Led by Amazon’s Alexa, smart speakers’ install base is expected to reach 200 million units worldwide by 2020. A quarter of Americans over the age of 12 own a smart speaker, and the majority of those users have more than one device in their home. Moreover, Apple could sell 50 million of its Airpods this year (generating $8 billion in sales) as Bluetooth earpieces explode in popularity.
For the market penetration of this hardware, the app ecosystem remains limited in terms of mainstream adoption. Podcast production and consumption has exploded, but they don’t take advantage of smart speakers and headphones as interactive devices. Even though there were 57,000 Alexa skills available at the end of last year, most people are using smart speakers mainly to check the weather, check the news, ask simple questions and play music.
If voice is a new operating system, where are the opportunities to build giant companies on top of it?
To get a better sense of how the smart money views this market, I asked five VCs who have spent the most time in this space to share which types of startups have captured their attention:
- Matt Hartman, Partner at Betaworks Ventures
- Nicole Quinn, Partner at Lightspeed Venture Partners
- Paul Bernard, Director of the Alexa Fund at Amazon
- Ann Miura-Ko, Partner at Floodgate
- Jordan Cooper, Partner at Pace Capital
Here are their responses:
Matt Hartman, Partner at Betaworks Ventures
The most recent wave of audio was about constant connectivity and streaming, and we invested in Anchor, Gimlet, and other audio-first businesses that would thrive in the podcast renaissance. For the next wave of audio, we’re focused [on] three broad categories: personalization, new behaviors/new interfaces, and monetization. Personalization means both utilizing location, Apple Watch, and other data to create magical audio experiences and customized audio content, but also advances in generative content like Resemble.ai and Descript that can create custom audio.
In terms of new behaviors/new interfaces, people are leaving their Airpods in longer, which means there may be an opportunity for “Airpod-first” product design. Finally, as audio becomes an industry, monetization will be improved and also re-thought: subscription products such as Shine and Headspace are interesting in the context that if they don’t really work as ad-supported podcasts, and they are packaged in such a way that people are willing to pay a monthly or annual subscription.
Nicole Quinn, Partner at Lightspeed Venture Partners
We are in between platforms and it’s not clear what the next platform will be. VR and AR are options, but I believe voice will be the next major platform with mass adoption. The biggest hurdle right now is discoverability which in turn leads to engagement and retention issues. This was the same for mobile before the App Store allowed us to discover new apps. We need the same for voice.
We will then see voice move from a music and list creation tool to one which quickly becomes part of popular culture around shopping, games, travel, meditation, etc. Leading audio apps such as Calm, the meditation and sleep app, are already set up to take advantage of the move to voice.
Paul Bernard, Director of the Alexa Fund at Amazon
Alexa got its start in the home, but we knew early on that bringing this experience to customers outside the home would become important. Our investments in companies like North (smart glasses), Vesper (power-efficient microphones) and Syntiant (power-efficient AI chip) were inspired by this vision, and reflect the idea that ambient computing is becoming part of daily life.
These companies are also helping create the surface area for interactive entertainment and information services, such as Drivetime’s trivia games (we are an investor there too), and social ones like TTYL, which enables friends wearing earbuds to maintain “audio-presence” with each other throughout their day while they multi-task. We also expect to see innovation in how voice can help seniors aging in place — our recent investment in Labrador Systems, which builds assistive robots, is a good example of this trend.
Ann Miura-Ko, Partner at Floodgate
The cultural implications of having Airpods or headphones on your ears whether you’re working, walking around town, or because you just want to be left alone are vast. With audio content, we’re still where content was in Web 1.0 — all professionally generated, long form content whether it’s podcasts, music or audiobooks. Consumer content takes off when we put the power of easy content creation into the hands of consumers and connect them socially.
Voice has an added dimension that conveys emotion, humor, and context not found in text or images. I believe that voice creates connections between people in a way that written content does not. Voice as an interface also remains an interesting challenge. We are lacking a true navigation mechanism that guides us in what is possible and the breadth of capabilities is still pretty limited. The fact that this space is still so nascent and full of user problems means that there is huge potential and so I keep looking here beyond leading the seed investment in TTYL.
Jordan Cooper, Partner at Pace Capital
At Pace, we are very interested in the emergence of voice as a primary interface with which we query and consume the internet. Alexa and Siri primed the pump and got us used to speaking to a machine, but Apple’s Airpods feel like the watershed moment for developers thinking about the space. I believe that Airpods may be the next platform on top of which many applications and value are built.
The key primitives that Airpods afford system designers are 1) untapped ear time: we keep Airpods in our ears even when we aren’t consuming content and founders are starting to design not just content like podcasts or music to fill that space, but also interactive applications that can exist in the absence of a graphical user interface, 2) a coming always-on microphone that will enable you to query without taking a phone out of your pocket, and 3) head position: Airpods are the first time that a scaled user base is wearing sensors on their head.
The accelerometer, for example, is as interesting to design against as say the microphone or the speaker. All of that’s to say, I am looking to invest in applications that are native to the Airpod hardware edge that wouldn’t have been possible prior to its arrival.
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