Amazon is losing money on its Echo smart speakers. This has been an open secret since Alexa came into existence. It is the product of a bait-and-switch tactic that only a company the size of Amazon can get away with for a decade.
Of course, selling hardware at a loss can be an effective strategy. Think of printers and razors that gain a foothold in companies’ homes and make up for the loss with ink cartridges and blades, respectively.
From a market saturation perspective, Amazon’s strategy can be considered a success. At the beginning of the year, founder Jeff Bezos claimed that Alexa could now be found in 100 million households on 400 million devices.
However, the financial reality paints a very different picture. According to a recent report by the Wall Street Journal, Amazon’s device division lost a whopping $25 billion in the five-year period between 2017 and 2021. The Alexa division is said to have lost $10 billion in 2022 alone.
At a certain point, a loss leader simply becomes a loss leader. This reality was confirmed once and for all in late 2023, when several hundred employees were laid off from the Alexa division. An 11-digit annual loss, coupled with a difficult macroeconomic forecast, is an unsustainable situation even for a company with annual revenues of over $600 billion.
Alexa isn’t the only smart assistant that has fallen back down to earth in recent years. Along with offerings like Bixby and Cortana disappearing entirely, consumer enthusiasm for Google Assistant and Siri has also waned.
In recent months, however, both Google and Apple have made it clear they’re not ready to give up the ghost. Siri took center stage at WWDC in June, when Apple breathed new life into the brand thanks to its new Apple Intelligence initiative. Google also confirmed this week that the assistant is getting a Gemini-powered boost in the home.
A 2021 Bloomberg report states that despite Alexa’s popularity, most requests relate to one of three tasks: playing music, controlling lights, and setting timers.
A former Amazon executive put it even more bluntly to the WSJ: “We hired 10,000 people and developed a smart timer.” Given all the criticism Alexa has received over the past decade, this criticism is perhaps the most profound.
Although the company has continued to release Echo devices, including an improved Spot announced last month, it has taken its foot off the gas. There’s no doubt that there’s been a lot of soul-searching going on in the spheres. Much like Google and Apple, Amazon sees generative AI as the lifeline Alexa needs.
The 10,000-person timer’s problem stems from devices not meeting customer expectations. Hiring outside developers to develop skills is part of a larger initiative to make Alexa more useful. Amazon has also tried to improve the assistant’s conversational capabilities over the years.
In this regard, generative AI is a game changer. Platforms like ChatGPT have demonstrated incredible capabilities in natural language conversation. Late last year, Amazon offered a preview of Alexa’s generative AI-powered future.
“We’ve always viewed Alexa as an evolving service and have been continually improving it since its launch in 2014,” the company wrote. “A long-standing mission has been to make a conversation with Alexa as natural as a conversation with another human, and with the rapid evolution of generative AI, what we envisioned is now well within reach.”
November marks ten years since the announcement of Alexa and Echo. There couldn’t be a better time to unveil a picture of what the next ten years might look like. Whether the assistant gets another decade depends in part on how the next few months unfold.
