Amazon Brings Artificial Intelligence To The Smart Home

| About: Amazon.com, Inc. (AMZN)

Summary

Home automation has been a mess of competing standards, hardware and software.

Alphabet's Nest and Apple have made progress in bringing some order to the chaos.

Amazon advances home automation much further through the use of its cloud-based artificial intelligence.

Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) are each pursuing unique visions of the smart home, the home as an ever-connected smart device. Home automation has been around as long as the PC, but is still struggling to find the right user interface and functionality that will make this compelling. The fundamental question that remains is just how smart do consumers want or need their homes to be? Amazon's answer to this question is simple: smart enough to understand your voice.

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Source: Amazon

Smart Home Mess

Last week, The Information profiled Tony Fadell and the difficulties Nest has had in introducing new products since being acquired by Alphabet. For those who don't subscribe to The Information, there was also a good synopsis of the article in Fortune called The Mess at Nest.

Both articles seem to want to lay the blame for lack of progress at Nest squarely on Fadell's leadership style, especially as it has been molded by his experience at Apple. This is the "Tony Fadell as Steve Jobs" theory of Nest. It's appealing but probably falls short of reality.

The problem with home automation in general has been that it's too complicated. Fadell wants to make it as simple and intuitive as using a smartphone. Toward that end, the Nest thermostat was kind of a breakthrough in applying smartphone user interface elements such as a touch screen display to the humble thermostat.

But a smart thermostat does not a smart home make, and right nowm the industry is struggling to find the right combination of smart devices to make the smart home work. Apple's focus has been on creating the underlying software architecture rather than on specific devices. Apple has created the HomeKit APIs designed to work under iOS.

The Fortune article was quick to trash HomeKit as "stalled," and there have been complaints from developers of HomeKit compatible devices that Apple's requirements made for slow progress. However, if you check Apple's Home Automation page, you'll find many more devices that work with HomeKit than the three devices currently produced by Nest, the thermostat, smoke detector and Web cam.

Shades of HAL

Most homeowners are content with automatic garage door openers and thermostats. I'm not convinced that consumers really want the kind of ubiquitous connectivity being proposed by Internet of Things evangelists. Lurking at the most extreme level of home automation is HAL 9000, the artificial intelligence that watched over astronauts in Stanley Kubrik's 2001: A Space Odyssey. HAL constantly monitored the astronauts and dutifully carried out their voice commands... until it decided not to.

Amazon takes home automation a small step in the direction of HAL with its Echo smart speaker system. The speaker is equipped with an array of microphones that can reportedly pick up the user's voice from across the room. Echo always is listening for voice commands and can be activated with key words such as "Alexa," the name of Amazon's voice synthesized assistant.

Echo with Alexa is a much bolder vision of the smart home than has been offered by anyone else. With Echo, the user can control compatible home devices by voice. These devices include the Nest and Ecobee thermostats and Philips Hue lighting products. In addition, Alexa can be used to do things like order pizza or start streaming music.

Obviously, there are privacy concerns. Echo is constantly monitoring the audio in the room, so it could theoretically be hacked, since it's also always connected to the Internet. Even excluding that possibility, Alexa is advertised by Amazon to be "always getting smarter," learning from the actions and requests of the user. Clearly, the user relinquishes some privacy in the name of convenience.

Despite privacy concerns, Echo seems to be a very good solution to the problem of making home automation truly effortless and convenient. Instead of having to whip out your smartphone and mess with an app to turn down the lights, you just tell Alexa to turn them down.

Filling the Intelligence Gap

Although a little disquieting, I think Amazon is on to something with Echo. What has been missing from smart home implementations in the past has been raw smarts. This made home automation less convenient by virtue of the fact that the homeowner had to furnish the smarts in some form, both in set up and operation. In the end, home automation became useful mostly for remote monitoring and control. Using an app to control your lights while at home isn't necessarily easier than just turning them down manually.

Amazon's solution is so powerful because it takes advantage of its servers to implement artificial intelligence functionality, as do all the voice recognition systems such as Apple's Siri that are used on mobile devices today. It just wouldn't be technically feasible to build that much intelligence into an affordable standalone home system.

If Apple and Alphabet are to be competitive in home automation, I'm convinced they'll have to do something similar. They might choose to do this through existing mobile devices or through set-top boxes such as Apple TV or Google Chromecast, but they'll have to get their voice recognition AI capabilities involved.

Investor Takeaway

Amazon has jumped out in front in smart home technology with Echo. I believe the impact of Echo will be such that it will change the way people view the smart home. Unless that smart home is connected to a cloud based AI, it won't really be viewed as smart. Amazon's integration of local device software in Echo to its larger cloud computing capabilities is a feat of software engineering that Amazon's competitors will have difficulty duplicating in the near term.

How much of a market there is for a home with Alexa level smarts remains to be seen, but I think it's larger than the market for home automation has been until the advent of Echo. At the very least, Amazon will have given home automation a big boost.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.