Amazon Echo. Source: Amazon
Just days after Amazon.com (AMZN -1.11%) opened up Echo orders to the public (following an invite-only period), the e-commerce giant is making another move to bolster its virtual assistant Alexa, which has thus far resided exclusively in its Echo device. Amazon has just issued a trio of press releases (here, here, and here) announcing its plans to open up Alexa to third-party developers and hardware makers. Let's break down each of these announcements and assess the threat to Apple's(AAPL -0.81%) Siri and Google (GOOG 0.56%) (GOOGL 0.69%) Now.
Anyone can play
Third-party hardware manufacturers are now able to integrate Alexa Voice Service, or AVS, into their connected devices. Importantly, this is a free service, so the overall cost of implementation is very low. Manufacturers can add AVS with "just a few lines of code," according to Amazon executive Greg Hart. All the device needs is an Internet connection, a microphone, and a speaker. Amazon details some ambitious possibilities, such as a connected car that can access Alexa on the road.
Developers, developers, developers
Amazon is also releasing a software development kit -- called Alexa Skills Kit -- full of self-service application programming interfaces, or APIs, and tools that developers can begin using to tap into Alexa. Existing web services can similarly incorporate Alexa with "just a few lines of code."
Developers can create new "skills" for Alexa to learn, which really paves the way for third-party innovation. This is where the true potential for platform growth lies. Speaking of encouraging innovation ...
Funding Alexa
The e-tailer is also putting its money where its mouth is. Amazon is pledging $100 million into a new Alexa Fund with the goal to support developers and OEMs that want to utilize the service. The fund will selectively invest in any ideas that leverage Alexa and present unique applications of the technology. To start, Alexa Fund has seven initial investments, and anyone can apply.
Leapfrogging Apple and Google
Interestingly, even though Amazon was one of the last major players to release a voice-powered virtual assistant, it is the first to open it up to third-parties. Developers have been waiting for Apple and Google to open up their respective assistants for years to no avail. Only now are the Mac maker and search giant seemingly willing to open up their voice platforms. To date, only unofficial hacks are available for developer use.
In early 2014, The Information reported that Apple was planning on opening up Siri to third-party developers, but that has not yet materialized. More recently, 9to5Mac detailed a new API called "Breadcrumbs" that would be part of iOS 9, which would give developers limited access to Siri, in order to balance privacy concerns. This could refer to the Search API that Apple announced, where Siri cannot search within apps and even deep-link users directly into specific content within apps.
Likewise, Google confirmed in March that an open API for Google Now was in development, which would also allow third-party developers to utilize the proactive service. Google currently has a pilot program that includes around 40 third-party services, which is definitely a start. However, the company did not announce anything at its I/O developer conference last month.
A Nuanced threat
Meanwhile, this could also be perceived as a threat to Nuance Communications (NUAN), even if that company is not the intended target. Much of Nuance's business is built on licensing its leading voice recognition engine to other companies, which Amazon is now offering for free. Amazon says it will do all of the backend work necessary to hear, understand, and process voice input. Google has always made its in-house engine available to OEMs through Android but only within that specific context. Amazon has broad ambitions and even has Intuit on board, which is planning on adding Alexa to its incredibly popular Mint personal finance management service.
Nuance's largest operating segment is healthcare (48% of revenue last quarter), which is likely specialized enough that it is fairly safe. But Nuance also derives a significant portion of sales from its mobile and consumer business (25% of revenue last quarter), as well as its enterprise segment (18% of revenue last quarter). These are precisely the verticals that Alexa will appeal to -- for free.
Alexa needs to be open in order to survive
Since Amazon was so late compared to Apple and Google, Alexa is facing an uphill battle in terms of user adoption and awareness. At this point, Apple and Google enjoy a combined installed base of hundreds of millions of devices that carry either Siri or Now. Every iPhone since 2011 has Siri, and Android is easily the dominant mobile platform in the world today. Google Now is also available on iOS.
If Amazon hopes for Alexa to become relevant, it absolutely needs support from third-party developers and OEMs, and untethering Alexa from Echo is undoubtedly the right call. This may also prove to be an important differentiating factor since Siri and Now are not open to third parties ... yet. With this announcement, Apple and Google might just opt to accelerate their own timelines in order to remove Amazon's only advantage.
