Amazon has been losing money on its Echo smart speaker. It’s been an open secret for as long as Alexa has existed. It’s the product of a loss-leader strategy that only a company the size of Amazon can survive for a decade.
Of course, selling hardware at a loss can be an effective strategy. Think of printers and razors. Printers and razors get a company’s foot in the door and make up the loss with ink cartridges and razor blades, respectively.
From a saturation standpoint, Amazon’s strategy is a success: Earlier this year, founder Jeff Bezos claimed that Alexa is now in 100 million homes and 400 million devices.
But the financial reality paints a very different picture. According to a recent report in the Wall Street Journal, Amazon’s devices division lost a whopping $25 billion over the five years between 2017 and 2021. The Alexa division is set to lose $10 billion in 2022 alone.
At some point, a loss leader simply becomes a loss. That reality came crashing down when hundreds of people were laid off from the Alexa division in late 2023. Eleven-figure annual losses and a harsh macroeconomic outlook are unbearable for a company with $600 billion in annual revenue.
Alexa isn’t the only smart assistant that’s come back to Earth in recent years. In addition to the disappearance of Bixby and Cortana, consumers’ expectations for Google Assistant and Siri have also waned.
But in recent months, both Google and Apple have made it clear that they are not ready to give up the ghost. Siri took center stage at WWDC in June, and Apple has breathed new life into the brand thanks to its new Apple Intelligence initiative. Google also confirmed this week that Assistant will be getting a Gemini-powered Home Boost feature.
Despite Alexa's popularity, most queries involve one of three tasks: playing music, controlling lights, or setting timers, according to a 2021 report from Bloomberg.
A former Amazon executive put it much more bluntly in an interview with the WSJ: “We were worried about hiring 10,000 people and making a smart timer.” Given all the public criticism Alexa has received in its decade-long existence, it’s probably the most easily blunt.
The company has continued to release Echo devices, including the upgraded Spot announced last month, but it hasn’t stepped on the gas pedal. There’s no doubt been a lot of back-and-forth between Spheres. Like Google and Apple, Amazon sees generative AI as the lifeblood of Alexa.
The 10,000-person timer issue stems from the device not meeting customer expectations. Encouraging third-party developers to create skills was part of a larger push to make Alexa more useful. Amazon has also tried to improve the assistant’s conversational skills over the years.
In that sense, generative AI is a game changer. Platforms like ChatGPT have demonstrated incredible natural language conversational abilities. Late last year, Amazon gave us a sneak peek of Alexa’s generative AI-based future.
“We’ve always thought of Alexa as an evolving service, one that we’ve been continuously improving since we launched in 2014,” the company wrote. “Our long-standing mission has been to make conversations with Alexa as natural as conversations with other people, and rapid advances in generative AI have made that vision fully achievable.”
November marks the 10th anniversary of the introduction of Alexa and Echo. There’s no better time to reveal a picture of what the next decade will look like. Whether the assistant makes it to another decade depends in part on how the next few months unfold.
