How Alphabet Inc (GOOGL) and Walmart Are Taking on the Amazon Echo, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) are two of the world’s biggest tech companies. For the most part, they’ve each done their own thing, but one product — the Amazon Echo smart speaker — is becoming a competitive flashpoint.

How Alphabet Inc (GOOGL) and Walmart Are Taking on the Amazon Echo

Specifically, ordering products by voice from Amazon using the Echo’s Alexa voice assistant is bypassing the traditional Google search engine. Advertising on Google is where Alphabet makes the majority of its revenue and anything that threatens that ad revenue could also have a negative impact on GOOGL stock.

So Alphabet is fighting back. The company told Recode that it’s partnered with Wal-Mart Stores Inc (NYSE:WMT). Owners of the Google Home smart speaker will be able to order products from Walmart by voice, starting in September.

Amazon Echo’s Runaway Success

Amazon officially released its Amazon Echo smart speaker in 2015 (after offering it as a Prime exclusive at the end of 2014). Powered by the company’s Alexa personal assistant, the device became a surprise hit. While companies like Google and Apple Inc. (NASDAQ:AAPL) battled over smart home standards centered around their smartphones, the Amazon Echo became a developer favorite. The smart speaker has gained thousands of “skills” that allow it to interact with smart devices and online services using voice control.

Google released the Google Home smart speaker last year and Apple is close to launching its HomePod smart speaker, but Amazon has relentlessly expanded the Amazon Echo lineup and dominates the smart speaker market.

The Echo Is Becoming a Problem for Google

The fact that the Amazon Echo outsells the Google Home by a huge margin has almost zero direct financial impact on Google. Smart speaker sales are minuscule compared to the $22.6 billion in ad revenue Google brought in last quarter.

Where the Amazon Echo does become a problem is the ability to directly order products from by voice, using Alexa. Doing so means shoppers skip Google search.

That means no ad revenue generated by the purchase. If enough people go this route — and Amazon is expected to ship 10 million Amazon Echo speakers in 2017 alone — that could have a material impact on Google’s ad revenue. And given that advertising makes up 88% of Google’s revenue, that would spell bad news for GOOGL stock.

Google Fights Back With Walmart

Google already has its own Google Express shopping marketplace and it’s connected to Google Home to allow voice shopping through retailers like PetSmart, Inc. (NASDAQ:PETM). But now the company is getting serious.

According to the Recode report, Google is partnering with Walmart — the retail giant that is now in second place in U.S. online sales and determined to fight Amazon. Starting in September, Google Home owners will be able to begin voice shopping for products from Walmart.

They can link their existing Walmart account to the smart speaker to receive recommendations based on previous purchases in store and online. Google is also eliminating the current $95 Google Express membership fee (replacing it with a $4.99 charge for orders that don’t hit Walmart’s free shipping threshold).

Google will still be missing out on ad revenue if someone orders a product directly from Walmart using a Google Home smart speaker, but Google will charge Walmart a commission on the purchase to make up for that.

Will the Google Home and Walmart partnership pay off for Google? Will the combination actually be able to take some of the wind out of the Amazon Echo’s sails?

We won’t know anything about the uptake of Google Home’s new feature until the September launch of the new service. But with an estimated 35.6 million users of smart speakers in the U.S., and a growth rate of 129% from 2016, the risk to GOOGL stock of sitting back and watching the Amazon Echo be essentially uncontested in voice shopping was too great.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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