Amazon’s Echo smart speakers have become a global household name, but their widespread adoption has come at a significant financial cost, leading to substantial losses for the company, The Wall Street Journal is reporting.
When Amazon launched Echo devices powered by the Alexa voice assistant in 2014, the strategy mirrored Gillette’s approach of selling razors cheaply to drive profits from razor blade sales. However, a decade later, this strategy has not paid off as expected.
While millions of customers own Alexa-enabled devices, the anticipated surge in voice-command purchases through these devices has not materialized. Instead, users primarily utilize Echo for free functionalities like setting alarms and checking the weather.
This underwhelming return on investment has resulted in Amazon losing tens of billions of dollars on its devices business, which includes Echos, Kindles, Fire TV Sticks, and video doorbells. Internal documents reveal that between 2017 and 2021, the devices division lost over $25 billion.
The substantial miscalculation initiated under Jeff Bezos is now a pressing issue for Andy Jassy, who assumed the role of CEO in 2021. To mitigate these losses, Amazon now plans to introduce a paid tier of Alexa.
Jassy is also reconsidering an internal metric known as “downstream impact” (DSI), a Bezos-era innovation. The concept of DSI worked well for some products, like the Kindle e-reader, which drives ebook sales. However, for Echo devices, the metric has proven less reliable.
With Jassy’s focus on restructuring, Amazon is exploring ways to generate revenue from Alexa and Echo devices. A new initiative, led by Amazon Vice President Heather Zorn, aims to develop a subscription service for Alexa.
Code-named “Banyan,” this project seeks to create “Remarkable Alexa,” an enhanced version with advanced capabilities and better integration with smart home devices. This new Alexa service is expected to launch soon, although internal skepticism remains about its potential success.
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The entire business model was to subsidize the hardware with expected revenue through data harvesting. The same model Google goes with. Sounds like their new plan is to then charge a premium subscription to have the customer make up for the subsidy. like to say it will fail because customers won’t be willing to be harvested, but google has shown customers will pay on top of the harvesting.
The typical panic of corpo-investo "how can we tap into that?/have to fill the gap". If any of those giants read these tiny insignificant articles. Note this, 'you' charge… I AM NOT paying. Period. Your spy product is my house is already listening in and collecting data all the time. You make money selling that. That loss goes with business, making it a big number does not change that this is a the territory of business. Charging me to use your spyware will motivate me to throw it in the garbage.