The smart speaker market faces an uncertain 2023

The smart speaker has become a cornerstone of many smart home setups, but with the economy slowing, that vision could be in jeopardy.

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

“While smart speakers have undoubtedly helped propel the smart home category, the luster of these products has largely worn off for consumers in developed markets such as the United States and China, and shipments are expected to decline in the long term,” Jitesh Ubrani, Research manager at IDC, said in a research release. “Smart speakers will now rely on emerging markets and places like Europe where language and lack of services have been barriers to adoption in the past.”

Ultimately, analysts told us the decline could be just a temporary setback, noting that decisions by big players like Amazon to scrap related deals and projects are part of the market’s overall response to pandemic-induced overexpansion. For its part, IDC predicts that the global market will continue to grow in 2023 after last year’s decline, with shipments forecast to grow by 4.6% this year.

“It’s really the economic environment that’s driving this moment right now,” Jordan Marlatt, technical analyst at Morning Consult, told us. “And with that, I think it’s temporary.” We’re not going to see what happens now in terms of their decisions to invest less or be more aware of the costs that go into innovation and R&D in this space, survive the next 10 or 15 years at that level of caution.”

Losing your 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.

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But Amazon isn’t the only tech company to scale back its voice assistant ambitions. Google is reportedly reducing its investment in Google Assistant for “non-Google devices,” 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 “the smart speaker market will go through a correction period.”

“The sheer volume of smart speakers that have been sold in the last three or four years means we’re at 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 companies like Amazon and Google may want to change the monetization strategy around their voice assistants, which has historically focused on delivering ads or driving purchases through the voice assistant. He said companies may need to focus on smaller pieces of hardware or consider raising prices on speakers that can currently be sold at a loss.

“If they are able to position Amazon Echo devices more as the heart of the smart home and drive sales of other devices, they cover their own costs and turn a profit.” [on], then I can multiply my income that way,” said Marlatt. “It’s much more of a hardware play rather than feeding into the shopping experience.”

Many functions of smart speakers could eventually be replaced by other devices like smart TVs, says Anshika Jain, senior analyst at Counterpoint Research.

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

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