Amazon Echo and its competitors will be a $2.1 billion market by 2020

A new Gartner report predicts rapid growth for virtual personal assistant (VPA)-enabled wireless smart speakers

Amazon’s Echo and its competitors will be a $2.1 billion market by 2020
Michael Brown

The Amazon Echo and newly announced Google Home may seem like toys today, but research firm Gartner believes these kinds of wireless speakers enabled with virtual personal assistant (VPA) technology are poised for significant growth.

According to Gartner, natural language chat-bot VPA interfaces (including Amazon’s Alexa, Google Assistant, Apple Siri and Microsoft Cortana) will power the market from just $360 million in 2015 (almost entirely dominated by the Echo) to more than $2 billion in 2020.

One VPA-enabled wireless speaker is not enough

Interestingly, while the firm predicts that some 3.3 million households around the world will own such a device, often called “smart speakers,” within four years, that doesn’t mean just one per home.

"A significant number of households could … have more than one unit, or even one per room," said Werner Goertz, research director at Gartner, in a statement. "With smaller form factors, price erosion over the years and potential subsidization models, we expect that 75 percent of households with VPAs will have one, 20 percent will have two, and 5 percent will have three or more devices by 2020."

The key to the segment’s success, Gartner noted, will be continual improvements to the device’s vocabulary and contextualization, particularly by optimizing the “semantic interpretation of the spoken word, the contextualization of the vocal expression and the rendering of a meaningful response.”

That makes sense because in my experience, today’s smart speakers have real but limited utility. While often helpful, they are also frequently frustrating, either misunderstanding the question or use case or unable to provide a useful action or solution.

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Gartner expects by 2020, performance will be good enough to fully satisfy users and allow the creation of significant value, especially in commercial applications.

“The widespread adoption and proliferation of VPA speakers could result in a significant number of online shopping orders in the home being initiated from a VPA speaker, rather than a laptop or mobile device," Goertz said.

If that happens, he continued, these devices could actually reduce transactional friction and boost “the user's propensity to purchase products and services.” In fact, Gartner predicts that by 2020, more than half of cloud interactions in homes with smart speakers will occur via conversations with those devices.

Integration challenges

If you ask me, though, there’s a lot to do for that to happen. First, smart speakers need to get much better at identifying and understanding questions and requests. They need to be much smarter about answering questions and solving problems quickly and accurately, which can be difficult in environments without a screen. And they need vastly broader and deeper integration with other systems and devices—from appliances and home automation to computers and smartphones, not to mention third-party services.

Integration represents a critical opportunity for these devices, as Gartner also predicts huge increases in smart home automation. The company pegged the installed base of home automation, home energy management, and home security and safety units at 487.6 million in 2015, growing to 2.1 billion in 2018!

Security and privacy matter

Finally, though, questions of security and privacy also need to be addressed. On the security front, if these smart speakers are connected to smart homes, they must be protected from hackers who could use them to compromise the physical security of those homes.

The privacy implications may be even more troubling. These devices need to constantly monitor everything that is said around them so they are able to jump in instantly when summoned. It doesn’t take a genius to see to potential privacy concerns when a company is listening in to everything that is said in a room or entire home.

Of course, the security and privacy issues themselves won’t determine the category’s growth, but user perceptions of security and privacy will be key factors.

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Copyright © 2016 IDG Communications, Inc.

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