Amazon loses money on Echo smart speakers. It’s been an open secret for the duration of Alexa’s existence. It’s the product of the kind of loss leader strategy only a company of Amazon’s size can get away with for a decade.
Selling hardware at a loss can be an effective strategy, of course. Think about printers and razors, which get corporate feet into the door and make up for the loss with ink cartridges and blades, respectively.
From the perspective of saturation, Amazon’s strategy can be viewed as a success. Early this year, founder Jeff Bezos claimed that Alexa is now in 100 million homes, across 400 million devices.
Financial realities paint a wholly different picture, however. According to a recent report from The Wall Street Journal, Amazon’s devices division lost a staggering $25 billion in the five-year period between 2017 and 2021. The Alexa division reportedly lost $10 billion in 2022 alone.
At a certain point, a loss leader simply becomes a loss. That reality came crashing down at the end of 2023, when several hundred were laid off from the Alexa unit. Eleven-digit annual losses, coupled with a rough macroeconomic outlook, is an untenable situation, even for a company with $600 billion+ in annual revenue.
Alexa isn’t the only smart assistant that has fallen back down to Earth in recent years. Beyond offerings like Bixby and Cortana, which went away entirely, consumer excitement around Google Assistant and Siri has also waned.
In recent months, however, both Google and Apple have made it clear that they’re not ready to give up the ghost. Siri took center stage at WWDC in June, as Apple breathed new life into the brand, courtesy of its new Apple Intelligence initiative. Google similarly confirmed this week that Assistant is getting a Gemini-powered boost in the home.
A 2021 report from Bloomberg noted that, despite Alexa’s popularity, a majority of queries involve one of three tasks: playing music, controlling lights and setting timers.
A former Amazon senior employee put it even more starkly, speaking to WSJ: “We worried we’ve hired 10,000 people and we’ve built a smart timer.” With all the published criticism leveled at Alexa in its decade-long existence, that may well be the most effortlessly cutting.
While the company has continued releasing Echo devices, including an upgraded Spot announced last month, the company has taken its foot off the gas. No doubt there has been much soul searching among the Spheres. Much like Google and Apple, Amazon sees generative AI as the lifeline Alexa needs.
The 10,000-person timer problem is a result of devices failing to live up to customer expectations. Entreating third-party developers to create skills has been part of a larger push to make Alexa more useful. Amazon has also attempted to improve the assistant’s conversational skills over the years.
In that respect, generative AI is a game changer. Platforms like ChatGPT have demonstrated incredible natural language conversational aptitude. Late last year, Amazon offered a preview of Alexa’s generative AI-powered future.
“We’ve always thought of Alexa as an evolving service, and we’ve been continuously improving it since the day we introduced it in 2014,” the company wrote. “A longstanding mission has been to make a conversation with Alexa as natural as talking to another human, and with the rapid development of generative AI, what we imagined is now well within reach.”
November marks a decade since Alexa and Echo were announced. One couldn’t ask for better timing to unveil a picture of what the next 10 years might look like. Whether the assistant gets another decade will depend, in part, on how the next few months play out.