China's Smart Speakers Enter Early Maturity Phase
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This article summarizes the changes in smart speakers during their early maturity phase and future development trends.
Speed often keeps the market in rapid iteration, with many thresholds crossed inadvertently. China's smart speaker market crossed three major thresholds in 2019:
These phenomena indicate that China's smart speakers are entering an early maturity phase.
The U.S. market, in contrast, is relatively more mature, with high market penetration driving smart speaker technology, products, and ecosystems toward clearer directions. The U.S. market is also entering its early maturity phase.
The uniqueness of the two battlefields on the eastern and western shores of the Pacific Ocean once again presents distinct competitive landscapes.
Geoffrey Moore constructed a model dividing a product's lifecycle into five stages: development, growth, early maturity, maturity, and decline.
In May of this year, U.S. professional smart speaker and podcast research institution voicebot.ai released a consumer research report on smart speakers, directly labeling 2019 as the early maturity phase for smart speakers.
The reason is simple. Both user numbers and speaker quantities are crossing critical thresholds.
The proportion of U.S. adults owning smart speakers rose by 40.3%, from 47.3 million to 66.4 million.
The average number of smart speakers per user increased from 1.8 in 2018 to 2.0 in 2019. Households owning 2-4 smart speakers are becoming increasingly common.
voicebot.ai made two predictions:
The arrival of the early maturity phase means market competition will no longer be as simplistic and crude as before. A likely change is that the number of adults owning smart speakers will soon surpass the 50% mark, entering a phase of incremental market competition.
Production costs will significantly decrease, enabling mass production. Potential buyers will gradually convert into actual purchasers, and similar or improved products will flood the market.
In Q3 of this year, Amazon emerged as the biggest winner in the smart speaker market, topping the charts with a 36.6% market share and shipping 10.4 million units—such massive shipments are propelling the U.S. smart speaker market into a volume-driven phase.
Extrapolating at this rate, by Q4 2020 at the latest, the number of U.S. adults owning smart speakers will exceed 100 million.
Like the U.S. market, China is also entering an early maturity phase, but its performance differs markedly. Let’s examine what happened in China this year.
In May, Canalys data showed that the U.S. was no longer the leader in the smart speaker market. China's smart speaker shipments grew by 500% in Q1 2019, surpassing the U.S. and capturing 51% of the global market share.
This surge was largely driven by Baidu's Spring Festival Gala promotions and the expansions of Alibaba and Xiaomi. Xiaodu speakers shipped 3.3 million units in Q1, second only to Amazon's 4.6 million and Google's 3.5 million, with Alibaba and Xiaomi close behind at 3.2 million units each.
In Canalys' Q2 data released in August, Xiaodu retained its domestic lead with 4.5 million shipments, surpassing Google globally to claim second place.
China's market evolved from a tripartite standoff among Baidu, Alibaba, and Xiaomi to a two-horse race between Baidu and Alibaba.
The significance of surpassing the U.S. in shipments lies in the vast scale of China's internet market, which will drive model innovation, technological experimentation, and cross-disciplinary integration—take, for instance, the early adoption of screen-equipped smart speakers in China, a result of the market's complexity and diversity, which we’ll revisit later.
The era of smart speaker subsidies has ended. With the onset of the 2019 market downturn, no players are willing to continue subsidizing. In fact, past low-cost smart speakers have already fulfilled their role in market education.
Entering the early maturity phase, balancing sales and profits is crucial. Hence, Xiaomi and Baidu are returning to normal competition.
Geek Park reported that during the fiercest price war, Xiaomi's Xiao AI speaker proactively slashed prices, reducing the Xiaomi AI Mini Speaker from 169 yuan to 99 yuan to match Tmall Genie. The responsible team intervened promptly, but the 20,000-unit loss incurred a 1.4 million yuan deficit. For the near-zero-profit Xiao AI speaker, recovery was slow.
Baidu followed a similar path. In September, U.S. tech media ZDNet published an article titled Baidu Ends Huge Subsidies on Smart Speakers Amid Price Wars in China.
The article quoted Baidu VP Jing Kun, who stated that the initial goal was to lower barriers, but now the industry needs to 'run on its own.'
To me, Jing Kun's 'run on its own' implies a future where solid technological and product advantages attract consumers.
China's smart speakers have entered the screen-equipped era, embracing it more enthusiastically than the U.S. market, even introducing more diverse interaction technologies.
At the 2019 Baidu AI Developer Conference, Xiaodu在家1S launched 'full-duplex wake-free capability,' enabling 'one wake-up, multi-turn interaction' and simultaneous human-machine dialogue without interference. The December-released Xiaodu在家 Smart Display X8 added far-field voice interaction, facial recognition, gesture control, and eye-tracking wake-up—multimodal AI innovations.
Diverse interaction technologies improve user experience. According to the Smart Speaker Technology Analysis and Maturity Evaluation report by the Chinese Academy of Sciences, Xiaodu smart speakers were the only products with a comprehension rate exceeding 90%. In meeting user needs and experience, Xiaodu also scored highest in evaluations.
When users want to watch a video on a tablet, a gesture, glance, or voice command can wake the smart display, eliminating manual clicks or searches—further elevating consumer experience.
However, U.S. media PCMag's The Best Smart Speakers for 2020 list featured only screenless smart speakers.
This discrepancy is understandable. Baidu and iQiyi, Alibaba and Youku, share strong ties. Chinese firms seem eager to build ecosystems and interconnect smart homes, especially during the internet downturn, exploring new narratives and models to drive market growth.
IDC's H1 2019 smart speaker industry report showed Xiaodu's screen-equipped speaker shipments exceeding 3.68 million, surpassing the combined total of the next four brands and ranking first globally.
By Q3, Baidu's screen-equipped smart speakers drew global attention, even outselling screenless models, standing out among competitors.
Canalys reported 6.3 million screen-equipped speaker shipments in Q3 2019, a 500% global increase.
The biggest winner was Baidu, selling 2.3 million units—more than its screenless speakers. Amazon sold 2.2 million, while Google managed a mere 700,000.
This explains why Xiaodu enjoys relatively higher brand溢价 among the top three.
In contrast, U.S. consumers seem more interested in smart speakers' audio functionalities. Voicebot.ai's top six smart speaker use cases barely involve screens:
Asking questions, listening to music, checking weather, setting alarms, setting timers, and listening to radio.
These needs don’t yet necessitate screen-equipped speakers. However, Amazon aims to push the U.S. market into the screen era. In Q3, screen-equipped speakers accounted for 16% of Amazon's global shipments, but U.S. consumers' price sensitivity remains a challenge.
The smart speaker battlefield will soon enter a new phase in 2020. Some trends hint at upcoming changes.
Amazon's dominance over others will gradually wane. Baidu, Alibaba, Google, and other giants will share the market more evenly, especially as China's potential reshapes global份额.
In 2019, the U.S. market witnessed Google gradually encroaching on Amazon's market share. However, by 2020, the market landscape may begin to shift, with Amazon's dominance potentially being challenged by Chinese manufacturers.
Canalys and Strategy Analytics' Q3 reports showed discrepancies in the shipment volumes and market rankings of Baidu and Alibaba. The two data firms ranked these companies differently as the leader in the Chinese market.
International authoritative research firms employ varied methodologies, and such 'reporting discrepancies' are not uncommon in the smartphone industry. What’s noteworthy is that these differences reflect a deeper issue—Alibaba and Baidu are locked in fierce competition in the smart speaker market, creating a deadlock.
Will Alibaba continue its subsidies? If it does, how will Baidu respond? These questions remain unanswered.
eMarketer predicts that China's smart speaker user base will reach 88.5 million in 2019. Based on adult population penetration, this accounts for only 8%, a stark contrast to the U.S.'s 26%+ penetration rate.
Given the complexity of the Chinese market and economic conditions, subsidies may not be sustainable. Rationally speaking, Baidu, Alibaba, and Xiaomi may enter a temporary subsidy truce.
If subsidies are no longer the battleground, the market will transition into a post-subsidy era.
What will competition look like in the post-subsidy era?
① Baidu Bets on Technology and Interaction
The launch of the Xiaodu Smart Display X8 at the end of this year exemplifies this approach. With gesture, eye-tracking, and voice technologies deployed early, as Jing Kun often emphasizes, smart speakers are no longer just speakers but more powerful AI assistants.
Screens enable diverse ecosystem interactions and a robust developer community—seamlessly integrating many elements of the existing mobile ecosystem into smart speakers.
During a visit to Japan, I observed Panasonic’s smart home prototype for post-2025, where voice serves as the central control hub, and large screens are integrated into every aspect of home life. Baidu’s smart displays offer a glimpse into this future.
② Alibaba Competes Through Retail Channels and Brand Collaborations
Leveraging its retail partnerships and channel strength, Alibaba has teamed up with brands like Starbucks, Budweiser, Abbott, and Oreo, significantly boosting the appeal of Tmall Genie. Notably, on January 1, Alibaba announced an upgraded IoT strategy, elevating its AI Labs and Tmall Genie business to an independent division. Further observations are needed to assess Alibaba’s technological and market investments.
Ecosystem integration will also play a critical role.
Baidu established its Smart Living Group (SLG) as early as March 2018. This year, it expanded its smart display ecosystem to include video, live TV, communication, music, education, family interactive games, and child-friendly modes, demonstrating its proactive approach to ecosystem integration.
At this year’s Yunqi Conference, Alibaba outlined its Tmall Genie strategy, positioning it as a home terminal that combines voice, visual, and touch interactions, powered by AI for decision-making in the 5G era. In November, Xiaomi unveiled its '1+4+X' IoT strategy.
Clearly, all three players recognize the importance of smart speakers in the future smart home ecosystem and have aligned their corporate strategies accordingly.
The smart speaker market, now past its early stages, promises an even more exciting battle in 2020.