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

Zoom in / The fourth generation Echo device is a cloth-covered sphere with a halo at its base, in contrast to the squat plastic cylinders of previous generation Echos.

Amazonia

Amazon is going through the biggest layoffs in company history right now, with plans to shed about 10,000 jobs. One of the hardest hit areas is the Amazon Alexa voice assistant unit, which is apparently falling out of favor with the e-commerce giant. That’s according to a report from Business Insider, which details “the rapid fall of Amazon’s voice assistant and broader hardware division.”

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

A division in crisis

The BI report spoke to “a dozen current and former employees of the company’s hardware team,” which it described as “a division in crisis.” Almost all plans to monetize Alexa have failed, with one former employee calling Alexa “a colossal failure of the imagination” and “a wasted opportunity.” This month’s layoffs are the end result of years of trying to turn things around. Alexa was given a huge runway at the company, when it was said to be former CEO Jeff Bezos’ “pet project”. An all-out crisis meeting took place in 2019 to try and turn the monetization problem around, but it was fruitless. In late 2019, Alexa saw a hiring freeze and Bezos started to lose interest in the project around 2020. Of course, Amazon now has a whole new CEO, Andy Jassy, ​​who apparently isn’t that interested. to protect Alexa.

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

That plan never really materialized, though. It’s not like Alexa plays ad breaks after you use it, so the hope was that people would buy things on Amazon through their voice. Not many people want to trust an AI to spend their money or buy an item without seeing a photo or reading reviews. The report states that by the fourth year of the Alexa experiment, “Alexa was receiving a billion interactions a week, but most of those conversations were trivial commands to play music or ask about the weather.” These questions are not monetizable.

Amazon has also been trying to partner with companies on Alexa skills, so a voice command could buy a Domino’s pizza or call an Uber, and Amazon could get a kickback. The report states, “By 2020, the team stopped posting sales goals due to lack of usage.” The team also tried to paint Alexa as a halo product with users who are more likely to spend on Amazon, even if they don’t shop by word of mouth, but studies of that theory have found that the “financial input” of those users “often fell below expectations.

In a public memo to employees, Jassy said the company still has “conviction in pursuing” Alexa, but that’s after making huge cuts to the Alexa team. One employee told Business Insider that there’s currently “no clear directive for devices” going forward, and that because the hardware isn’t profitable, there’s no clear incentive to keep iterating popular products. That lack of direction led to the controversial $1,000 Astro robot, which is basically an Amazon Alexa on wheels. Business Insider’s tracking now places Alexa third in the US voice assistant wars, with Google Assistant at 81.5 million users, Apple’s Siri at 77.6 million, and Alexa at 71.6 million.

Are all voice assistants doomed?

We have to ask ourselves: is time running out for Big Tech voice assistants? Everyone seems to struggle with them. Google voiced essentially identical issues with the Google Assistant business model last month. It’s not possible to monetize the simple voice commands that most consumers actually want to perform, and all of Google’s attempts to monetize assistants with display ads and corporate partnerships haven’t worked. With the product wasting server time and being a big loser, Google responded just like Amazon by cutting resources to the division.

While Google and Amazon hurt each other with a cost-to-cost price war, Apple’s smart speaker plans have focused more on profits. The original HomePod’s $350 price tag was a lot more expensive than the competition, but it was probably a more viable business model. However, Apple’s model hasn’t made it to consumers, and the OG HomePod was killed off in 2021. There’s still a $99 “mini” version out there, and Apple isn’t giving up on the idea of ​​a big speaker, with a presumed return to work. Siri may at least be a loss leader for iPhone sales, but Apple is also looking for more continued revenue from ads.

Leave a Reply

%d bloggers like this: