Is Amazon friend or foe? Here's my two cents. Amazon engaging in the custom installation business is good for both manufacturers and integrators. The company is growing the smart home market exponentially, has made it easy for manufacturers to integrate their products, and is engaging with integrators to drive them referrals.
First let’s look at the consumer awareness Alexa voice control is bringing to the market. Only one in 10 homes in the U.S. has a smart home device today so the market is still most unpenetrated. Indeed, many people simply do not want to be bound to have to physically move to a specific place in their home to the touchpanel or carry their phone with them at all times to activate their smart home automation. Also, people do not like digging in to layers of a touchpanel. Thus, voice has become an easier way for homeowners to connect to their devices.
The market data is irrefutable:
- In 2014, voice search traffic was negligible. Today, it exceeds 10 percent of all search traffic.
- Siri, Google & Cortana exceeded 50 billion voice searches per month.
- By 2020, over 200 billion searches per month will be done with voice.
“Most technology products die in what is called the ‘chasm’ which is when they move from early adopter stage to early majority. Right now, voice control is crossing the chasm,” says Dan Quigley, STO, senior manager, Alexa Smart Home.
“So why is that important? The technologies behind voice rely on usage… they get better over time. Since Alexa has been out in the world, the voice recognition has improved by several thousand-fold in terms of reducing the number of errors. Right now, we are 99 percent accurate. And we are expanding with more languages and dialects all the time. As Alexa gets used, she gets smarter. She learns,” remarks Quigley.
Quigley cites data from Design News that states by next year, 30 percent of all interactions with technology in the home will be via conversations with smart machines. And by 2020, there will be 3 billion devices in the field using voice recognition.
“This is just starting. We are now at the point where the early majority will be using voice control… and that means everybody,” he says.
By the end of this year, 45 million homes in the U.S. will have some level of voice control from Alexa, Siri or Google Home, equaling $12 billion in revenue.
Point/Counterpoint: Amazon Is Our Foe
Open API for Manufacturers Makes It Easy
While consumers are interested in having a smart home, they are utterly confused.
“People literally believe that Z-Wave and ZigBee products are compatible because they both start with the letter Z,” he chuckles.
To solve that problem, Amazon made the Alexa service “self serve” for developers and manufacturers via an open API, which makes it easier for manufacturers to add Alexa connectivity into their own products. It also means Amazon does not have to spend any engineering time and money on writing Alexa drivers.
According to Quigley, when Amazon launches a new Alexa feature, the company selects three manufacturers in the space and works closely with them to develop the API, which is then made public for free for all manufacturers. Manufacturers of custom installation equipment have taken advantage of the open API. According to Quigley, Alexa can achieve more than 20,000 skills. Of those, about 1,000 of the skills are aimed at custom installation tasks for equipment such as Crestron, Lutron, Control4, Sony, RTI, Sonos and others.
To help suppliers even more, Amazon recently set up a smart home store (amazon.com.smarthome) and a program called Works with Alexa in which Underwriters Labs (UL) certifies the skills for Works with Alexa. There are certain guidelines that Amazon publishes that must be maintained and are tested against. For instance, Alexa cannot be commanded to “open a door” because it does not have voice identification. Without that ability, a burglar could just drive up and down a street with a bullhorn yelling “Alexa, open the garage door” and the houses with Alexa would have their garage doors open.
Referral Service for Integrators
Why are integrators important to Amazon? Quigley calls custom integrators “the new architects” of the smart home.
He cites data from Parks Associates that even though 60 percent of consumers say they will self-install smart home products, the majority of those consumers prefer to have someone else install the products for them.
“One of the big issues with the custom installation channel is getting awareness among consumers that you exist. How do they find you and how do consumers select which integrator to use? Since most of your business comes from referrals, getting awareness is a very expensive and usually not very attractive proposition,” says Quigley.
Well Amazon has several ways to help.
First, integrators can join Amazon Business for free. This allows a CE pro to buy things in bulk quantity, have Amazon invoice your clients immediately for you if desired, and receive fast shipping. If an integration company identifies itself as a CEDIA member, it will get discounts on Echo products.
“We are not trying to take business away from reps. There are things that we do not sell and will never sell. For example, we will never sell Control4. But for wires, cables and tools and other products that are readily available, this is a great way to leverage Amazon,” says Quigley. “Why are we doing this? We want Alexa everywhere. We are not trying to horn in on your business. We are not trying to take over the world. We believe having Alexa everywhere will improve our business.”
Secondly, dealers can receive referrals from the 2 percent of clients who use the free Amazon Home Services but want more integration.
Currently, Amazon Home Services consists of badged Amazon employees who are dispatched upon request into homes to do a site survey and help consumers select some products if necessary.
“They are not integrators. We are not sending them into homes to do full-bore automation,” says Quigley. But 2 percent of all visits made by Amazon Home Services team members end up elevating to a classification of interest to an integrator.
“Two percent of Amazon’s business is a lot. Two percent [of our customers] need your services and we have no way to fulfill that need.” So, those clients will be directed to the third leg of the stool, which is the Amazon Custom Home Services Program.
“We want to connect consumers with integrators, because right now it is easier for some kid living in a $900 one-bedroom apartment to have working voice control than it is for a person who has a 30-room mansion. Amazon really wants that guy [with the 30-room mansion] as a customer, and custom integration is the path to get to that guy. We have to embrace [custom installers] as partners,” says Quigley.
He notes that 44 percent of all web searches for the intent of buying something start on Amazon.com. That compared to 34 percent of people intending to buy something who use a general search engine.
“So it would stand to reason that anyone looking to buy custom installation services will use Amazon.com. So we want to leverage that with our new Amazon Custom Home Services Program available only to custom installation companies with at least one employee who has a CEDIA ESC designation,” he says.
In the program, Amazon has a landing page that directs consumer to see highlights of an integrators’ work. Dealers can submit photos and descriptions of their work for the landing page. Integrators select the zip codes from which they want to receive leads, then they have an opportunity to bid on project in those zip codes. There is no fee to be in the Custom Home Service Program and dealers do not have to abide by any pricing rules.
After December 31, 2017, CE pros will have to share a portion of their labor revenue with Amazon. The exact percentage is not yet determined, but Quigley believes it will settle somewhere around 10 percent. None of the products installed in the job need to be purchased via Amazon.com. In terms of cash flow, the client pays Amazon for the project, and Amazon remits the money to the integrator.