactions and undereactions. To the few of you who overreacted to the v-commerce hype, be sure that you don't go too far in the other direction.

About Ken

Ken Cassar is vice president, principal analyst at Rakuten Intelligence, where he looks at trends in the e-commerce industry armed with Rakuten Intelligence's robust set of online sales data.

Ken brings a rich online retail background to Rakuten Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.

Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Rakuten Intelligence's profile. He also has the appropriate jacket for every occasion.