Amazon is losing money on its Echo smart speakers. This has been an open secret ever since Alexa was born. It's the product of the kind of money-losing strategy that only a company the size of Amazon could sustain for a decade.
Of course, selling hardware at a loss can be an effective strategy: think about printers and razors, which are footholds for companies and allow them to make up their losses on ink cartridges and blades, respectively.
From a saturation perspective, Amazon's strategy has been successful: Earlier this year, founder Jeff Bezos claimed that Alexa is now in 100 million homes and 400 million devices.
But the economic reality paints a very different picture: A recent report from the Wall Street Journal revealed that Amazon's devices division lost a staggering $25 billion over the five-year period from 2017 to 2021. The Alexa division is reportedly on track to lose $10 billion in 2022 alone.
At some point, loss leaders just become losses. That reality was shattered when the company laid off hundreds of people from its Alexa division at the end of 2023. 11-figure annual losses and a grim macroeconomic outlook are tough situations to stomach even for a company with over $600 billion in annual revenue.
Alexa isn't the only smart assistant to have lost its footing in recent years: services like Bixby and Cortana have all but disappeared, as have consumer interest in Google Assistant and Siri.
But in recent months, both Google and Apple have made it clear they're not ready to give up just yet: Siri took center stage at WWDC in June, and Apple is breathing new life into the brand with its new Apple Intelligence initiative. Google similarly confirmed this week that its Assistant will be getting a boost in the home with Gemini.
Despite Alexa's popularity, the majority of queries relate to one of three tasks: playing music, controlling lights, and setting timers, according to a 2021 report from Bloomberg.
A former senior Amazon employee put it even more starkly in an interview with the Journal: “We were worried because we hired 10,000 people and we made smart timers.” Of the many public criticisms leveled at Alexa in the decade since its launch, this may be the easiest.
The company has been slowing down as it continues to release Echo devices, including the upgraded Spot announced last month. No doubt there has been a lot of soul-searching among the folks at Sphere. Like Google and Apple, Amazon sees generative AI as a necessary lifeline for Alexa.
The 10,000 timer issue was the result of the device failing to meet customer expectations. Inviting third-party developers to create skills is part of a larger effort to make Alexa more useful. Amazon has also been working on improving the assistant's conversational skills for years.
In that respect, generative AI is a game changer: platforms like ChatGPT are demonstrating incredible natural language conversational capabilities, and 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. “Our long-standing mission has been to make talking to Alexa as natural as talking to another human, and with the rapid development of generative AI, what we only imagined is now within reach.”
November marks the 10th anniversary of the introduction of Alexa and Echo, and what better time to show what the next decade will hold? Whether the assistant lasts another decade will depend on how things play out in the coming months.
