In my dual income, no kids, one canine household, our Amazon Echo only serves three purposes: playing music, setting timers, and notifying us of package arrivals.
We don’t ask Alexa for weather updates. We don’t place online orders via Alexa. We don’t tell Alexa to change channels on our Amazon Fire TV stick.
In short, Alexa isn’t an indispensable part of our lives. And, most importantly for Amazon, we don’t do anything with Alexa that regularly makes the company money.
Apparently, we’re not alone.
The New York Times reported Monday that Amazon’s devices division, which includes hardware and Alexa, would take the biggest brunt of roughly 10,000 layoffs targeting corporate and technology positions. The news dropped less than a week after the Wall Street Journal reported that Amazon’s devices unit has posted annual operating losses of more than $5 billion in recent years, according to internal documents. Sources also told the Journal that “many customers use Alexa for only a few functions.”
The staggering losses reflects Amazon’s inability to capitalize on Alexa, the voice assistant the company has avidly dispatched across dozens of products, from phones and clocks to microwave ovens. While Alexa and its hardware conduits offer an enticing blend of utilitarian options and futuristic features, it never quite found a killer use—let alone one that generated recurring revenue for Amazon.
Alexa certainly helps drive sales across Amazon’s suite of hardware products, including the market-leading Echo, yet devices remain an exceedingly low-margin business (especially when compared to software).
Alexa offers perfect synergy with Amazon’s e-commerce business, allowing customers to order products with a simple voice command. But consumers haven’t taken to the technology, with a 2020 eMarketer and Bizrate Insights survey finding only 2% of respondents said they use voice shopping tools regularly, compared to 63% who said they didn’t have any interest in the option.
Alexa could have been a snug fit in the smart home sector, enabling users to control their lights, security system, and doorbell from a single app. However, adoption of smart home devices remains relatively modest, with a Deloitte survey this year finding only 25% to 30% of 2,000 respondents employed each of the three aforementioned products. Plus, the imminent arrival of Matter, a wireless device interconnectivity protocol, will reduce consumers’ need for a smart home ecosystem tied to a single company. (Amazon and other major smart home brands have supported Matter, arguing in part that it will accelerate product adoption.)
Amazon still has the ability to better monetize Alexa and its associated hardware—but even those avenues are lined with potholes.
The tech conglomerate has dipped deeper into advertising, with revenues rising from $12.6 billion in 2019 to $31.2 billion in 2021. Amazon could integrate more ads into Alexa, an approach already underway, according to a TechCrunch report in September. But consumers are already wary of privacy and security concerns tied to smart home devices, particularly following multiple reports of Amazon recording and storing audio from Echo owners’ homes.
Amazon also could double-down on Alexa-related innovation, an option under consideration within the company, according to the Journal. A company spokesman told the Journal that Amazon is “as optimistic about Alexa’s future today as we’ve ever been, and it remains an important business and area of investment for Amazon.”
Yet augmenting Alexa likely would require additional investment of money and staff, which runs counter to CEO Andy Jassy’s mandate to cut costs. Jassy, who previously led the high-margin Amazon Web Services unit, is reportedly less enthused by Alexa than his predecessor, Jeff Bezos, a longtime Star Trek fan who saw Alexa as a realization of the ambitious future heralded in science fiction.
Alexa remains too ingrained within the Amazon brand to fade into the night. But until the company can find a better, more profitable outlet for Alexa, her best days might be behind her.
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Jacob Carpenter
