Tech Heavyweights Jockey for Differentiation in Crowded Device Market
By Evan Woollacott, Senior Associate
Every year at CES big names like Sony, LG, and Panasonic try to roll-out last year’s products with new hype and little innovation. This year was different, as vendors made a real push to create compound applications which possess unique combinations of capabilities.
The 175,000 people in attendance at CES 2017 in Las Vegas this past week witnessed the unveiling and demonstration of numerous leading-edge products from the 3,800 exhibiting companies. Beyond the hype, one theme was quite apparent as attendees walked the exhibition halls and tried out the latest gadgets -from Amazon to Ericsson to Qualcomm – all technology heavyweights were showcasing their ability to support and leverage their existing assets with the emerging products being innovated in segments such as Virtual Reality, Smart Homes and Artificial Intelligence(AI).
The shift by Legacy vendors to tomorrow’s innovative products indicates their readiness to differentiate existing solutions with new technologies that do not yet have mass-market appeal. Vendors in the past attempted to cobble together existing solutions and services, often leading to disjointed products with no real-customer value. Surprisingly, the technologies at CES 2017 largely have identified use cases, but many of the solutions have yet to make a real impact on either the consumer or enterprise space. This early shift by vendors to technologies still in the early innings of development is a sign that vendors learned from past mistakes and do not want to miss the next technological revolution, such as Intel did during the birth of the smart phone.
Artificial Intelligence and its Role in The Smart Home
As technology begins to shift from simple to compound applications, ecosystems that drive multi-party value are beginning to form. An example is Amazon’s Echo, which leverages control, knowledge and media/entertainment through a unique interface – manipulated only by voice. This compound evolution plays to the strengths of AI software, allowing vendors across a wide spectrum of industries to differentiate their solutions with an intuitive new tool.
Following the announcement by Amazon that Echo led all e-commerce sales during the holiday season, the underlying AI software Alexa which was open-sourced in 2015 secured numerous alliances at CES 2017. From self-driving cars with Hyundai to Huawei’s Mate-9 smartphone, the AI software proliferated its way across a number of different segments, driving its stake in the ground as an early leader in the consumer AI space. Alexa’s success is largely attributable to Amazon’s Open Developer Platform which has resulted in 7,000+ “Skills” for the AI software. These “skills” have made the software more applicable to a wider-variety of unique product combinations, evidenced by the flurry of compound applications announced during CES.
Harbor Research believes Amazon’s compound application which combines existing consumer trust, voice AI technology that actually works, an open developer ecosystem and a user-friendly device offers an opportunity to become the first voice-hub of the Smart Home ecosystem. Many vendors have previously tried and failed to develop a platform to act as a catalyst for smart home ecosystem development, such as Google’s acquisition of Nest. These vendor’s failures are largely tied to challenges surrounding the technologies, which still have a ways to go on their way to becoming supporting pieces in a Smart System. One challenge in particular that has yet to be addressed is that of the fragmented network protocols that these new technologies are being split between.
Without standardized networks – we simply get many connected products running different protocols and our intelligent products do not act as a system, but rather a stand-alone smart-solution.
As consumer acceptance for AI-based devices in the home increases, expect vendors such as Google to carryout similar ecosystem strategies to create a launch-pad into Smart Buildings; while companies like HP who lack an AI-savvy device target the market inorganically via acquisition. This topic is something we intend to cover in our upcoming Smart Buildings Survey, which you can take here and then receive the results of upon its completion.
Augmented and Virtual Reality Suppliers Put the Cart Before the Horse
AI and the Smart Home were not the only technologies which had the spotlight at CES 2017 as many, if not more, Virtual and Augmented Reality providers showcased their latest product designs. But there is a problem, the market may have a plethora of headsets – but the underlying content to support their adoption by consumers is not here today. The market for VR and AR has struggled to come to fruition over the past few years, despite the overwhelming hype being generated by various participants and research firms, answered only by unrealized market projections. Harbor believes that these firms were overzealous with their early projections, but the hype for these technologies is real despite the challenges which must first be overcome.
With Virtual Reality in particular, the consumer segment has a shortage of content; one developer stated, “the technology in these VR headsets today is already ahead of our ability to produce engaging content for them”. These developers are still trying to figure out how to produce content which keeps users engaged and viewing the proper screen-areas during the storyline. In a 360 degree world, it is extremely difficult to lock a viewer’s attention on the proper area of the screen where the story is taking place. Additionally, the developers needed for VR content come from a blend of different worlds, such as Special Effects, Media and Mobile Gaming. This requires new working styles to effectively and collaboratively build the required content base to encourage and increase user engagement with these devices.
Outside of the shortage of content for training videos or machine blueprints in the enterprise space, these devices have must further mature until they can reach a sustainable price-point where they deliver an effective and measurable ROI to the buyers. These devices today, specifically Smart Glasses, are just now beginning to meet the basic hardware and software requirements – such as device heat and battery life – to create real efficiencies in enterprise usages. In terms of smart glasses, vendors like Vuzix showcased their latest products like the M3000, an Augmented Reality glass which uses Waveguide technology. Waveguide technology allows for a glass pass-through augmented experience, similar to that of the Hololens and the (rumored) Magic Leap headset. We believe that glass-form factors such as the Vuzix or Recon Jet Pro will be the growth-catalyst for Augmented Reality in the enterprise moving forward, to be eclipsed by more immersive Mixed Reality devices in the long-term.
Although the growth in VR and AR has yet to materialize, the hype for these devices is apparent in both segments. This is evidenced by the heavyweight vendors playing to their legacy portfolio strengths, showcasing the new technologies at their respective booths during the event.
Legacy Vendors Make Their Moves on the AR/VR Battlefield
Upon visiting Ericsson’s booth, we see another example of compound applications leveraging high-speed 5G networking to support Drones, VR and AR headsets. On the entertainment side of things, Ericsson showcased the possibilities of using Oculus Rift while watching a sports-broadcast by allowing viewers to immerse themselves in the game as if they were sitting courtside with 360 degree visibility. Shifting to industrial – Ericsson demo’ed how remote-engineers at GE could use an HTC Vive to monitor dispersed assets located in their facility from a virtual and interactive dashboard. Ericsson’s involvement with these technologies is not surprising, these next-gen devices will act as mediums for large swaths of data being transferred from backend systems to mobile personnel, such as field technicians. The demands on the network will be great, and will require businesses in remote locations, say an offshore oil-rig, to rethink how they deploy managed networks to accommodate data-intensive devices.
Outside of networking heavyweights, the battleground for silicon in these products is heating up as component suppliers such as Qualcomm and Intel showcase their latest chip architectures in the leading-edge devices. Qualcomm, which announced the SnapDragon 835, is positioning the new mobile chipset as the answer to all of tomorrow’s devices, from smart phones and wearable devices to flying and submersible drones. Meanwhile, Intel showcased its latest Core i7 processors within devices like the Vive and Oculus Rift.
For its main-event Intel unveiled the latest generation of its Merged Reality device, Project Alloy, a fully internalized Virtual Reality headset which has no wires or sensors. The device is built using the latest componentry brought to Intel through acquisition, such as Realsense and Movidius, which allows users to interact with virtual environments through the use of their hands. Although the device is innovative in that it is wireless and internalized, it has a ways to go before it compete in terms of the display quality and comfort delivered by that of its VR peers.
Recent product announcements by vendors like ODG and Samsung indicate increasing traction for Qualcomm’s SnapDragon chips in the wearables market, providing Qualcomm with an early lead over Intel. It will be crucial for these vendors to figure out monetization strategies in the emerging market as these devices from vendors like Oculus, Vuzix and HTC begin to mature. Harbor Research believes as the competition between these two technology heavyweights intensifies, the market will bear witness to price cutting or special agreements such as Intel’s ill-advised contra-revenue plan around tablet-chips in early 2014 as they fight to be the component suppliers of the next device revolution.
The hype surrounding next-generation technologies such as VR, Smart Homes, and AI has given birth to a substantial startup ecosystem, but readers should know that the problem with hype is that oft-times it is not real. Amazon, for all the press it received post-CES, wasn’t even at the show and instead relied on its quick-blossoming partner ecosystem for Alexa to generate its own hype. That being said, these forming ecosystems are still largely fragmented with no clear winners in any of the aforementioned technology segments. Additionally, for these markets to grow to the scale which they have been projected, they will require the inclusion of leading technology vendors who create a consolidation in the market and build ecosystems around their portfolios – supported by their broad channel distribution and sales networks.
Monitoring the birth of unconventional partnerships stemming from the formation of the compound application ecosystem will create winners and losers in 2017 which Harbor Research will be closely monitoring. These new partner tactics will lead to innovative monetization and pricing strategies which vendors employ to target emerging segments and attract value-add partners. Learning from past mistakes, such as contra-revenue payments on tablet chips by Intel in 2014, while keeping the future in mind will be crucial to effectively participating in the Smart Systems ecosystem.
The overwhelming hype of these next-generation technologies has created a façade which blocks the challenges and barriers to adoption which these devices will continue to face moving forward. While it is true these new technologies, such as AI-platforms, could be used to create truly “Smart” product ecosystems, the technological barriers, from fragmented networks to the privacy of customer data, are extensive. These challenges require technology suppliers to develop their products with a new vision in mind, a vision where your products are small components in a larger Smart Systems architecture. The days of developing point-products are numbered, as the IoT blossoms each product must be designed as complimentary extensions to adjacent offerings. If not, the hype of tomorrow’s products will persist, and enterprises and consumers alike will never move the technological needle to the next revolution.