How Smart Speakers Can Boost Alphabet's Revenues

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Recently, Google (NASDAQ: GOOG, GOOGL) launched the Home Mini smart speakers. While Home Mini is a smaller and cheaper version of Google Home, it boasts most of the primary features available in Google Home, such as the ability to stream music and manage a wide variety of connected devices. With this launch, the company is trying to challenge Amazon's Echo Dot. However, that is somewhat of a daunting task, as the Echo Dot has a first mover's advantage and better third-party support for Amazon Alexa, the AI that powers Echo.

Nevertheless, the company hopes that this launch can help it to capture a significant share of the smart speaker market, which is expected to grow to $17 billion by 2021. Moreover, it also hopes that various iterations of the product can help the company improve its standing in the home appliances industry and the smart home market, which will likely rely on the use of non-intrusive AI engines installed on hardware to relay messages. In this note, we explore the strategy behind the launch of these connected devices.

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The Smart Home Market Poised To Grow

With the increasing availability of high-speed internet, the smart home market - which includes lighting control, HVAC, security & access control, entertainment, home healthcare, smart kitchen, and home appliances - is at an inflection point. According to MarketsAndMarkets, this industry is expected to grow at a CAGR of 13.61% to $137 billion by 2023.

According to Mckinsey, the number of smart connected homes has gone up from 17 million in 2015 to 29 million in 2017, a year-over-year growth rate of 31%. While many applications, software and services will emerge with the growth in connected homes, Mckinsey states that "with the advancement in voice control and AI, the intelligent assistant is now a viable control center for the connected home."

As a result, over the past few years, many companies such as Amazon, Apple, Microsoft, and Alphabet are offering AI-powered smart speakers that offers hands-free activation and interactive actions to control some aspects of home automation.

Speakers Can Help Google To Gain Ground In The Smart Home Market

In the last few years, Google has taken steps such as the acquisition of Nest Labs to build its connected HVAC and security solutions portfolio. However, a plethora of connected devices will be in use in the future. According to Gartner, nearly 5.2 billion connected devices will be in use in 2017 in the consumer segment. This number is expected to increase to over 7 billion in 2018. As the number of devices that can be accessed and controlled through the internet increase, the need for a central command unit that can control these devices both locally and remotely will grow. A home speaker that can initially provide basic capabilities to run internet-based applications and services can help a company to consolidate its presence in the smart home industry. Therefore, Google's launch of Home Mini is a step in the right direction. We believe that Google is well-positioned to not only cater to the needs of early adopters but also extend its services (based on its AI and Home speakers) in this domain for future application and services by unearthing troves of user-centric data and preferences. The company can then use this data to improve its online ad capabilities and spot demographic behavior trends. Nevertheless, if the sales of Home speakers gain traction, and Google can capture even a small share in the growing smart home industry, it could see over $1 billion in incremental revenues.

We currently have a $915 price estimate for Google's stock, which is around 10% below the current market price.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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