Amazon Is Coming After Apple’s AirPods With Alexa Wireless Earbuds

Amazon (NASDAQ:AMZN) and Apple (NADAQ:AAPL) have a complicated relationship. They are often rivals, but at the same time they rely on each other in some ways. That relationship has been adversarial in the past, but recently thawed when Amazon began carrying Apple devices and its Echo smart speakers picked up the ability to play Apple Music. Now AMZN is reportedly coming after one of Apple’s most successful products — AirPods — with its own Alexa wireless earbuds. When they are released, it may just mark a point where the relationship between the two companies turns cold again…

Amazon Is Coming After Apple’s AirPods With Alexa Wireless Earbuds

Source: Apple

Amazon’s secretive Lab126 hardware division has turned out some very popular devices, including the Kindle e-readers, Fire TV tablets and Amazon Echo smart speakers. When word leaks that the Lab126 is working on a product, the impact to the target market can be immediate — and it’s usually bad news for existing players. 

Last year, when word got out that Lab126 was working on what turned out to be the Fire TV Recast (a live TV recorder), Tivo (NASDAQ:TIVO) stock took a 4.3% hit on the news.

Late yesterday, Bloomberg published a report saying that Amazon’s Lab126 is currently working on Alexa wireless earbuds that are intended to take on Apple’s popular AirPods. According to Bloomberg’s sources, they will look like the AirPods and function in a similar fashion to the AirPods, but with Alexa instead of Siri. Users will be able to use Alexa for hands-free music control, to ask questions and of course to order products online.

However, it sounds as though AMZN is intending to make its own offering even more compelling than AirPods by targeting superior audio quality — one of the key complaints about the AirPods. That strategy would be somewhat ironic, given one of the key selling points of Apple’s HomePod smart speaker is that it offers superior audio to Amazon’s Alexa smart speakers.

The HomePod was far more expensive than an Echo but given Amazon’s strategy of offering hardware at or near cost, the Alexa wireless earbuds are expected to instead undercut Apple’s pricing.

Unlike Tivo, Apple stock didn’t reflect any investor concern about this news. That may change if Amazon’s offering is a hit, instead of the miss that Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Pixel Buds turned out to be.

Why Come After AirPods?

There is definitely some money to made in selling wireless earbuds. The devices are popular and becoming more so as smartphone manufacturers increasingly eliminate headphone jacks. They are expected to be a $10 billion market by 2023, and at the moment, Apple’s AirPods hold about 60% of that market.

AAPL is counting on wearables like the Apple Watch and the AirPods to help take some of the heat of slowing iPhone sales off Apple stock. For Amazon, the prospect of capturing a chunk of wireless earbud market likely wouldn’t have a material impact on its bottom line, especially if the company follows its pattern of selling them without regard to making a profit.

The key to the Alexa wireless earbuds is Alexa. Shut out of smartphones, Amazon snuck its personal assistant into contention by putting it in its Echo Smart speakers. The Echo got Alexa into the home, and Alexa wireless earbuds offer a sneaky way to take Alexa mobile. With billions of Android and iOS smartphones out there — the vast majority of them using Google Assistant and Siri instead of downloading Amazon’s Alexa app — a pair of really good sounding, affordable wireless earbuds could be the Trojan Horse that finally gets AMZN’s Alexa onto smartphones in a meaningful way.

That would mean Alexa gets “smarter” thanks to machine learning applied to the increased usage. More importantly for Amazon stock, it would translate into more customers buying Prime memberships to listen to Amazon Prime Music, and it would result in more online purchases thanks to the convenience of having Alexa in your ear everywhere you go. 

However, if they are successful, Alexa wireless earbuds will inevitably turn into a friction point between Apple and Amazon. AirPods are one of AAPL’s big success stories and the company talks them up whenever possible. Bloomberg says the Alexa wireless earbuds are expected in the second half of the year, setting up a showdown between Amazon and Apple just in time for the holiday shopping season — when earbuds are a hot gifting commodity. That battle for holiday sales could also mark the point where the AAPL and AMZN relationship chills once again.

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

Article printed from InvestorPlace Media,

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