Morgan Stanley: Google needs to give every US home a free smart speaker - or get buried by Amazon

Google

• Google should give away its $49 Home Mini smart speaker for free to every household in the US, according to Morgan Stanley.
• Such a giveaway would cost $3.3 billion, but ensure that Google is in prime position for what could be the next major platform shift.
• Smart speakers will be a key to the rise of "voice commerce" and Amazon's foothold in consumer homes gives it a strong lead.

Morgan Stanley's financial analysts argue that for Google, there's no place like Home.

In four years, 70 percent of US households will own a smart speaker, which consumers will increasingly turn to for shopping and entertainment. To make sure that a big share of those devices are Google's, the company should give Google Home Minis free of charge to consumers in the United States and maybe even across the globe, Morgan Stanley analyst Brian Nowak wrote in research note Thursday.

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Smart speakers, like the Google Home and the Amazon Echo, are a hit with consumers and they're going to continue to sell fast, Nowak says. Because these devices present so many important opportunities, Google needs to move fast and get its smart gadgets into homes faster than competitors.

If it doesn't, Amazon's Echo smart speaker stands to emerge as the dominant device and that means a lot of bad things for Google, says Morgan Stanley.

Morgan Stanley

For starters, there's the growing popularity of voice-shopping--the act of shouting to a smart speaker that there's no more laundry detergent or Fruit Loops and leaving it to the machine to place the order with a retailer. Morgan Stanley says that if consumers aren't shouting to a Google Home device, then that could "threaten the long-term growth" of Google's lucrative retail-search advertising business. which accounts for 20% of Google's US ad revenue.

In addition, the larger the number of homes Google's smart devices get into, the bigger the opportunity to develop the company's promising digital-valet category, such as Duplex, Morgan Stanley wrote.

The analysts also imagine a dual giveaway, pairing the Home Mini with a free YouTube Premium trial, which they argue could spur adoption of YouTube's new subscription music service .

"If 15% of free trial US households begin paying for YouTube Premium," the analysts wrote, "it would generate $1.8 billion of incremental annual YouTube revenue. This would potentially (increase YouTube revenue 6%) and pay back the total device cost in 4 years." The analysts added that this could add to YouTube's value, which the bank earlier this year estimated was $160 billion, more than GE, IBM or Disney.

Google currently sells the Home Mini device for $49 (though it's often available cheaper with various promotions). Nowak reckons the cost of giving the devices away for free to every US household would total $3.3 billion - that's a lot of money, but for a company as large as Google it's only 3% of 2019 expected operating expenses. That could prove to be money well spent, if it safeguards Google's valuable retail search business.

The bank laid out the reasons they might be wrong and those include the possibility consumers may prefer interacting with digital valets via their mobile phones, which could "offset demand" for the speakers. And because the analysts estimated that 50% of America's homes are already Amazon Prime members, those consumers might be less likely to want a Google Home device.

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