Amazon Alexa is a “colossal failure” projected to lose $10 billion this year

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Enlarge / The fourth-generation Echo device is a fabric-covered sphere with a halo at the base, which contrasts with the squat plastic cylinders of previous-generation Echos.

Amazon

Amazon is currently going through the biggest layoffs in the company’s history, with plans to cut around 10,000 jobs. One of the hardest-hit areas is the Amazon Alexa voice assistant unit, which appears to be falling out of favor with the e-commerce giant. That’s according to a report from Business Insider, which describes “the rapid decline of voice assistants and Amazon’s larger hardware division.”

Alexa has been around for 10 years and is a groundbreaking voice assistant that has been pretty much copied by Google and Apple. However, Alexa never managed to create a continuous revenue stream, so Alexa doesn’t actually make any money. The Alexa division is part of the “Worldwide Digital” group along with Amazon Prime Video, and Business Insider says that division lost $3 billion in the first quarter of 2022 alone, with “the vast majority” of the losses attributed to Alexa becomes. That’s apparently double any other division, and the report says the hardware team is on track to lose $10 billion this year. It sounds like Amazon is tired of burning all that money.

A division in crisis

The BI report spoke to “a dozen current and former members of the company’s hardware team” who described “a department in crisis.” Nearly every plan to monetize Alexa has failed, with one former employee calling Alexa “a colossal lack of imagination” and “a missed opportunity.” This month’s layoffs are the end result of years of trying to turn things around. Alexa received a huge runway at the company when it was reportedly former CEO Jeff Bezos’ “pet project.” In 2019, an all-hands crisis meeting was held to try to reverse the monetization problem, but that was unsuccessful. In late 2019, Alexa experienced a hiring freeze, and Bezos began losing interest in the project around 2020. Of course, Amazon now has an all-new CEO, Andy Jassy, ​​who doesn’t seem too keen on protecting Alexa.

The report says that while Alexa’s Echo line is among “the best-selling items on Amazon, most devices are sold at cost.” An internal document described the business model, saying, “We want to make money when people use our devices, not when they buy our devices.”

However, this plan never really came to fruition. It’s not like Alexa plays commercial breaks after you’ve used it, so the hope was that people would buy things on Amazon using their voice. Not many people want to trust an AI when they spend their money or buy an item without seeing a picture or reading reviews. The report says that in the fourth year of the Alexa experiment, “Alexa received a billion interactions per week, but most of those conversations were trivial commands to play music or ask about the weather.” These questions aren’t monetizable.

Amazon also tried to partner with Alexa skill companies, so a voice command could buy a Domino pizza or call an Uber, and Amazon could get a commission. The report stated, “By 2020, due to lack of usage, the team stopped posting sales targets.” The team also attempted to portray Alexa as a Halo product to users who were more likely to spend on Amazon even if they didn’t shop by voice, but studies of this theory found that the “financial contribution” of these users “often declined.” below expectations.”

In a public note to employees, Jassy said the company is still “convinced to go after Alexa,” but that’s after making huge cuts to the Alexa team. An employee told Business Insider that there is currently “no clear guideline for devices” going forward and that there is no clear incentive to continue developing popular products because the hardware isn’t viable. That disorientation led to the internally controversial $1,000 Astro robot, which is basically an Amazon Alexa on wheels. Business Insider tracking now puts Alexa third in the US voice assistant wars, with Google Assistant having 81.5 million users, Apple’s Siri 77.6 million and Alexa 71.6 million users.

Are all voice assistants doomed?

We have to ask ourselves: Is Big Tech’s voice assistants running out of time? Everyone seems to struggle with them. Google voiced basically identical problems with Google Assistant’s business model last month. It’s not possible to monetize the simple voice commands that most consumers actually want to make, and all of Google’s attempts to monetize assistants with display ads and business partnerships have failed. Because the product took up server time and was a big money loser, Google responded, as did Amazon, by cutting resources for the department.

While Google and Amazon hurt each other with a cost price war, Apple’s smart speaker plans were more focused on the bottom line. The original HomePod was a lot more expensive than the competition at $350, but that was probably a more sustainable business model. However, Apple’s model didn’t end up with consumers, and the OG HomePod was killed in 2021. There’s still a $99 mini version floating around, and Apple isn’t giving up on the idea of ​​a big speaker, reportedly with a comeback in the works. Siri can at least be a detractor from iPhone sales, but Apple is also chasing more steady revenue from ads.


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