Amazon (AMZN US) is entering the speaker market, with the Alexa enabled amplifier, receiver and subwoofer. This could potentially be big risk for hardware speaker companies such as Sonos (SONO US) or Bang & Olufsen (BO DC).  

CNBC reports that Amazon is planning to launch 8 new Alexa-powered devices this year. These include microwave oven, amplifier, receiver, subwoofer, and an in-car gadget. Amazon’s focus on the home is a direct threat to the speaker company Sonos (SONO);

These products mark Amazon’s first move into the home appliances space, putting it in direct competition with companies like Sonos and GE. Sonos already has an amplifier and subwoofer that works with Alexa, while GE has a smart microwave that can be connected to and controlled with Alexa. Garmin also has an Alexa-compatible dash cam that can be used in the car.

But the move signifies Amazon’s heavy interest in the connected home. The amplifier, for example, can be used as the central audio panel to control multiple speakers that are set up across the home. The microwave can make Alexa a key part of the kitchen. (CNBC)

For Sonos which had the IPO earlier this summer such type of competition could prove to be devastating. At the time of the IPO big part of the pitch from the company was that its multiple speakers would support various voice-assistance tools such as Alexa. Sonos stated in their IPO filing that a big risk to their model is that companies like Amazon could end the licensing at any moment.

For Sonos and other speaker/hardware companies such as Bang & Olufsen , the risk lies in;

  1. Amazon sees the real added value with the speakers in more people using Alexa. Hence, it is willing to sell their speakers as low/zero/negative margin to compete with other voice-assistant offered companies such as Google (Google Home), or the new Apple speaker products.
  2. Amazon wants to take on more of the profits generated from the value-chain by selling speakers (hardware).

These are things that Ben Thomson at Strategy addresses in more detail here.

Sonos (SONO US) share price is down since its IPO in early August. The company lowered its IPO price to $15/share from earlier range of $17-19/share as investor demand was not as high as expected.

Source: Bloomberg

As more and more of the speakers market moves towards being voice-enabled, strictly hardware companies such as Sonos might face more challenges when big integrated players such as Amazon enters the market.