Introduction
Amazon’s practice of selling its Echo smart speakers at a loss has been an open secret since Alexa’s inception. This loss-leader strategy, possible only for a company of Amazon’s magnitude, has allowed the tech giant to sustain this approach for nearly a decade.
The Strategy Behind Selling at a Loss
Selling hardware at a loss isn’t a new concept—industries like printers and razors have long utilized this tactic to establish a customer base, later profiting from consumables like ink cartridges and razor blades. From a market penetration standpoint, Amazon’s strategy has seen success. Earlier this year, Jeff Bezos, Amazon’s founder, claimed that Alexa is now present in 100 million homes and operates across 400 million devices.
Financial Struggles and the Reality of Losses
Despite these impressive numbers, the financial reality tells a different story. A report from The Wall Street Journal revealed that Amazon’s devices division incurred a staggering $25 billion loss between 2017 and 2021, with the Alexa division alone losing $10 billion in 2022. At some point, a loss-leader strategy ceases to be sustainable, and this became apparent by the end of 2023 when Amazon laid off several hundred employees from the Alexa unit. Even for a company generating over $600 billion in annual revenue, such massive losses combined with a challenging macroeconomic environment create an untenable situation.
Decline of Smart Assistants
Alexa isn’t the only smart assistant that has seen its fortunes decline. Consumer interest in Google Assistant and Siri has also waned, and other smart assistants like Bixby and Cortana have completely fallen by the wayside. However, both Google and Apple have shown renewed commitment to their smart assistants, with Apple highlighting Siri at WWDC in June as part of its Apple Intelligence initiative, and Google announcing a Gemini-powered boost for its Assistant.
Limited Utility of Alexa
A 2021 Bloomberg report highlighted that, despite Alexa’s widespread use, most interactions are limited to three tasks: playing music, controlling lights, and setting timers. A former Amazon senior employee succinctly captured this limitation, noting to the Wall Street Journal, “We worried we’ve hired 10,000 people and we’ve built a smart timer.” Despite a decade of existence, this criticism may be the most telling.
Amazon’s Shift in Focus
Although Amazon continues to release Echo devices, such as the recently upgraded Spot, the company seems to be scaling back its efforts. This shift has likely prompted introspection within Amazon’s leadership. Like Google and Apple, Amazon views generative AI as the potential lifeline for Alexa.
The Role of Generative AI
The so-called “10,000-person timer problem” stems from devices not meeting user expectations. Amazon has encouraged third-party developers to create more skills for Alexa as part of a broader initiative to enhance its utility. Over the years, the company has also worked to improve Alexa’s conversational abilities. In this context, generative AI could be transformative. Platforms like ChatGPT have demonstrated impressive natural language capabilities, and Amazon previewed Alexa’s generative AI-powered future late last year.
Looking Ahead
Amazon has always envisioned Alexa as an evolving service, continuously improving since its introduction in 2014. The company’s long-term mission has been to make conversations with Alexa as natural as speaking with another person. With the rapid advancements in generative AI, that goal now seems within reach. As Alexa and Echo mark their tenth anniversary in November, it’s the perfect time for Amazon to unveil its vision for the next decade. The assistant’s future, however, will depend significantly on the developments of the coming months.
