Amazon is grappling with a crisis that leads the company to face one of the most difficult moments in its history, preparing for mass layoffs with a proposed cut of over 10,000 jobs. And the hardware division and the one that manages Alexa are also at risk. This is because, according to Business Insider’s reconstruction, the voice assistant is a flop and does not produce earnings. Based on the data reported by the newspaper, which had access to a confidential company document, in the first quarter of 2022, Amazon’s Worldwide Digital unit, whose sphere of control includes Echo smart speakers, Alexa technology and the streaming Prime Video, recorded a deadweight loss of more than $3 billion, largely attributable to the voice assistant. At the end of the year, the division which owns the smart assistant would be destined to lose more or less 10 billion dollars.
Amazon has long tolerated the low financial return of Alexa-related businesses, but now things are taking a turn for the worse. The company did not confirm, but a spokesperson said: “As part of the annual review process of our operating plan, we always review each of our activities and what changes we deem necessary to make. Given the current macroeconomic environment, and considering the rapid growth in terms of hiring we have experienced for several years, some teams are in need of a reorganization. This, in some cases, means that certain roles are sadly no longer needed. We do not take these decisions lightly and are working to support all impacted employees.” Alexa is not directly mentioned here, but former and current employees Business Insider contacted refer to Alexa as “colossal failure” and “missed opportunity.” The newspaper would also have had access to company emails in which the layoffs are mentioned. On the other hand, in an official note the current CEO of Amazon, Andy Jassy, reaffirmed the commitment of the e-commerce giant to pursue its development: “We have great opportunities ahead of us, both in our more consolidated businesses such as stores, advertising and AWS, but also in our more recent initiatives that we have been working on for several years and are convinced to continue (for example, Prime Video, Alexa, Kuiper, Zoox and Healthcare). The key will be to do what Amazon does best, which is focus on customers and relentlessly invent for them, and if we succeed, we will all be very optimistic about Amazon’s future.”
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Negative balance?
Alexa’s future, however, about 10 years after her birth, seems characterized by uncertainty. Since 2014, Assistant has been associated with Echo smart speakers. Which, in the first generation, had a surprising success among consumers with more than 5 million devices sold in two years in the US market alone, while last year 65 million were purchased globally.
Even Alexa, a project initially strongly supported by Jeff Bezos, has gained increasing popularity over time, gaining positions compared to Siri and Google Assistant, as revealed by a recent survey by Voice Consumer Index 2022. Hand in hand, his team it has gradually increased, doubling in number until reaching 10 thousand employees and collaborators dedicated to its development.
For millions of people, Alexa represents the artificial voice with which they interact in their home to turn the lights on or off, adjust the air conditioners and thermostat, start the coffee machine or control the video camera in the children’s room. It is used by young people to play music, by children to listen to fairy tales and audio games and above all by the elderly who can use it to be assisted in their daily chores and activities, obtaining a benefit from it.
Despite having billions of interactions per week, Alexa, however, is not a source of income for Amazon. Which has aimed from the outset to a business model based not so much on the sale of smart speakers themselves as on the use of the voice assistant integrated into the devices to convey online shopping. Essentially, as a company document sums it up, the goal was “to make money from people using Alexa, not buying the hardware.” A bit like what happens with Kindle and other Amazon devices: they are sold with a minimum margin, because the profit comes from the contents.
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Mal common for voice assistants
This strategy, however, didn’t work very well with Alexa, since you basically interact with Amazon’s assistant to ask for information, especially the weather, and listen to music. Voice command for online shopping forms a very small part, which reduces the chances of making a profit. And in fact, the newspaper by Jeff Bezos, who was the founder of Amazon and is now president, also speaks of a “flop”. In fact, a recent article in the newspaper mentions the costs for research and development of the artificial intelligence behind the voice assistant, and the sales strategy of the devices. However, signaling how an important change could be around the corner: in September 2021, in fact, the company launched Astro, a $1,500 domestic robot, while an Echo smart speaker usually costs around $99 (but often much less, like for Black Friday). If Amazon targets higher-income consumers, Alexa could actually become a source of revenue. Amazon Services.
On the other hand, the issue of monetization is common to other voice assistant platforms. Mountain View, for example, has tried to make Google Assistant profitable on several occasions and in different ways (advertising and web traffic) but without succeeding. Eventually having to reduce support and resources to this area of activity. The case of Siri is different, which has great response among users, more than Alexa, but it was not created for commercial purposes, because Apple remains mainly focused on the sale of hardware. Even less clear is the fate of Cortana, the Microsoft assistant born in 2014, removed from the only smart speaker in which it was integrated, and relegated to a mere support role in the Microsoft 365 productivity suite.