Smart Speakers: A Market's Rise and Fall

The technology sector is characterized by constant evolution, and with each new wave, new hardware products emergeOver the past decade, smart speakers have been positioned as pivotal devices in the portfolios of several internet giantsHowever, their trajectory has taken a downturn in recent years, witnessing a steady decline in popularity, market scale, and technological innovation.

According to a report from RUNTO Technology, the smart speaker market in China is projected to see sales of approximately 15.7 million units in 2024, marking a significant drop of 25.6% compared to 2023. Revenue is expected to fall to 4.2 billion RMB, which is a decline of 29.4% and less than half of the market size observed in 2021. Notably, this will be the fourth consecutive year of decline for China’s smart speaker market since it peaked in 2021.

In the realm of smart hardware, competition is fierceFor a product to survive long-term in this market, it must either meet the basic needs of users—similar to smartphones or PCs—or provide continuous fresh experiences that stimulate new purchases and encourage industry evolution.

The explosion of smart speakers in the Chinese market began in 2017, peaking in 2020, with major players like Xiaomi, Baidu, and Tmall dominating the landscapeDuring this period, Tmall Genie achieved remarkable sales of over a million units in a single day and sparked a fierce price war among competitors striving for market share.

As of today, after four years of decline, smart speakers have faded from being trendy devicesDespite recent government subsidies that have somewhat cushioned the decline, the overall market is still shrinkingThe advent of artificial intelligence (AI) was initially seen as a potential revival for smart speakers, but due to form factor limitations and the high degree of substitutability with other devices, AI did not materialize as the driving force for a resurgence in this sector.

Lowering prices rapidly fostered a billion-dollar market

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Although smart speakers are designed like speakers, their primary selling point is the voice assistant feature and connectivity with a multitude of smart home devicesWhile Apple was not the first company to venture into smart speakers, its development of the Siri voice assistant introduced natural language processing (NLP) into consumer-grade products, laying the groundwork for future voice interaction in smart speakers.

In 2014, Amazon launched the first genuine smart speaker, prompting tech giants like Google to join the frayIn China, local brands like Tmall Genie and Xiaoi also made significant strides, introducing several smart speaker products.

The rapid growth period from 2017 to 2020 witnessed an influx of brands entering the smart speaker space, resulting in the release of products with display screens that expanded their utilityApple's entry into the market spurred development in the high-end segment, albeit with fewer units soldHowever, its integration with smart home systems and improvements in audio performance contributed positively to industry advancement.

It is important to note that the once-thriving hundred-billion-RMB smart speaker market was, to some extent, forged by brand owners employing aggressive price-cutting strategiesThe price points of smart speakers dropped significantly—from over 200 RMB initially to less than 100 RMB, especially within the domestic market, where low pricing became a trend to capture market share.

One telling statistic is that Tmall Genie once offered a promotional price of 99 RMB, resulting in over a million units sold in just one day, setting a record for daily sales at that timeOther companies like Xiaomi and Baidu followed suit, slashing prices below their costs to compete and desperately gain users.

“Those years were the heyday for smart speakers, where virtually every internet giant got involvedThere were even joint promotions offering free smart speakers with membership sign-ups—it seems crazy looking back now,” recalled an involved marketing planner.

Indeed, those aggressive pricing strategies proved effective

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Since 2018, the competitive landscape for smart speakers in China stabilized, with Xiaomi, Tmall Genie, and Baidu maintaining a triopoly, collectively accounting for over 90% of the market share, which has grown to an impressive 96.2% in 2024.

Recent statistics from RUNTO Technology indicate that Xiaomi firmly secured its base in the mid-to-low-end market and benefited from growth in the mid-to-high-end segment, raising its market share to 43.0%, a marked increase of 9.3 percentage points compared to 2023, thus leading in salesConversely, Baidu and Tmall Genie experienced slight declines in their market share due to the returning high-end screen models and a downturn in low-end models.

However, the downside of this price-driven maturity is a solidified public perception of smart speakersWithin the current pricing landscape, the 100-199 RMB range is densely populated, comprising over 40% of the marketIn contrast, the high-end segment, priced over 1,000 RMB, has seen several manufacturers withdraw, leading to a sharp drop in sales in that tier.

Not an essential item and lacking distinctive attributes, smart speakers have entered a fourth consecutive year of declining salesThere are no permanent trends, especially not on a market level that was built predominantly on priceAfter peaking in 2020, the downturn began in the following yearCurrent data suggests that every month in 2024 has recorded double-digit declines in sales compared to the previous year, with an overall dip exceeding 20%. The fourth quarter, buoyed by national subsidies and promotion events like Double Eleven, remained slightly less affected, but still exceeded a 10% decline.

External interpretations surrounding the decline of smart speakers vary, but the underlying issue appears to be a lack of necessity and unique selling pointsCanalys research manager Chen Qiufan highlighted a similar sentiment: “After rapid growth in prior years, the smart speaker market is now in a phase of normalization

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The initial wave of early adopters has largely been met, and the influx of new users is slowingWith core features and experiences lacking significant breakthroughs, improvements in voice assistants and sound quality have been limited, failing to spark renewed purchase interest among users.”

Currently, despite the convenience offered by smart speakers, their capabilities primarily involve playing music, checking the weather, and controlling smart home devicesUsage frequency tends to be low, and since smartphones and other devices offer comparable functionalities, the repeat purchase rate for smart speakers is not robustAs they are not considered essentials, consumers in uncertain economic climates often prefer to allocate budget to more critical product needsThe trend toward consumption downgrades has further diminished their attractiveness.

Moreover, the domestic smart speaker market is quite concentrated, with Tmall Genie, Xiaomi, and Baidu dominating, which can lead to a decrease in competitive vitality and as a result, hinder the pace of innovationAn additional critical aspect is that while smart speakers were once envisioned as the control hubs of an intelligent home, the arrival of a fully automated home era has revealed that smart speakers have not emerged as the sole access point.

A RUNTO Technology analyst mentioned that the current market decline is largely attributed to low-end products suffering from poor quality and unsatisfactory experiences, which are gradually being phased outWith the rise of fully integrated smart home solutions, an increasing number of household smart devices and appliances now incorporate voice interaction capabilities, leading to a diminished status for smart speakers as gateways to smart living, as their functionalities have been supplanted by alternative devices.

In the market's specifics, screen-equipped smart speakers have faced significant competition from learning tablets and companion devices, resulting in marked declines

Additionally, various smaller brands and established international audio manufacturers are progressively exiting the smart speaker sectorInternally, the severe lack of product differentiation and subpar interaction experiences compound the problem, while externally, they struggle to keep pace with competitors’ evolving capabilities, rendering their functionalities easily replaceable, which has ultimately catalyzed the inevitable decline of smart speakers.

AI, contrary to expectations, is not a cure-all for the plight of smart speakersFor hardware products, the integration of new technologies during stagnation phases can generate fresh market demandsIn 2023, AI models gained traction, reviving hopes that smart speakers could experience a second springNevertheless, two years after this evolution, it is clear from the market response that AI has not stemmed the tide of declining smart speaker sales.

A RUNTO analyst articulated that the limited improvement brought about by AI models in the context of smart speakers can be attributed to the limited maturity of conversational AI technology, with most consumers employing AI on smartphones and PCsFurthermore, the open-source nature of AI model technology means that competitive advantages in AI capabilities for smart speaker manufacturers have not solidified, as smart speakers have not become the primary terminal for AI models.

That said, the infusion of AI has indeed lent a semblance of intelligence to smart speakers, enhancing voice recognition and natural language processing, thus making interactions more natural and accurateHowever, the inherent limitations of these devices remain unresolved despite AI advancements.

As noted by Canalys' research manager, smart speakers primarily hinge on voice interactions, lacking visual features and information integration, which makes competing with smartphones and smart displays a challengeAdditionally, their comparatively weak local computing power, along with a heavy reliance on cloud computing, result in potential delays and misrecognition problems.

Furthermore, the complexity of smart speaker use cases—such as interpreting unique user preferences, remembering habits, and executing intricate tasks—remains inadequate, curtailing their personalized capabilities.

Indeed, AI has improved smart speakers, but it has not produced transformative essential applications that attract users

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