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Amazon Unlimited, Alexa, AI & How to Cut Off Google at Its Knees

Brian Santo
10/14/2016
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Amazon.com Inc. (Nasdaq: AMZN) just introduced Amazon Unlimited, a new streaming music service. You just yawned, didn't you? Stop it. If successful, Amazon Unlimited will rank among the most important services Amazon has ever introduced, or ever will. It is bait for the single most valuable asset in the technology business for Amazon and its closest rivals: subscribers.

Or "users" if you're a social media company, or "eyeballs" if you're in the TV business. "Consumers," certainly, no matter where you're coming from. Consumers are key for the largest technology companies, because one of the biggest generators of revenue in the technology industry isn't a technology, it is advertising. Intel Corp. (Nasdaq: INTC) recorded $55.4 billion in total revenue in 2015; Google (Nasdaq: GOOG) brought in almost $75 billion.

The success of Amazon Unlimited will be incredibly important for Amazon because there is only one path forward for electronic advertising, one path forward for competing with Google for some of those ad dollars, and that path goes through Siri, Cortana, Alexa and their sisters.

Let's back up a bit. Google still practically owns the electronic advertising business, and any company with that kind of market share is always ripe for losing a significant chunk of it. Companies like Amazon, Facebook , Microsoft Corp. (Nasdaq: MSFT), Apple Inc. (Nasdaq: AAPL), and Comcast Corp. (Nasdaq: CMCSA, CMCSK) are among those who have been keeping pace with Google, in part by buying up ad technology companies over the years.

What those companies all already had was vast numbers of users/subscribers -- a captive audience to sell to -- but you can always have more. This explains why Verizon Communications Inc. (NYSE: VZ) bought AOL a few years ago and is currently circling around Yahoo Inc. (Nasdaq: YHOO). But…, but…, isn't Yahoo a joke? If you can laugh at 600 million unique users a month on mobile, you're not getting it. It's easy to denigrate Twitter Inc. as a stagnant asset. Why is it in play though? North of 300 million monthly users. (See Verizon Wants $1B Off Yahoo Bill – Report.)

But Google's rivals have to convert subscriber numbers into sales opportunities. Possessing ad tech and massive subscriber numbers isn't anywhere near table stakes any more. Google's ad business works because it knows more about qualifying leads on a massive scale than anybody else. So far, anyway, and that's the important part here.


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Google already provides some of the best big data analysis capabilities in the service of selling ads. If Google's rivals want to beat Google, they have to go a step further, and the step beyond big data analysis is artificial intelligence (AI).

There are a lot of applications for which AI is critical -- not just important, but critical in the issue-of-safety sense. These include autonomous vehicles and drone flights. If you think Apple and Google are just off on a bit of a lark with their self-driving car operations, you're missing the point. If you think Amazon is experimenting with drones only for some pipe dream of a cheaper delivery system, you're not getting it. Yes, these AI-based applications could, in fact, turn into lucrative businesses, or be good for business, but the value of these companies exercising their AIs in critical situations is incalculable.

There's a prerequisite for leading-edge AI, however. A company needs supercomputers and/or data centers. (The technology for high-performance computing [HPC] and the technology for data centers is beginning to converge.) Facebook, Microsoft, Google and Amazon own networks of some of the most advanced data centers in the world.

Microsoft, in no coincidence whatsoever, earlier last week announced its Azure network is evolving into the world's first AI supercomputer.

Salesforce.com Inc. was simultaneously talking about making its Einstein AI widely available. AI for sales. The dots are connecting themselves -- no AI required.

If a company has the data centers and excellent AI and a big enough number of users/customers (or sufficient access to all three), there's still one more thing it needs to do to beat Google at its game. It must collect vast amounts of customer data upon which to apply those AI capabilities, in order to figure out how to serve ads and sell goods to people better than Google can.

Finding out what music each person listens to provides a very rich set of data points about the listener. The University of Cambridge recently added to the research on how different musical tastes correlate with different personality traits and behaviors.

Amazon Unlimited is absolutely not just another late-in-the-game, me-too music service, although Amazon knows that's what it looks like. That's why it priced Unlimited lower than most other major music services for existing Amazon Prime subscribers -- $8 a month versus the $10 a month most rivals charge (it's $10 for those without Amazon Prime).

The data Amazon will get will be invaluable, and can be enriched even further when cross-referenced with buying behavior and video viewing information on Amazon Prime.

Then toss in an Echo speaker, equipped with Amazon's AI-based assistant Alexa for another mere $4 a month? With a voice command, Alexa can order a taxi (through Lyft or Uber) or flowers (1-800 Flowers); manipulate automated home controls (Honeywell, Vivint); or fetch information (Fitbit, Kayak, NBC, etc.).

Apple's Siri can do these sorts of things, as can Microsoft's Cortana. Comcast's TV controller takes voice input. Every command, every order, every request is another data point enriching each customer's buying profile.

Too cynical? It's not the people who are contributing free code to Linux who are enabling all this. It's Amazon, Microsoft, Apple and Facebook. These companies exist to sell you stuff, and enable their business partners to sell you stuff.

And the way they're doing it is through services that can be manipulated through AI-based digital assistants. The more those assistants learn about a consumer's habits, the better they can figure out what that person might want before he or she even wants it. And ship them an ad to entice them to buy whatever it is.

Do these companies absolutely need to have AI for all that? There is no question it helps, but no. Where AI will be an absolute necessity is for what comes next: making choices on behalf of their subscribers.

"Siri! Find me a top-rated Italian restaurant on the west side."

"Cortana! Order some flowers for my mother-in-law for mother's day. She's going to be at my brother-in-law's place, so send them there."

I've talked to people who think this is going to be a consumer phenomenon only. I disagree.

"OK, Google! For my trip to Chicago next week I need you to schedule a conference room big enough for 16 people, preferably in the southern part of The Loop, Wednesday at 3:00 pm local time."

Services, digital assistants and electronic advertising are inextricably linked. Future success in electronic advertising is going to depend on AI -- there is no question about that. There is never enough room in any market for six or seven competitors (not for long anyway), but there will be room for two, maybe three. Who those two or three successes will be will depend in no small part on services like Amazon Unlimited and AIs like Alexa.

— Brian Santo, Senior Editor, Components, T&M, Light Reading

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kq4ym
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kq4ym,
User Rank: Light Sabre
10/22/2016 | 12:44:16 PM
Re: What a wonderful world it will be ...
It would seem that Amazon not only is wanting to get the numbers of eyeballs and ears to increase using it's products, but build that brand hugely so folks just stick with Amazon for all their shopping, entertainment and information needs.
inkstainedwretch
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inkstainedwretch,
User Rank: Light Sabre
10/17/2016 | 12:04:55 PM
Re: Ehhhh
If you look at Amazon Unlimited as a standalone business that has nothing whatsoever to do with anything else Amazon is doing, including selling things, or anything Amazon's competitors are doing, like selling things, then yeah, I'd have to admit you're justified in rolling your eyes.

-- Brian Santo
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
10/16/2016 | 8:26:21 PM
Ehhhh
I didn't yawn, but I nearly rolled my eyes.

Has Pandora even shown a profit yet?  Has Spotify?

The two titans of the music-streaming space are struggling.  Clever as Bezos is, I tend to anticipate that this particular endeavor will be a loss leader for AMZN.
Michelle
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Michelle,
User Rank: Light Sabre
10/16/2016 | 8:20:08 PM
Re: What a wonderful world it will be ...
@Kelsey Amazon is aggresively trying to pull customers away from other service providers. Premium cable subscription add-ons were added to Prime a while ago. They've been building out the Pime music offering as well. Google and Amazon are certainly the biggest holders of data online.

About Alexa -- I don't know if there is an issue with Alexa listening in when it's not been addressed, but I do have concerns about its security. I don't want someone else listening in from afar. 
danielcawrey
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danielcawrey,
User Rank: Light Sabre
10/16/2016 | 4:23:31 PM
Re: What a wonderful world it will be ...
I can see this as a good product offering for the Amazon fanatic. I am not one of those people. While I do have Prime, I prefer getting my music from SiriusXM and Spotify. I don't see this as a compelling buy quite yet (at least not for me). 
mendyk
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mendyk,
User Rank: Light Sabre
10/14/2016 | 12:48:29 PM
Re: What a wonderful world it will be ...
OK, but I'm not sure I'd call that "purchasing power." If that wre the case, then even graybeards like us get hundreds of dollars of purchasing power if we buy a Sunday newspaper and clip out all the coupons. As far as privacy protection goes, that pretty much becomes inoperative as soon as you engage on the Internet.
inkstainedwretch
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inkstainedwretch,
User Rank: Light Sabre
10/14/2016 | 12:40:14 PM
Re: What a wonderful world it will be ...
It is already well-established that most consumers will exchange their private data for a 20%-off coupon. Literally for a 20% coupon.

While there are some graybeards like you and me who would prefer to protect their privacy as much as possible, that concern is less and less prevalant among younger age groups.

--Brian Santo

 
mendyk
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mendyk,
User Rank: Light Sabre
10/14/2016 | 12:34:32 PM
Re: What a wonderful world it will be ...
That sounds like the "purchasing power" is being transferred to Amazon. Customers are just the revenue source.
Kelsey Ziser
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Kelsey Ziser,
User Rank: Blogger
10/14/2016 | 12:32:26 PM
Re: What a wonderful world it will be ...
@mendyk - I was thinking of customized ads encouraging consumers to buy products based on past purchases and other info gathered about consumer behavior in response to Brian's point - "And the way they're doing it is through services that can be manipulated through AI-based digital assistants. The more those assistants learn about a consumer's habits, the better they can figure out what that person might want before he or she even wants it. And ship them an ad to entice them to buy whatever it is."
mendyk
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mendyk,
User Rank: Light Sabre
10/14/2016 | 12:28:14 PM
Re: What a wonderful world it will be ...
Kelsey -- What purchasing power do consumers get in the privacy trade-off?
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