Alexa, why are you losing so much money?
According to a new report from Business Insider, Amazon Alexa, the shopping giant’s voice assistant, is on track to lose $10 billion dollars this year. Long-terms plans for the Echo devices Alexa runs on are also up in the air as the division responsible for its development is set to be one of the most affected in a planned round of approximately 10,000 layoffs. It’s quite shocking for one Amazon’s most beloved and widely used products.
Amazon launched Alexa in 2014. According to Business Insider, it was a “pet” project of Jeff Bezos (the founder and former CEO), who took a very hands-on approach. The initial goal was to monetize Echo device user interactions rather than make a profit selling the products. The company could make a lot if consumers were able to order everything from laundry detergents to games consoles through Amazon by simply speaking a few words.
This, however, didn’t go as planned. A rake of privacy scandals certainly didn’t help and, despite Alexa getting roughly a billion user interactions per week in 2018, they were mostly simple requests to play music or deliver a weather report. These are not the kinds of requests that can be easily monetized. It lost nearly $5 billion that year.
Amazon tried many other ways to make a profit, including partnering up with companies like Uber and Domino’s Pizza to allow customers to order pizzas or ride with a voice command. But it didn’t work. Even though users are more likely to buy other products from Amazon and sign up for Prime, the additional profit from other sectors is not enough to cover the ongoing costs of the voice assistant.
According Business Insider’s report Worldwide Digital, the division responsible for Echo devices, Alexa and Prime Video streaming, suffered an operating loss of more than $3 billion in the first quarter. The vast majority of that was “tied to Amazon’s Alexa and other devices.” It is apparently on track to lose more than $10 billion this year.
Although Alexa has never been financially profitable, it is hard to label her a failure. Amazon’s Echo devices are some of the most popular, although they are sold for about what it costs to make and deliver. According to the report, one employee called Alexa “a colossal fail of imagination” and “a wasted chance,” which seems closer to the mark. Although Amazon tends to keep sales numbers private, it announced in 2019 that it had sold a total of 100 million devices with Alexa onboard. If sales figures stayed flat, that would suggest there are somewhere in the region of 200 million devices with Alexa out in the world.
Business Insider claims Alexa is the third most popular voice assistant with 71.6 million users, behind Apple’s Siri (77.6 million users) and Google Assistant (81.5 million users). This is notable because Siri and Google Assistant are pre-installed on smartphones while Alexa is only available on dedicated smart speakers. You need a smartphone to get by in modern society. But, no one needs a smart speaker.
Google is seemingly in a similar situation with Google Assistant–it apparently does not generate significant revenue for the company. According to a recent report from The Information, the search giant will invest less in making it available on non-Google (and non-smartphone) hardware.
Strangely, Apple’s much maligned Siri could be the most successful of the voice assistants–or at least the one that is causing its parent company the smallest headache. It could be because it is a component of the iPhone-Mac Apple Watch ecosystem and not a standalone product. Apple also makes its own Siri-supported smart home hardware. The original $350 HomePod smart speaker was a commercial failure, though the $99 HomePod Mini seems to be doing much better–and was the top-selling smart speaker in quarter one of this year. There are apparently plans to relaunch a full-size HomePod. It’s safe to assume that these devices won’t be sold at cost, especially when you consider Apple’s prices and margins.
What’s next for big smart speaker companies remains to be seen. Both Amazon and Google are set to ax workers from the divisions that run them, though both companies have not announced plans to cease development or roll back features. It seems unlikely that this technology can be used to create profitable devices-based businesses.
Frederick has been an active trader for over since 1991. After successfully navigating the market for so long, he’s finally bringing his wisdom to the masses.