This past spring, Fidji Simo, a former executive at OpenAI, cautioned employees that the company risked losing its pivotal moment due to distractions caused by various costly projects, such as Sora, which the organization ceased operations on earlier this year. Recently, updates surfaced indicating that OpenAI is venturing into hardware with plans to launch its first proprietary device—a rechargeable smart speaker designed to mimic human interaction. For a company that’s struggling financially, this initiative seems to embody Simo’s concerns.
The market outlook for smart speakers and displays isn’t promising. Industry expert Jitesh Ubrani from IDC has noted a continued decline in this sector, expressing expectations for further reductions in the coming year. He mentioned that after peak shipments exceeding 100 million units in 2022, numbers have drastically fallen to the “tens of millions.” Recent data reflects a year-over-year decline of 16.3% in 2023 and an additional 11.8% drop in 2024.
Ubrani attributes this trend in the U.S. market to consumers’ reluctance to upgrade their devices. He pointed out that many users no longer see the necessity to replace their smart speakers as core features are now cloud-based. Typical use cases remain straightforward, revolving around music playback, podcasts, and simple timers.
According to Ubrani, OpenAI may face considerable challenges in making a significant impact in this crowded marketplace. While creating a device may be relatively straightforward, achieving broad market acceptance is much trickier due to established competitors and a lack of innovation within the category.
Pricing could also pose a significant hurdle for OpenAI. Current reports suggest that the new smart speaker features a camera and sensors for environmental awareness, combined with a rechargeable battery and autonomous moving components. Such sophisticated features may lead to higher production costs compared to simpler devices like the Echo Dot, which historically sold for under $100 and performed well in the market.
OpenAI has stated that the unique selling point of their speaker will be its ability to connect with users on a personal level, utilizing an advanced GPT-Live-1 voice model capable of simultaneous input processing and output generation. This technology aims to facilitate more natural conversations and live translations.
However, Amazon has made similar claims with its own Alexa+ digital assistant, which was introduced last year. Despite advancements, it seems there has been little change in market dynamics. Ubrani observed that even with the introduction of smarter AIs, the trajectory of the market hasn’t significantly shifted.
Another crucial aspect to consider is whether OpenAI can profit from this venture. A report documented that Amazon, the leading entity in this space, struggled to monetize Alexa despite having one of the best-selling smart speaker lineups. Many of the interactions with Alexa involved simple queries that generated little to no revenue. In early 2022, Amazon’s Worldwide Digital unit faced a substantial operating loss, primarily tied to its digital assistant.
Ubrani remarked that it’s uncertain how other major companies are faring in this sector, emphasizing that many utilize these devices primarily to promote their ecosystems.
Nonetheless, Ubrani acknowledged that there is logic in OpenAI’s decision to enter the hardware market. He noted that AI cannot be confined to a browser—it needs to interact with the physical environment to be truly effective. Starting with a smart speaker represents a less complicated entry point compared to developing more complex devices like smartphones or smart glasses.
However, he also highlighted the difficulties of hardware production and cited recent failures by companies attempting to navigate similar markets. Most notably, Meta discontinued its Portal smart displays in 2022 amidst notable staff layoffs. It is essential to remember that OpenAI is currently operating at a loss, with leaked financial documents revealing losses totaling billions in recent years. OpenAI has also indicated it does not anticipate turning a profit until at least 2030 due to rising AI expenses. A smart speaker may not be the solution to their financial woes.
