Is Amazon Echo benign ... or a threat to retailers and Google?

Amazon's percentage of product search DOUBLED in 3 years (almost). Today, 55% of all shopping web searches start at Amazon. A fraction of that starts on Google.

Those searches are mostly done on the Web and phones. Search, though, is slowly migrating to Voice-activated and IoT. It's early ... and Amazon seems to have the mojo. Like when AWS rose from nothing. Like when Prime rose from nothing.

Will Echo Voice strengthen Amazon's search mojo?

Will Amazon's search strength extend beyond products? Is Echo another Amazon secret weapon that will sneak up on us? If it's a secret weapon, Echo may not be a toy. It may not be benign.

Services like Amazon Prime, AWS, and Amazon 3rd-Party Marketplace started slowly. They were criticized. They were ignored. But, none of them were benign. Google ignored AWS for two years according to Brad Stone's book, The Everything Store. Thr 3rd-Party Merchant Program rose out of nowhere after Amazon's missteps with Amazon Auctions.

Amazon currently has 2 million third-party merchants offering close to 365 million products online, greatly outnumbering those on Walmart Marketplace," according to Business Insider (as of September 30, 2016).

Over a period of time, Prime, AWS, and 3rd-Party Sellers snuck up on us. Each proved the power of Amazon's patience with innovation and dark alleyways. And the results have been staggering as Amazon has built a $300 billion GMV company.

Is Echo Progressing Like Prime, AWS, and 3rd-Party Sellers?

Echo might be advancing in a way that was similar to Amazon's Third Party Marketplace and Prime:

• 3 million Echo's have been sold as of April 2016 -- about one year after launch.
• 26% Amazon Echo users have placed an order assisted by Alexa, according to Fang Cheng, who sold her first business (Touchco) to Amazon in 2010 and is now CEO of Linc (a Service Bot which integrates with Echo). This article explains how Echo transactions could lead to an $11 billion business within Amazon, by 2020:

• Consumers use Echo as a utility -- playing music through its speaker -- which helps make Echo a habit forming device.

Amazon is doubling down. They have been investing heavily in Voice Technologies and similar forms of Artificial Intelligence (AI) since 2011 or earlier. The "Echo Killers" being touted right now by Google (Home), Samsung (Scoop), and Apple are playing catch up.

Echo was built in Amazon's Lab126. But -- as Amazon does -- Amazon leveraged the startup community. For Echo, they used startups to speed-up and deepen their capabilities in voice technologies -- acquiring Yap, Evi, and Ivona:

2011 (North Carolina): Amazon Snaps Up Yap And Its Voice-Recognition Technology, (Techcrunch, Nov. 9). They continued: "The month before Apple revealed its “intelligent assistant,” Siri, Amazon was quietly buying out a company whose software performs voice-to-text actions like transcribing voicemails, whatever those are."

2012 (Cambridge, U.K.): Evi Technologies, acquired by Amazon for  around $26 million, according to Techcrunch. According to Business Insider, IP sits at the heart of AI assistant  Amazon Alexa and the hardware that supports it, Amazon Echo.

2013 (Poland): Amazon Gets Into Voice Recognition, Buys Ivona Software To Compete Against Apple’s Siri (Techcrunch, Jan 24). This technology was embedded in Kindle Fire before it was acquired. Hmmmm

Despite Amazon's $10 to $13 billion investment in R&D each year, Amazon extends their lab by working with startups. By buying inventions and inventors. They are always on the prowl. Oddly, Amazon was the 7th person/company to follow my new company (Iterate.ai) on Twitter back in 2013.

Amazon continues to invest in Voice and Artificial intelligence (AI) internally and externally, as they remain a domineering Exponential Organization (ExO) -- which is an organization that leverages "outsiders":

• Externally, Echo is like Amazon's 3rd Party Marketplace ... leveraging 3rd-party developers to create voice experiences (from bartending to fitness to banking apps) that add capabilities Alexa-enabled devices.
• Internally, Amazon has 1,000 people dedicated to writing AI software for Echo and Alexa as noted in the recode article below:

Amazon uses existing assets to establish their new businesses. Prime Members (an Amazon asset) are Amazon weapons -- they are used to get Echo distribution. It's a virtuous circle, join Prime and get tons of services -- use the services and get locked into Prime. Some people think that Prime is just getting started, even though it has already penetrated about 40% of U.S Households.

Adding Search to the Bedroom and Kitchen

By making this hands-free device accessible in bedrooms and kitchens, Amazon could "own" search. I know -- Google has indexed "the world's information" and Amazon primarily has "indexed the world's products" -- but this is changing with Echo as you'll see on this ReCode video (Walt Mossberg interview). Technologies are changing -- with AI, Amazon can create new types of discovery which is why Amazon has 1,000 Echo engineers working on this.

Is Echo A Benign AI Device?

Amazon is plowing dollars, time and brains into Echo and Alexa. There must be a commercial reason, since Amazon thinks in predatory terms. Amazon doesn't do R&D for the sake of R&D (they are not a University). So, I would NOT expect Echo to be benign.

Yes, Google can build and acquire more AI, adding to their search capabilities, too. They can launch an Echo look-a-like as they did with Google Cloud to combat Amazon's AWS. These days, even a startup like mine (Iterate.ai) is capable of building AI that capitalizes on neural networks (Iterate.ai monitors more than 135,000 startups and we are training neural networks to monitor 35 million words and word-combinations which will create unique search and discovery capabilities related to emerging technologies). But, in the end, Amazon is predatory -- and they behave like a startup (exhibiting unbridled creativity plus speed plus a need to commercialize products). Amazon seems to beat Google and the entire retail community to the punch on a number of fronts (cloud, in-home devices, product delivery). So, I'd beware.

A reason Amazon is investing so heavily in Echo-Alexa is because Amazon believes that "search: could be more ubiquitous and easier -- whether accessing search from the car, a bike in Amsterdam, our kitchens while cooking. Why can't we start a search -- for things like recipes -- while cooking without sitting down at a computer or holding our phones?

About 50% of people who buy an Echo put it in their kitchen, making it very accessible. More accessible than a computer. More accessible than even a phone which you need to have in your hand to activate.

Lot's of Echo's are in the bedroom, too. They work as alarm clocks and music players. My 13-year-old son rarely types into a search engine. When he is searching for an answer, he talks to Alexa (Echo) in his bedroom or he asks Siri on his iPhone. Do most young people do this? Is this an omen of what's to come?

What if Amazon becomes the gateway to 50% of all searches, democratizing ALL search and becoming Google's primary competitor. How would that further change the face of retail?

What If Search Gets a New Interface?

What if Amazon ties the Echo to TV's? "Alexa, show me a recipe on my TV. Okay, buy these five ingredients."

Searches could be activated by Echo Voice (Alexa) ... and "search results" could be automatically streamed to the TV (if necessary) in the kitchen. Or onto the refrigerator's LCD screen. Why not? What if Echo came with a Remote:

Both Apple and Google are creating Echo alternatives. So, those companies are obviously concerned about what could happen. About what is materializing. In the case of Google, they are late to the party (as they were with a Cloud alternative to AWS), but at least they are hedging. This article was written last week (late September):

Click through here to watch a good Bloomberg video, where Bloomberg is asking if Apple is a bit late to the party:

Is Echo A Threat? ... Google? ... Apple? ... Retailers?

Traditional industry boundaries are being crossed by companies. Amazon attacked HP and Dell with AWS. Amazon is poking at UPS and FedEx. Amazon is testing Google. At the same time, Google is penetrating the Automotive, Energy and Telecom industries. Apple brought down Nokia and Blackberry, while also becoming a formidable force in music.

Often, the biggest threats come from unsuspected places. Uber and taxis. AirBnB and hotels. Google and the Yellow Pages. Craigslist and newspaper classifieds. Mark Twain explained:

The BIG RISK ... is to misread threats. As former Borders, Kodak, and Blockbuster employees could attest.

Misread Threats:  This is a circa-2001 picture of Borders' CEO, Greg Josefowicz, and Amazon's CEO, Jeff Bezos. They are shaking hands on April 11, 2001 after announcing that Amazon.com will take over Borders' online bookselling operations as part of a new partnership. This handshake solidified the demise of Borders and the loss of 20,000 jobs at Borders a decade later. (Story: MySanAntonio.com; photo Kathy Willensap)

Misread Threats:  This is Blockbuster's former CEO.  He passed up an opportunity to acquire Netflix for $50 million. Three times! He and Blockbuster's board determined that Netflix was a "very small niche business," and they ended negotiations with Netflix. At thetime, Netflix was mailing DVDs to consumers. (Source: Business Insider)

Misread Threat? Just last week, Marriott's CEO stated that AirBnB is NOT a competitor. As quoted in Business Insider: "MARRIOTT CEO BRUSHES OFF CLAIMS THAT AIRBNB IS AN EXISTENTIAL THREAT. ... The impact (of AirBnB) has been much less than most people would guess," said Marriott's CEO. That may be true -- but I'd pay attention to AirBnB if I were Marriott, because Marriott doesn't know AirBnB's next move.

What if AirBnB becomes a cash machine like Google? This Wall Street Journal article states that AirBnB is expected to drive $10 billion revenues in 2020 with $3 billion EBITDA. If this happens, what will AirBnB do? Will they behave like Amazon, and drive that $3 billion into other disruptive hospitality-related R&D? (As a point of reference, in 2015, Marriott revenues -- pre Starwood merger -- were about $14.5 billion and operating profits are $1.3 billion. Starwood revenues are $5 billion, roughly.)

Like the Marriott CEO, I am not a "fan" of AirBnB -- I haven't use it. BUT, I'd pay attention. Because it has captured the attention of TONS of traveling consumers.

And I'd pay attention to Amazon, too. I'd pay attention -- if I were Google -- if I were a Retailer -- if I were a distribution company (FedEx) -- or if I were any tech company (HP). Google and Retailers should watch Echo, closely. Start making moves now, proactively. Companies traditionally take between two to four years to respond to known threats. Taking too long (four years in many cases) is devastating as noted in these articles:

• 4X Higher Failure Rate Than In 1965 | Boston Consulting Group
• Understanding Competitive Threats | Tim Calkins, author: Defending Your Brand

Tim Calkins says, "One of the reasons business executives fail to defend effectively is that they simply underestimate the risk. When a competitive development looks like a small threat, it is hard to justify a major defensive effort. You don’t redirect spending from promising offensive programs unless there is a compelling reason to do so."

So, is Echo benign? Is Echo a threat? It's best to consider it a threat. But, how big? And how should companies respond? On Iterate.ai which has 135,000 emerging technologies listed, there are startups similar Amazon Echo and Amazon Dash that any Retailer can engage with today.

Engaging with those startups may be one way to defuse potential the long-term ramifications -- at almost no cost.

Back to "Shopping Search" (the Good News) and Switching Costs

At this moment (even though Amazon is dominating "searches for products" with 55% share) retailers and Google seem safe from Echo + Alexa as a domineering search option.

How long that will this last (?) ... none of us knows. Innovation is happening exponentially these days, not linearly -- and most organizations aren't set up to handle exponential advancements as shown in this Scott Brinker chart.

What we DO KNOW ... is that YOU are being compared in this age of hyper-transparency. Consumers are comparing you to companies that DO innovate and progress exponentially ... companies like Amazon and Google. Not long ago, Amazon was compared to Borders (dead). So was Sports Authority (dead). Netflix was compared to Blockbuster (dead). Kodak was compared to Apple's iPhone, Photobucket and Snapfish. Only companies with progressive and experimental cultures like eBags (growing 20% YoY right now) are safe (for as long as they behave with urgency and a level of paranoia).

Today, comparisons continue. Outcomes can be debilitating, then devastating. As Amazon grows by 32% (last quarter) while adding $6B in new sales, OfficeMax closes 300 more stores. Amazon adds 100 pop ups to sell Amazon devices as Macy's closes 400 stores. As Amazon starts opening physical book stores, Aeropostle closes 150 stores. As Amazon pushes out Echo, Google is being compared and tested, too.

Switching costs are lower these days. From switching stores to switching search engines to switching car brands. Consumers are in the driver seat. The Bloomreach / survey said, "... about 90% of shoppers who find a product on another retailer's website will still check Amazon." It also "found the reverse to be true ..." which is good news for Retailers. Consumers double check Amazon. "About 70% of consumers check product information on other retailers' sites before purchasing on Amazon," according to Survata. 

As Amazon tries to get control of search, just know that you will almost ALWAYS be double checked by consumers. Know that Amazon will do the unexpected, as Henry Ford did, exploring dark alleys, trying to discover unexpected wins.

Know that Amazon will also test their way (with real consumers) to success. Amazon runs about 2,000 experiments per year on its website to improve usability. They have six in-home IoT devices in test right now (Dash Wand to Echo to Dot) -- all in test phase. They are testing drone deliveries in the U.K. All retailers need to continuously upgrade, more than ever before.

For companies born 50 years ago, testing and experimentation behaviors need to increase. The nimble startup community needs to be embraced through ExO services like Iterate.ai. Retailers need to showcase compelling assortments, present fair pricing, and deliver website and Smartphone experiences that are millenialized (as shoppers are trained by Amazon, FB and Apple).

And don't forget ... start thinking NOW about Echo, too. I'd NOT view Echo as benign. It could change your business, dramatically, if it "slowly: gains a foothold. Go on the offense before being forced to play defense ... because search for products (and even other things) could begin looking like this: