Alexa, Should My Company Invest in Voice Technology?

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According to a 2021 report, nearly half of U.S. internet users own a smart speaker. Smart speakers, like the market-leading Amazon Echo and Google Nest, allow consumers to use natural language to do anything from placing an online order to searching for a recipe, all with just a simple, “Ok, Google” or “Hey, Alexa.” But beyond the functionalities provided directly by the manufacturer, these speakers also serve as a platform on which customers can connect with any third-party business that offers an app (known as a Skill on the Echo and an Action on the Nest) on that system. For example, customers can ask the Chipotle Skill, “Hey Alexa, reorder my most recent Chipotle order;” they can tell the Whirlpool Skill, “Hey Alexa, start the laundry cycle;” and they can ask CNN Action, “Hey Google, what’s my flash briefing?”

Conventional wisdom suggests that building out these sorts of capabilities could be a great way for companies to engage with their customers on a new platform and thus strengthen their market position. However, our recent research found that the substantial costs associated with developing a voice assistant feature may not always be worth the benefits.

To explore the value-add of these apps, we gathered stock price data for all 112 firms that released a voice assistant feature on the Amazon Echo or Google Nest between 2016 and 2020. We then excluded data from any firms whose launch of a voice assistant feature coincided with an earnings release (to isolate the effect of announcing the voice assistant alone), leaving us with a dataset of 96 firms. By comparing stock prices for these firms immediately before and after they announced the new feature, we were able to quantify how investors responded to each firm’s launch — and to our surprise, we found that while some firms experienced a positive bump in valuation after launching their voice assistant, others experienced no increase or even a notable decrease in market value.

What drove these divergent reactions? Upon further analysis, we found that the market’s response was influenced by both the type of voice assistant feature and the type of business the firm was in.

When used for informational features, voice assistants boost company value.

After introducing an informational voice assistant feature, firms’ stock prices rose by an average of 1%, or nearly $925 million in average market capitalization. These features refer to apps that enable customers to access information either by requesting content that’s been automatically curated or through a conversational question-and-answer interaction. For example, CNN’s Action provides personalized news briefings, WebMD’s Action offers health advice, and Allrecipes’s Skill can both answer culinary questions and read step-by-step recipe instructions aloud.

Importantly, these features aren’t only applicable to companies whose main product offering is some form of content. Even businesses that sell physical products can benefit from informational voice features: For example, one lawn mower manufacturer developed a Skill that provides maintenance information and guides customers through the oil-change process.

When used for object-control features, voice assistants have minimal impact on company value.

In contrast to informational features, we found that when a firm introduced an object-control feature, there was no significant impact on stock price. Object-control features allow customers to control physical objects in their homes, for instance by asking Alexa to start a load of laundry or adjust the thermostat. While these features can be helpful in some cases, several inherent limitations have hindered their widespread adoption.

First, these tools generally only allow users to control a narrow set of features, meaning that customers still have to physically interact with the object in order to access the full array of available functionalities. For example, Whirlpool’s voice assistant can start a new load, but to change settings such as laundry cycle type, customers have to use the physical interface on the machine.

Second, as natural language processing technology is still far from perfect, it’s fairly common for voice commands to be misinterpreted — and for object-control features, this can lead to dangerous situations, such as setting the oven to 600 degrees.

Finally, many devices require interactions that are far more complex than would be possible via voice commands. A voice-activated stove, for example, still isn’t able to proactively let you know when water is boiling or food is burning, reducing its usefulness.

In addition, in contexts where voice software does add value, it often does so at the cost of cannibalizing or lowering demand for existing, revenue-generating products and features. For instance, when TiVo released a Skill that allowed users to control their smart TVs, some observers commented that the feature seemed to make TiVo’s existing voice-enabled remote obsolete, potentially causing Amazon Echo owners to be less likely to buy a TiVo remote. Between these factors and the substantial costs associated with developing a voice assistant, we found that any potential positive market reaction to launching an object-control feature was functionally cancelled out by its negative side effects.

When used for transactional features, voice assistants decrease company value.

Most surprisingly, we found that when a firm introduced a transactional voice assistant feature, its stock price actually fell by an average of 1.2% — or more than $1 billion in average market value. Because these features allow consumers to use voice commands to conduct transactions such as paying a bill or making a purchase, one might expect them to boost cash flow and thus market valuation. However, our data suggests that much like object-control features, transactional features can be counterproductive because they don’t let consumers do nearly as much as one might think.

For example, the Starbucks and Chipotle Skills only allow consumers to reorder items that they have purchased in the past; they do not allow consumers to order new items. In addition, transactional features generally require consumers to already have an account with the company (which must be set up on another device), thus preventing new customers from effectively engaging with these tools. Inaccuracies due to technological shortcomings are also higher-stakes for any feature that can charge customers money, and storing sensitive financial data in the cloud rather than on devices increases security risk, privacy concerns, and regulatory requirements. Due to these shortcomings, we saw the market react negatively to transactional features in almost every case.

Voice assistants add more value to product firms than to service firms.

Finally, we found that regardless of whether their voice assistants were informational, object-control, or transactional, product-driven firms experienced an average 0.4% (or $300 million) greater increase in market value after launching the feature than service-driven firms did. In general, this is because the ability to interact verbally often adds substantial new functionality to a physical product, such as access to real-time advice regarding assembly, use, or maintenance. Conversely, for service firms whose offerings are inherently intangible, there is less need for these sorts of capabilities, and so voice assistants tend to largely replicate functionalities that are already available via traditional channels, thus adding less incremental value to the customer.

For instance, when you buy hair dye, it typically comes with a hard-to-read, small-print instructional packet. But with Clairol’s voice assistant, customers can hear the instructions in real time as they dye their hair in their bathroom, and they can even access personalized recommendations based on their hair type. Similarly, Quaker offers a voice assistant that guides customers through the cooking process for many of its products, enabling an experience that’s much simpler than reading instructions off the box or looking up a recipe while you’ve got a pot on the stove.

On the other hand, service-driven firms such as American Express and United Airlines also offer informational voice assistants (their tools give customers access to information such as recent account charges and amenities for upcoming flights), but for the most part, it’s just as easy to get this information online or by calling the company as it is to ask Alexa. As a result, these firms incurred the development costs associated with building a voice assistant but their features didn’t provide sufficient incremental value to be meaningfully rewarded by the market.

. . .

It’s only natural to get excited about the potential of a new platform to help better engage with customers. And indeed, companies can gain a lot by investing in new technologies such as voice assistants — but only in certain cases. For informational features and for product firms more generally, our research shows that building a voice assistant app can pay off. But when it comes to service firms and tools that primarily offer object-control or transactional functionalities, the market’s reactions suggest that voice assistants are unlikely to create enough value to justify the costs of development.

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