The rapidly growing smart speaker market was already about to get very interesting. In December, Apple Inc. (NASDAQ:AAPL) will attempt to shake things up with its new Siri-powered HomePod. And undisputed leader Amazon.com, Inc. (NASDAQ:AMZN) is expected to release a follow-up to its original Amazon Echo any day.
But AMZN and Microsoft Corporation (NASDAQ:MSFT) just dropped a bombshell that no one saw coming: Amazon’s Alexa and Microsoft’s Cortana virtual assistants will be able to work together.
This is a big deal. At a time when artificial intelligence is increasingly important and rival AI-powered virtual assistants are duking it out for consumer supremacy, having two of the biggest join forces has game-changing potential. Both AMZN stock and MSFT stock nudged upward after Amazon’s announcement yesterday morning.
How the Alexa and Cortana Partnership Works
Amazon and MSFT are keeping their respective virtual assistants independent. There’s no combining of the two into a single super-assistant. The way this will work is to command one of the assistants to invoke the other, which will then take over.
So if you were sitting near an Amazon Echo smart speaker, you’d say: “Alexa, open Cortana” and Cortana would then be live. On a Windows 10 device, you’d say the opposite: “Cortana, open Alexa.”
Why This Is a Big Deal
Amazon has had an incredible run at getting Alexa into homes by integrating its virtual assistant into the Amazon Echo smart speaker, as well as a growing number of third party speakers. But despite the fact that the Amazon Echo dominates the smart speaker market, Alexa’s reach is still limited. Cortana is on every Windows 10 PC and tablet, as well as the Xbox One, but Microsoft’s virtual assistant also has big gaps in its coverage.
By partnering, both companies have now extended their virtual assistants’ reach considerably. And both have very different strengths that complement each other.
Alexa naturally makes it very easy to shop on Amazon and massively boosting the number of devices with that capability has an obvious upside for AMZN stock.
But Alexa also boasts more than 20,000 skills that offer voice control for everything from controlling smart home devices to ordering pizzas and starting electric cars. That’s a big win for Windows users.
And with Cortana on board, Amazon Echo users get a big boost in voice-enabled searching, plus access to Windows-related information like their calendar, reminders, e-mail and even Office 365 documents.
The Missing Piece
Amazon and Microsoft have put together a compelling AI partnership that makes them much stronger against rivals Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple.
That’s important, with Google continuing to push its Google Home smart speaker and Apple’s HomePod due to arrive at the start of December. Despite the partnership, however, there is still a big piece missing where Apple and Google retain a key competitive advantage: smartphones.
The Amazon Echo may be the smart speaker of choice for 70% of owners, and Cortana is on half a billion Windows PCs, but those numbers are dwarfed by the number of smartphones in use. As Wired points out, smartphones are “by far the largest voice-assistant category out there.”
Siri and Google Assistant aren’t just used while in the home — where they would face competition from an Amazon Echo or Windows 10 device– they are used everywhere. Both Amazon and Microsoft lack a meaningful mobile presence. Leave the home and you leave them behind. And the partnership of Alexa and Cortana does nothing to address this crucial missing piece.
In an interview with The New York Times, the CEOs of both Amazon and Microsoft said they’d welcome expanding the partnership to include Siri and Google Assistant as well. Don’t hold your breath for Apple or Google to jump on board though, as doing so would mean giving up their smartphone advantage.
For now, look for AMZN and Microsoft to leverage their respective new capabilities against Google Home and Apple HomePod as the battle to dethrone the Amazon Echo as smart speaker of choice heats up over the holiday season.
With the smart speaker market predicted to pass $13 billion by 2024, staying on top of this segment is important for AMZN stock. Amazon’s focus, for now, is to keep the Amazon Echo in that top spot, and the Microsoft partnership will definitely help in that respect.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
