China is buying a ton of smart speakers, but are people using them?
Aggressively low prices have made smart speakers an easy buy in China, helping Baidu become the second largest vendor in the world after Amazon
For many new technologies, like mobile payments, China is often seen as forward-thinking and as an early adopter. But that hasn’t been the case with smart speakers.
In 2017, when nearly 25 million smart speakers were sold in the US, primarily from Amazon and Google, sales in China were barely noticeable by comparison. Now it’s catching up fast. In the second quarter of this year, Chinese companies shipped 12.6 million smart speakers, more than twice the number shipped in the US.
Even Baidu, the search giant often referred to as China’s Google, has surpassed the real Google to become the world’s second largest smart speaker vendor, behind only Amazon. Its shipments in the second quarter surged 3,700% from the same period last year. Shipments of Alibaba’s smart speakers also increased 38.8%, and Xiaomi’s increased 37.5%, according to Canalys.
(Abacus is a unit of the South China Morning Post, which is owned by Alibaba.)
But in spite of this rapid growth, it’s not clear how much all these smart speaker owners in China really enjoy their disembodied digital assistants. Analysts suggest the market still isn’t very mature, and many comments online and from people we spoke with criticize the speakers’ capabilities.
“It's not smart enough,” said Amanda Zhao, who works in Hong Kong and owns Xiaomi Mi AI Speaker, which she no longer uses. “For example, sometimes it doesn’t get what we said, can’t find songs or can’t play anything because of account problems.”
Counterpoint Research’s Mengmeng Zhang told us in March that high shipment rates don’t mean popularity among consumers, especially given how cheap the devices are in China. While shipments increased in China last quarter with Baidu’s surging market share, she does not see a change in user behavior.
If the reception to smart speakers in China has been lukewarm, that hasn’t stopped companies from pushing ahead. Companies are thinking of other ways of making their digital assistants a staple of the modern smart home.
Baidu has been able to increase its market share largely through smart displays, Zhang said. According to Canalys, interest in smart displays has been rising recently, and Baidu faces little competition in the category.
Another reason for rapidly growing sales? Aggressive price cuts.
Most smart speaker functions tend to be very similar, regardless of who makes it. As a result, companies have turned to price competition to increase market share.
During its Singles’ Day shopping event in 2017, Alibaba slashed the price of its Tmall Genie from 499 yuan (US$72) to 99 yuan (US$14). Xiaomi followed suit by cutting the price of the Mi AI Speaker Mini to 99 yuan (US$14). Baidu also launched an 89 yuan (US$12) smart speaker in June last year.
By comparison, in the US, the Google Home Mini is considered the affordable smart speaker option at US$29 -- and that’s after a frequently offered US$20 discount.
This kind of price cutting is not unusual, says Canalys analyst Jason Low. Smart speaker vendors worldwide rely on discounts, promotions and bundling to drive sales in different channels, especially online, he said.
“The important part here is to convince consumers who do not own smart speakers to make the purchase,” Low said.
But as prices decline, it’s become hard to make any money from the business. Baidu says its smart speakers are not profitable.
Kun Jing, general manager of Baidu’s Smart Living Group, said in May that the company is still subsidizing its smart speakers, and they’re losing more money the more speakers they sell. But the strategy isn’t to make money right now.
Price cuts are aimed at “educating the market,” according to Lijuan Chen, head of Alibaba AI Labs. She told Chinese media that the company wants more consumers to experience smart speakers to try to drive industry growth.
But while Alibaba and others are busy trying to “educate” the market, consumers might not be receiving the intended message. Numerous hurdles still exist, like the fact that people often would rather speak local dialects or the fact that consumer habits are different in China.
Dr. Mengyue Wu, a faculty member of SpeechLab, a voice tech research group at Shanghai Jiaotong University, thinks that voice interaction technology based on the Chinese language is good enough, but usage of devices is still limited because many Chinese users speak dialects. Lifestyle differences such as living space can make a difference, too.
Wu said China doesn’t have a good smart home ecosystem, and Chinese users don’t need smart speakers as a control center because their apartments are smaller in general. She added that in the future, smart speakers should initiate interaction with users.
Another problem is that content and services aren't well-integrated with smart speakers in China right now, said Mengzhu Long, the CMO at speech interaction solutions company AISpeech. The company has worked on smart speakers for Alibaba, Tencent and Huawei. Without functions like radio, news and ticketing being well-integrated, users aren't getting the feedback they need to offer a compelling experience, Long said.
These challenges mean “educating the market” could be a difficult task. Numerous people told Abacus they found their smart speakers limited or not very useful.
“It’s virtually useless,” said Wenqing Fu, a smart speaker owner in Shenzhen. “I set it aside after playing with it for a few days.”
Fu was disappointed with her two Tencent smart speakers because of the music playback experience, a top use case for smart speakers both inside and outside China. Since music apps for smart speakers are built-in and they speakers usually can’t function as Bluetooth speakers for other devices, the functionality can seem limited for those who would rather browse song selections visually.
Shenzhen-based Qing Hu, who works at an internet company, said she’d rather use her smartphone for music.
“I’m more used to listening to music with my smartphone app, because it has recommended playlists based on users’ preferences,” Hu said. Hu also said that short battery life is another reason she stopped using her smart speaker.
If people are more likely to turn to their smartphones for music, that could make it harder to get people to shout out to a smart speaker for other needs. After all, smartphones often have their own digital assistants available. But the companies themselves suggest they don’t have a problem with smart speaker usage.
In November 2017, four months after Alibaba released its first Tmall Genie smart speaker, Alibaba’s Chen told Chinese media that at least 95% of its users are active daily. Baidu told us that by June this year, there were more than 600 million smart devices using DuerOS, Baidu’s voice assistant, with 3.6 billion interactions each month. Xiaomi said in financial filings its voice assistant Xiao Ai had 49.9 million monthly active users in June, and 45% of those users used voice control to interact with their smart devices at least once that month.
By comparison, 72% of smart speaker owners in the US use their device at least once a day, according to a survey by Adobe. It’s not clear how often all Chinese smart speakers owners use their devices, but IDC’s Sophie Pan told us in March that it’s not very fair to compare the Chinese market to the US because smart speakers were introduced to the US years earlier.
As the price war from large companies results in a race to the bottom, though, smaller players have found it hard to compete.
Mobvoi, which now makes customized smart speakers for enterprises and has a line of consumer wearables, said the price war is bad for both the industry and consumers. The company says that it was among the first to make consumer smart speakers, but it exited the consumer market when tech giants flooded it with speakers at prices below cost.
“Consumers then gradually formed an impression that this type of product doesn’t have any additional value,” a Mobvoi spokesperson said. “We think in the long-term, it’s damaging to technology innovation, so we won’t and can’t play it the way they do.”
It’s not all bad news, though. Some owners find smart speakers useful, especially for kids, and especially at the current price point.
“I think it’s worth it to spend 100 yuan (US$14) on this toy,” said Nicholas Zhao, a finance worker in Hong Kong who owns a Tmall Genie. “And it works OK with a smart switch.”
The challenge now is for tech companies to figure out how to best tap into the millions of smart speaker owners across China.
“There’s still plenty of room for improvement when it comes to smart assistant capabilities, as well as the content and services delivered to users,” Canalys’s Low said. “The challenge for smart speaker vendors is to leverage the large installed base of smart speaker users to reach their respective business goals and to drive monetization.”