Anika Begay
Amazon is losing money on Echo smart speakers. It’s been an open secret for Alexa’s entire existence. It’s the product of a loss-making strategy that only a company the size of Amazon can afford for a decade.
Selling hardware at a loss can be an effective strategy, of course. Think of printers and razors, which get companies in the door and make up for the loss with ink cartridges and razor blades, respectively.
From a saturation standpoint, Amazon’s strategy can be considered a success. Earlier this year, founder Jeff Bezos said that Alexa is now in 100 million homes, on 400 million devices.
However, financial realities paint a completely different picture. According to a recent Wall Street Journal report, Amazon’s devices division lost a staggering $25 billion in the five-year period between 2017 and 2021. Its Alexa division is projected to lose $10 billion in 2022 alone.
At some point, a decoy product simply becomes a loss. This reality came crashing down in late 2023, when several hundred people were laid off from the Alexa unit. Eleven-figure annual losses, combined with a grim macroeconomic outlook, are an unsustainable situation, even for a company with over $600 billion in annual revenue.
Alexa isn’t the only intelligent assistant that’s come back to Earth in recent years. In addition to offerings like Bixby and Cortana, which have disappeared entirely, consumer enthusiasm for 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. Siri took center stage at WWDC in June, while Apple has revitalized the brand, courtesy of its new Apple Intelligence initiative. This week, Google similarly confirmed that Assistant will be getting a boost in the home thanks to Gemini.
A 2021 Bloomberg report found that despite Alexa’s popularity, most queries are for one of three tasks: playing music, controlling lights, and setting timers.
A former senior Amazon employee put it even more bluntly, speaking to the WSJ: “We were worried that we had hired 10,000 people and created a smart timer.” Of all the published criticisms of Alexa in its decade-long existence, this may be the most candid.
As the company has continued to launch Echo devices, including an updated Spot announced last month, the company has taken its foot off the gas. There’s no doubt that there’s been a lot of soul-searching going on between the Spheres. Like Google and Apple, Amazon sees generative AI as the lifeline Alexa needs.
The 10,000-person timer problem is the result of devices that aren’t living up to customer expectations. Inviting third-party developers to build skills has been part of a broader push to make Alexa more useful. Amazon has also attempted to improve the assistant’s conversational capabilities over the years.
In this sense, generative AI is a game changer. Platforms like ChatGPT have demonstrated incredible aptitude for natural language conversation. Late last year, Amazon gave a sneak peek into the future of Alexa’s generative AI.
“We’ve always thought of Alexa as an evolving service, and we’ve been constantly improving it since we introduced it in 2014,” the company wrote. “A long-standing 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 within our reach.”
November marks a decade since Alexa and Echo were announced. You couldn’t ask for a better time to unveil a vision 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 unfold.
