When I search for a movie time on my phone or computer, I am presented with ads (for example, from Google AdWords). When I ask Alexa, no such ads exist. Yet.
The growing proliferation of voice-enabled devices like Amazon’s Echo and Google’s Home raises some interesting opportunities and challenges for advertisers and consumers. This medium does not currently support advertising. But as consumer adoption increases, use of competing, ad-supported platforms based on typed-in queries will likely decrease.
How long will it take until we start to see free, ad-supported versions of Echo or Home? A premium, ad-free version would certainly be possible. We’ve seen the freemium model scale user adoption very quickly with apps like Spotify. I project that even paid devices, like Echo and Home, will soon be playing ads.
Ads on these devices will start off as helpful suggestions. For instance, when I ask when a movie is playing, it will not only tell me the time, but offer me a discount from the closest theater on the next showing. When I ask it to order me a pizza, it may ask if I’d like to order from Domino’s and save $5.
This type of “preferred partner” opportunity could be sold to advertisers (possibly in an auction format similar to Google AdWords), making their brand the default provider. In much the same way consumers often default to buying from the seller on Amazon that has the “Buy Box” or from the pre-programmed merchant on Amazon Dash buttons, they will also default to buying from these preferred partners. This is most likely to occur when consumers trust the platform gatekeeper that has selected the merchants and in situations when consumers are merchant-agnostic (or at least when they don’t have strong brand preferences). For example, when I order a dozen roses, I don’t care which company I buy them from as long as I know I got a good deal and the flowers arrive on time and look good.
The manufacturers of voice-enabled devices will have a huge opportunity for monetization if consumers are willing to delegate the merchant selection process to these devices.
Intensifying competition in this space may cause the advertising environment to quickly evolve (or, perhaps, “devolve” is more appropriate) into one that features ads that are more blatant than the “helpful suggestions” from less obtrusive preferred partners. When I ask my device to order me an Uber, for example, it may just play an ad for Lyft. And ultimately, these devices will be proactive in offering assistance in addition to being reactive to user requests.
For instance, knowing from my previous queries that I am an avid Miami Heat fan, the device may proactively ask me if I’d like seats to the next home game (which it would buy for me on StubHub or the like). Or knowing that it’s raining in the morning, perhaps it will offer to call me an Uber. Or 30 minutes before the Super Bowl starts, it may play an ad for Budweiser. The device could offer up these ads even when a user hasn’t asked a question. This would represent a new level of interaction with voice-enabled assistants than we experience today – a new relationship inspired by the search for new advertising and promotional opportunities. Nimble, creative startups may have an opportunity to catapult their growth by establishing an early foothold in this nascent advertising channel.
This type of ad inventory presents a fresh set of challenges for advertisers, similar to the ones that companies advertising on other audio-exclusive platforms like Spotify and Pandora have had to grapple with. For example, transaction processing is different via voice than it is via typing and clicking. Advertisers may find themselves adapting their systems to enable transaction processing in a new format. This also raises issues about ad attribution. Advertisers will have to navigate the new reality inherent in this medium: Ad inventory is singular with only one advertiser per impression. This is likely to result in a higher cost per impression.
Advertisers with low ROIs on ad spend may be forced to innovate or be forced out. The offsetting opportunity is the elimination of competition and (presumably) higher response rates. This, of course, is all predicated on the assumption that consumers will be responsive to ads in this context.
Consumers will need to decide if, and at what point, they find this type of advertising intrusive and distracting as opposed to helpful. Consumers may tolerate the subtler preferred partner approach and may even find it adds value, but they may quickly get tired of more blatant forms of ads. I suspect that once the novelty wears off, the annoyance threshold will decline, which could lead to an increase in the number of premium, ad-free subscriptions. If I’m listening to the free, ad-supported version of Spotify on my free, ad-supported version of Echo and I have to endure not only the ads from Spotify but also the ads from my voice-enabled assistant, I may be whipping out my credit card sooner rather than later.
Phil Nadel is cofounder and Managing Director of Barbara Corcoran Venture Partners, an AngelList syndicate. You can follow him on Twitter: @NadelPhil.
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