Amazon's hardware group faces steep losses, Alexa monetization efforts flounder

Shawn Knight

Posts: 14,442   +170
Staff member
Recap: Amazon found itself between a rock and a hard place in 2014. The Fire Phone was already going down in flames when Amazon introduced its Echo speaker near the end of the year. The unassuming connected speaker had obvious potential as a shopping companion but few realized just how much of an impact Alexa would have on the company's product portfolio and strategy in the years to come.

Few things persist for very long in the rapidly evolving world of technology and nearly a decade in, Alexa is struggling.

Around this time last year, Bloomberg reported that Amazon was experiencing serious Alexa user retention issues. Holiday sales data at the time indicated that as many as 25 percent of new Alexa device owners were no longer actively using the virtual assistant into their second week of ownership.

The tune doesn't appear to have changed much over the past year. According to a new report from Business Insider, Amazon's worldwide digital unit (which includes Alexa and Echo devices) had an operating loss of more than $3 billion in Q1. According to one source, most of the losses were tied to Alexa and related devices. What's more, it's over double the losses of Amazon's grocery business.

Last week, Amazon started laying off team members from its devices and services organization. A day later, CEO Andy Jassy said additional role reductions would continue into early 2023.

Alexa was reportedly the brain child of Amazon founder Jeff Bezos, who was heavily engaged with the development team during its early days. Over the years, however, online privacy became a major talking point among consumers and Amazon wasn't immune. Reports of Amazon employees listening to Alexa conversations made headlines and police in Arkansas even wanted to use data captured by an Echo speaker in a murder case. Needless to say, it's the sort of behavior that spooked consumers.

What's more, Alexa wasn't generating revenue like the company initially envisioned. Early on, many saw Alexa as a way to help Amazon sell more products (hands-free ordering, for example). This was supported by an aggressive sales model in which Amazon would sell hardware at cost and make revenue down the road on the software (Alexa) side. Instead, Alexa evolved into being a personal assistant tasked with carrying out trivial, non-monetizable actions like playing music or reciting a weather forecast.

Amazon froze hiring for the Alexa team in 2019 and shortly after, Bezos reportedly lost interest in the division. Additional efforts to monetize the platform also fell short.

Related reading: This is what comes next for Amazon's Alexa

Amazon has struggled with other hardware bets as well. Its Astro home robot was described by one developer as a privacy nightmare and a disaster that was not fit for release. Just last month, Amazon announced it was halting field testing of its Scout delivery robot and would be reassigning employees to other projects. Prime Air, a moonshot first teased way back in 2013, still hasn't fully materialized.

One source familiar with Alexa told Business Insider that Amazon is on pace to lose around $10 billion on Alexa and related devices this year. A former employee said Alexa was a colossal failure of imagination. "It was a wasted opportunity," the person added.

Amazon seemingly dismissed the notion that Alexa and Echo was in trouble. Amazon's senior vice president for devices and services, David Limp, told the publication that they are as committed as ever to Alexa and Echo, and will continue to invest heavily in them.

As it stands today, Alexa is the third most popular voice assistant in the US behind the Google Assistant and Apple's Siri with 75.6 million users. According to Insider Intelligence, Google's offering leads the way with 81.5 million users followed by Siri with 77.6 million users.

Image credit: Jonathan Borba, GeekWire, Andres Urena

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I switched from Alexa to google assistant myself a few years back. Got a free goggle one just from having a Spotify subscription and it just worked so much better. If Alexa would understand you better and do what you ask, the retention would be better.

 

psycros

Posts: 4,448   +6,631
"Instead, Alexa evolved into being a personal assistant tasked with carrying out trivial, non-monetizable actions like playing music or reciting a weather forecast."

What did they expect? People just blindly bellowing, "ALEXA BUY STUFF" and not actually shopping for the best deals? All most of us want from voice command is a personal assistant, not an eavesdropping, aggressive salesman.
 

mbk34

Posts: 386   +287
I have a few of these devices and I think they work well. I use one to play music through speakers and it feels a little bit like Star Trek when you just ask it to play music and suddenly the room is filled with the music you want (or some bizarre European band with a slightly similar name). I have one of those spot devices as an alarm clock - the clock face looks good and how many other alarm clocks can you set by just saying "Alexa alarm for for 8am mon to fri"? I'll admit I'm a bit unsure of having a device with a camera next to the bed but hey ho. I'll admit, I still haven't used the video phone feature. The timer function gets used a lot when cooking or when running a bath. Probably it's biggest draw for me is when we're discussing stuff over dinner and someone wants to just check something - you can just ask Alexa and there's an 80% chance she'll know the answer and the rest of the time she'll answer with something completely unrelated. I like the little devices and, for the money, I think they offer good value. I'll also admit I've never bought anything from Amazon using one of these devices.
 

Hexic

Posts: 1,261   +1,979
TechSpot Elite
Google Assistant is so far ahead of the competition, unless you've trapped yourself inside the small walled garden of iCrap (Siri is still a dumpsterfire in late 2022), it's the best choice for any meaningful functionality.

Plus, the last thing I want to do is integrate Alexa and Amazon crap into my existing Google smart home... splitting application functionality when a fully integrated suite is already available and best-in-class is asinine.
 

spydercanopus

Posts: 891   +153
Alexa is a hardware vendor's dream feature for sales and makes Amazon money indirectly through sales in their marketplace. Placing a loss on Alexa's own outfacing sales is not relevant to Amazon's bottom line when the buyer who only buys electronics with Alexa built in. But Amazon then pull a quick one and starts releasing their own hardware, all of which is Alexa enabled. The money is made through loyalty, and it is a killer feature to say, "Alexa, play _____" and it starts the show, dims the lights, and Astro comes to sit by me.
 
I’ve been using Alexa for several years now, mostly for music and lighting control. It’s a fantastic device and once you set it up, it’s automation is so convenient. Over five devices in our home, from the bedroom to the garage with several line out connected to audio systems.
I’m not at all concerned about privacy as our life is pretty boring! :)