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Why Google is terrified about Alexa, and what it's doing in response

  • Amazon controls about three-quarters of the market for home automation devices, according to a report last month.
  • Google is adding reminders to its Google Home products to make the devices more personal.
  • In moving to voice, Google has to protect privacy and figure out how to monetize data.

Amazon's early lead in the home is a problem for Google — and not just because Alexa is outselling Home by a wide margin.

In the new world of voice-powered computing, Amazon is rolling out popular features like skills and reminders that take users entirely out of Google's massive ecosystem. Late last month, Google added reminders to its home assistant, a long-awaited feature that lets consumers get voice prompts to walk their dog or take out the trash.

Even as Google plays catch-up with new functions and lures users with lower-priced products, the web giant faces a business model conundrum. Almost 90 percent of parent Alphabet's $90.3 billion in revenue last year came from advertising, mostly search, video and mobile.

Without a visual interface, what happens to Google's ad business?

"You basically can't deliver ads when it comes to a voice query," said Lightspeed Venture Partners' Alex Taussig, who invests in consumer internet start-ups. "If I ask for the nearest coffee shop from my office, you can give me one answer and that's probably not an ad. So it is very hard for Google to monetize these product searches."

This isn't the first time Google has been forced to reckon with a changing computing paradigm.

When consumers moved to mobile, Google faced the risk of so-called vertical search, or industry-specific queries. Rather than going to Google.com, smartphone users would open the Kayak app to search travel or Yelp to find restaurants. But Google survived and thrived by populating its Android operating system with apps for calendar, maps, YouTube and photos. Even if people were doing less search, they were still sticking with Google and serving up all that valuable data.

Now, with voice becoming the next emerging platform, Google has to again make sure it doesn't get left behind, whether in the home or the automobile.

According to a report last month from Consumer Intelligence Research Partners, Amazon controls more than three-quarters of the market for home automation devices and Google accounts for most of the rest.

With that kind of deficit and with the explosive growth in the home assistant market, Google is in jeopardy of losing users who have previously counted on the company's search engine, calendar and other features.

'Mountain of data'

In response, Home is getting more targeted. Following last month's announcement that Google is adding reminders to the device, the company is working with developers to build apps that will remind users of chores like taking prescription medications or perhaps that their restaurant reservation is in a few hours, according to a person familiar with the matter. Google is planning on announcing integrations in mid-November, said the person, who asked not to be identified because the plans are confidential.

While Amazon has your credit card information and knows your shopping history, Google knows how you search the web, providing an intensely personal view into a consumer's habits. Google's dominance online was built around cataloging the internet and knowing what to quickly surface based on a query.

"Google is sitting on a mountain of data," said Katie McMahon, vice president at SoundHound, a software company that uses artificial intelligence to enable apps to respond to voice commands. "Google is going to flex its muscle off the data sets they command. The world's data is one pile but the individual pile is a unique set they'll focus on."

Google hinted in May that it would be improving its assistant through reminders and appointment scheduling, but didn't provide specifics. A Google spokesperson declined to comment for this story.

The focus on reminders follows recent improvements to Amazon Alexa's timer features, making it easier for users to get verbal nudges to pick up dry cleaning or pay bills.

It also has to deal with new concerns around privacy. Earlier this month, Google released a smaller version of its home assistant called the Home Mini, for $49, and a high-end speaker called the Google Max. Shortly after the release, a blogger from Android Police noticed that the Mini was turning on by itself, improperly listening to conversations.

Google acknowledged the bug and updated the software, but the flap led to further questions about whether Google is doing enough to protect consumer data.

Investors haven't punished Google for its challenges in home automation, sending Alphabet shares up 25 percent this year. The company has proven that it can deal with changing consumer habits. And when it comes to battling Alexa, it's still early days.

"The home is still a frontier yet to be owned," McMahon said.