Smart speakers have gained prominence in recent years due to the rapid growth of the smart home market. A smart speaker is defined as a speaker that is Wi-Fi-enabled, offers interactive functions through voice commands and acts as a control hub for a smart home. The first smart speaker was Echo, launched by Amazon in November 2014. It quickly became popular in the US. Smart speakers started to take off in China in 2018.

According to Counterpoint estimates, global smart speaker shipments are expected to grow at a CAGR of 21% over the 2020-2025 period, driven by rising consumer awareness, competitive offerings and technological advancements.

Exhibit 1: Global Smart Speaker Shipments Growth (2020-2025)

Main Factors Driving Smart Speaker Market Growth

• Proliferation of smart home products: Due to increased awareness and ease of use, consumers are increasingly adopting smart home devices like smart TVs, thermostats, smart lights, smart locks, security cameras and smart kitchen appliances. Smart speakers act as a single point of contact or control hub through which these smart devices can be controlled and operated remotely. For instance, Xiaomi seeks to build an AIoT ecosystem using smart speaker as a control hub to connect its other IoT products. It has over 324 million connected devices on its AIoT platform.

Exhibit 2: Mi Smart Speaker Acting as a Hub using Google Assistant

• Development of AI technologies: There have been improvements in AI chipsets specifically used for smart speakers to offer enhanced battery life, audio quality and voice control. Also, the advancements in Natural Language Processing (NPL) and voice recognition technologies are making it possible to better understand what is being said and act upon it. For instance, Baidu’s expertise in search and AI gives it a major advantage in building a voice assistant with NPL and conversational capabilities. Recently, Google also announced its next-gen chatbot LaMDA (Language Model for Dialogue Application). It is a machine learning model to understand dialogues in natural language.
• Entry of large internet/technology companies: The large internet/technology companies entering the smart speaker market are providing the biggest impetus for the growth of smart speakers. They are more advanced in terms of technological, distribution and marketing capabilities. Along with this, they have the financial power to provide subsidies, which have helped drive the adoption of smart speakers across regions.

Exhibit 3: Smart Speaker Players Arising from Various Domains

• Growth of display-based devices: The growth of display-based devices is helping maintain the growth momentum of smart speakers. Smart speaker users are increasingly switching to display-based devices due to evolving use cases such as video calls, watching online content, and social networking.

Exhibit 4: Various Smart Display Devices Available in Market

• Focus on the affordability factor: All the major smart speaker players are refreshing their standard portfolio with a focus on bringing high sound quality at affordable prices. For instance, Apple launched the HomePod Mini in November 2020 to target the $99 sweet spot while discontinuing its original HomePod in Q1 2021.

We believe that smart speakers are changing consumer preferences due to which they will spend more time on their smart devices to listen to music, read news, do voice shopping as well as control their smart home devices. However, we feel that the market is still in its early stages of growth and there is huge untapped potential in various regions where local language support is limited. Over the coming period, Asia and Latin America are likely to grow faster than China market.