- Amazon’s Alexa was Jeff Bezos’ pet project; now it’s a target for the company’s cost-cutting.
- Insider reported that the Amazon division that built Alexa is on track to lose $10 billion this year.
- Voice assistants were supposed to be revolutionary, but no one’s figured out how to make them profitable.
The division that houses Amazon’s Alexa is on track to lose $10 billion this year alone, as Insider’s Eugene Kim reported. And as layoffs hit Amazon, the Alexa team, once 10,000 people strong and a passion project for the then-CEO Jeff Bezos, is now a juicy target for cuts.
The Amazon Echo debuted in 2014 and was the company’s first real success as a hardware manufacturer. Early versions of voice assistants existed as far back as the early aughts, and Siri debuted on the iPhone in 2011, but Amazon’s Echo spawned an entirely new class of gadgets: the smart speaker. The stand-alone voice assistant was immediately useful, and by 2018, the company sold more than 100 million Alexa-enabled devices.
Amazon sold the Echo device at cost to induce people to buy things from the site, but the smart speaker never became the significant sales driver the company had hoped for. Then again, being forced to listen to Alexa read off two minutes of copy about dishwasher pellets to ensure you’re ordering the right brand is not exactly a stellar user experience.
But as initial Echo sales exceeded expectations within the company, Amazon and others began thinking of Alexa and voice computing as a new platform. It created an app store, Alexa Skills, hoping to spark the same wild innovation Apple saw when developers were allowed into its App Store in 2008. And it launched first-party products like microwave ovens and TVs with Alexa built in. It even licensed the Alexa voice assistant to other manufacturers, hoping to make the assistant ubiquitous throughout people’s homes.
One of the critical weaknesses for Amazon’s ambitions to be in the business of almost everything is that it doesn’t own a platform. It doesn’t control a PC operating system like Microsoft or Apple, and doesn’t have a mobile platform like Google’s Android or Apple’s iOS (even Amazon Fire tablets just run a modified version of Android).
Voice computing, many thought, could be the next platform, and Amazon could own it.
‘Glorified clock radios’
But Amazon’s internal data and user surveys began to show voice commands are great for a narrow range of tasks: setting a timer, playing music, and finding out the weather. You may have heard Alexa plaintively remind you that it can do much more than set a timer — that’s because Amazon knows that most people don’t do much beyond that. Some people even stop using the product after a few weeks.
The pessimistic view was that “Amazon has succeeded in selling a huge number of glorified clock radios,” as Benedict Evans, a former Andreessen Horowitz partner, wrote in 2019.
It’s a core paradox for voice assistants like Alexa or Google Assistant: The technology was tremendously successful. Many consumers find it genuinely useful. And no one can make any money with them.
Amazon can’t get people to buy more stuff with Alexa, and it chose not to require Amazon Echo users to have an Amazon Prime account, the only other credible path to making money. Amazon Skills has fizzled out as developers realized there’s no money to be made building for the platform. Amazon does use voice queries to help with ad targeting, but advertising is a small percentage of total revenue for Amazon.
Amazon is not alone. Google has shifted spending away from its Google Assistant to improve its Google Pixel smartphone, The Information reported earlier this year. Other would-be Alexa competitors, like Microsoft’s Cortana or Samsung’s Bixby, are essentially dead.
The only company that apparently isn’t suffering from the voice-assistant blues is Apple with Siri. That’s because Apple knows its smart speaker isn’t a loss leader. It sold the original HomePod for $349 and its MiniPod sells for $99. For comparison, you can buy an Alexa Dot for $15 right now.
Bezos told shareholders in 2013 that Amazon sold its devices at breakeven because “we want to make money when people use our devices — not when people buy our devices.” Apple went the opposite route, deciding that if it was going to sell something to play music, set timers, and check the weather, it needed to keep the margins healthy.
Amazon, hoping to lure in users by keeping the price low, made the Echo and Alexa into a commodity gadget: cheap and unremarkable.
There’s money to be made selling commodity tech products — plenty of companies stay in business selling laptops, home-office printers, and WiFi routers. But as Amazon faces a new era of cost discipline, a “glorified clock radio” can’t lose $10 billion a year or employ 10,000 people.