Over half of Prime members have a smart speaker — here's what Amazon needs to know about these customers (AMZN)

This is a preview of the forthcoming 2018 Smart Speaker Report from Business Insider Intelligence, Business Insider's premium research service. To learn more about Business Insider Intelligence, click here. Current subscribers can read the 2017 edition here.

Nearly two-thirds of Amazon's most loyal customers now have an Amazon-branded smart speaker, which bodes well for the company as it works to build out its media ecosystem. Most Amazon Prime members (60%) own at least one smart speaker, according to exclusive data from Business Insider Intelligence’s Smart Speaker survey.

Amazon Prime Members Are Twice as Likely to Own a Smart Speaker

This strong device penetration among Prime users is helping Amazon build up the digital media segment of its business, which encompasses both music — which smart speakers are leading consumers to listen to more of — as well as video content.

Here’s why penetration among Prime members gives Amazon a competitive advantage:

Amazon Music is native on the smart speaker. To set up a rival service like Spotify or Pandora, on the other hand, consumers need to install a skill through the Alexa app, sign in to the service, and then set that service as the default music player in a separate menu. If they don’t know this final step is available, they are sometimes forced to append commands with the name of the service, making queuing up music more of an ordeal. This friction in the content discovery process can help push consumers to use Amazon’s services on these devices, especially when they’re already frequent users of the e-commerce titan’s other services.
And as the company brings its smart speaker together with video content through devices like the Fire TV Cube, its discovery advantage will only be amplified. When consumers search for shows or movies to watch, the platform presents them with options and often starts with Amazon’s own media offerings, even if a program is available on another service they subscribe to as well. As a result, consumers may be more likely to choose content served through Amazon since it's the first option presented.

It’s an uphill battle for other media companies looking to compete with Amazon on the smart speaker and other Alexa-powered platforms. Media companies looking to take advantage of the smart speaker as a consumption platform can do so in three ways:

They can build an Alexa skill or app and offer exclusive content that Amazon or other platforms won’t be able to offer. Exclusive offerings will drive users to the skill because it'll be the only way to access that content. This option is best suited for streaming services and many OTT content providers that can either create exclusive content or build high brand loyalty through outside means.
Media companies can also partner with Amazon and make their services available through Prime. For example, HBO makes some content available through Amazon Prime Video as an add-on. This option also applies to content producers, which can choose to make their content available on Amazon directly. The downside is that these types of arrangements will likely require revenue sharing agreements.
The other option is to eschew Amazon altogether and work with other smart speaker platforms. Other companies are gaining market share as Amazon’s lead in new device shipments shrinks. Adding more media options could help these companies draw in even more consumers, while also allowing media companies to avoid direct on-platform competition with Amazon. But choosing this option also means that media companies would be missing out on the benefits associated with the largest and most-used smart speaker platform in the US.

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