Amazon loses money on the Echo smart speakers. It has been an open secret for the entirety of Alexa's existence. It's the result of a loss leader approach that only a company the size of Amazon can sustain over a decade.
Of course, selling hardware at a loss can be a successful strategy. Consider printers and razors, which get corporate feet in the door while compensating for the loss with ink cartridges and blades.
Amazon's saturation tactic can be considered successful. Earlier this year, founder Jeff Bezos said that Alexa is currently in 100 million households and on 400 million devices.
However, financial realities present a quite different image. According to a recent Wall Street Journal study, Amazon's gadgets sector lost an astounding $25 billion during the five years from 2017 to 2021. According to reports, the Alexa division lost $10 billion in 2022 alone.
At some point, a losing leader is simply a loss. That truth came crashing down toward the end of 2023, when several hundred people were laid off from the Alexa division. Even for a firm with over $600 billion in yearly revenue, eleven-digit annual losses combined with a bleak macroeconomic outlook make for an intolerable position.
Alexa is not the only intelligent assistant that has returned to Earth in recent years. Beyond products like Bixby and Cortana, which have vanished totally, customer interest in Google Assistant and Siri has also dwindled.
In recent months, however, Google and Apple have made it apparent that they are not ready to give up the ghost. Siri took center stage at WWDC in June, as Apple breathed fresh life into the brand through its new Apple Intelligence program. Google announced this week that Assistant is getting a Gemini-powered boost at home.
According to a Bloomberg article from 2021, despite Alexa's popularity, the bulk of requests are about playing music, managing lights, or setting timers.
A former Amazon senior employee stated it even more bluntly to the WSJ: "We're worried we've hired 10,000 people and built a smart timer." With all of the written criticism made at Alexa over the past decade, that may be the most easily cut.
While the company has continued to release Echo devices, like an improved Spot that was revealed last month, it has slowed its pace. Undoubtedly, there has been much soul searching among the Spheres. Amazon, like Google and Apple, sees generative AI as Alexa's lifeline.
The 10,000-person timer problem stems from gadgets failing to meet customer expectations. Inviting third-party developers to create skills is part of a broader effort to make Alexa more useful. Amazon has also worked to improve the assistant's conversational skills over time.
In that regard, generative AI represents a game changer. Platforms such as ChatGPT have proven exceptional natural language conversational skills. Late last year, Amazon provided a glimpse into 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," according to the business. "A longstanding 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 well within reach."
Alexa and Echo were introduced a decade ago in November. There couldn't be a better time to offer a picture of what the next ten years might look like. The following three months will have a significant impact on the assistant's future decade.