Amazon (NASDAQ:AMZN) and Qualcomm (NASDAQ:QCOM) are joining forces to bring Alexa headphones to market. Until now, Apple (NASDAQ:AAPL) has been doing pretty well with its wireless headphones business. And now, two of its rivals — including AAPL legal team’s current enemy number one QCOM — are crashing that party.
Qualcomm announced the release of a chip that will make it easy for any headphone manufacturer to embed voice-activated Alexa in their product. The end result is expected to be a flood of Alexa headphones, Bluetooth headphones and earbuds that can take on Apple’s popular AirPods, but with Amazon’s Alexa onboard instead of Siri.
Qualcomm Smart Headset Reference Design for Alexa Headphones
Manufacturers seem to have the whole smart speaker thing down pat at this point, but getting a smart voice assistant like Alexa in a set of headphones has proven a little more challenging. At the start of the year, I reviewed the first set of Alexa headphones, the PRO Voice from 66 Audio. They worked very well and proved the usefulness of having Alexa voice control in a headset, but to get there, 66 Audio engineers had to work closely with Amazon for a year and a half.
Yesterday, Qualcomm announced its Smart Headset Reference Design for Amazon Alexa Voice Service. That’s a rambling, technical term for what is essentially an off-the-shelf solution to make Alexa headphones. QCOM supplies a Bluetooth chip and the necessary software to enable the headphones to send voice commands to the Alexa app running on an Android smartphone, and receive responses from the Alexa app.
Speaking to Reuters, Qualcomm explained the advantage to headphone manufacturers of adopting its design:
“This radically reduces their [engineering] cost and time to market. It makes it simple for the industry to adopt this.”
What’s In it For Amazon?
Smart speakers have been the latest battleground for the adoption of personal digital assistants, and Amazon has been leading that market with its Echo lineup. The company is leveraging that success to put Alexa support into a wide range of smart home products, including microwaves.
Wireless headphones have been more Apple’s thing. Its Beats brand is one of the top sellers and when it comes to integrated voice assistant smart headphones, Apple’s AirPods virtually own the market. Seven months after launch (long after the rush of early adopters), AAPL AirPods accounted for a whopping 85% of consumer spending on completely wireless headphones in the U.S. The total global market for headphones is expected to pass the $20 billion mark by 2023.
While it’s always possible Amazon could put its own name on Alexa headphones to scoop up some of that revenue, the QCOM reference design is intended to make it easy for third-party manufacturers to make Alexa headphones. And that would be the real win for AMZN.
A requirement for that setup is having Amazon’s Alexa app installed on the user’s smartphone. Smartphones running Android have Alphabet’s (NASDAQ:GOOGL) Google Assistant onboard and iPhones have Siri. Those smartphones have billions of users, giving Apple and Google a significant advantage over AMZN, which lacks its own smartphone platform. (The Alexa app is available in both Apple’s App Store and the Google Play store, however.) Echo smart speakers were a way around that problem.
A flood of Alexa headphones would expand Amazon’s footprint on smartphones, and once there AMZN would have a chance to displace Siri and Google Assistant.
What About Qualcomm?
QCOM has had a rough go of things over the past several years. It has faced regulatory fines over its business practices. It not only lost Apple as a customer, it is embroiled in a lengthy legal battle with the company. Meanwhile, leading Android smartphone manufacturers like Samsung and Huawei are increasingly ditching QCOM’s Snapdragon for their own chip designs.
Diversification is key for Qualcomm at this point, whether that’s pushing smartwatch chips, or selling headphone manufacturers an off-the-shelf solution for Alexa integration.
Wireless headphones are a big business that’s getting bigger. More smartphones are ditching the headphone jack, while streaming music services continue to grow. Consumers are replacing their wired headphones with Bluetooth versions, and Apple AirPods have proved smart is popular. Even Microsoft (NASDAQ:MSFT) is getting in the game with new Cortana-equipped Surface headphones. Alexa headphones using Qualcomm’s reference design make it easy for third parties to ride the smart wireless headphones wave, with upside for both QCOM stock and AMZN stock if they take off.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
