Hey Alexa, Why Are You Costing Amazon Billions?

Amazon's artificial intelligence virtual assistant, Alexa, is now in millions of households worldwide, yet the smart technology is costing Amazon billions. Here's why Alexa is a black hole in Amazon's profits. 

 In 2014, Amazon launched its first Echo smart speaker with Amazon's innovative virtual assistant, Alexa. But it was in 2017 that the world started to pay attention to this smart speaker, and thanks to the third-party products and integrations, this smart speaker was popular across the globe. 

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For example, in May 2023, Yahoo Finance reported that the e-commerce giant Amazon had revealed to the public that it had sold more than 500 million Echo devices and continued unveiling four new Echo products. Statista found that out of all the smart speakers available in the U.S. market, an overwhelming 65% of consumers chose the Echo speakers over other brands like Google Home or the Apple HomePod. That's just in the U.S.; in the United Kingdom, around 73% of people own an Amazon Echo. So, with such stellar global sales, appearances on television, star-studded marketing, and a product that is instantly recognizable, why are these smart speakers costing Amazon billions? 

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The Wall Street Journal first reported on the loss using unnamed sources and internal documents that revealed that between 2017 and 2021, the online retail giant had lost over $25 billion in profits from its Echo speakers and Kindles. While these smart speakers may be in millions of households, they are not being used for what Amazon had originally hoped. This is certainly not the case. During the smart speaker's launch in 2014, Amazon took a risk and sold the devices at a pittance, hoping this would move large volumes of stock, which it did. The only problem is that people were not using the devices as the brand had hoped. 

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The hope for these smart speakers was to encourage people to buy more goods on Amazon with the assistance of Alexa because of the "ease" of purchase. These hopes were dashed when the retail giant realized that people were using these smart speakers mainly for the free features like setting alarms and checking the weather. A former Amazon employee had candidly told the Wall Street Journal, "We worried we've hired 10,000 people and we've built a smart timer." It wasn't just the Echo speakers and Kindle devices that have caused a financial headache for the online retailer. Other electronic devices like the Fire TV Sticks and video doorbells have also been a financial drain on the company, and the current CEO, Andy Jassy, is determined to fix this problem. 

How is Jassy going to fix this problem? By charging a new monthly subscription that is expected to launch this summer. Because Echo devices are sold at or below cost, Jassy hopes that adding a subscription will result in an additional direct revenue stream. Amazon engineers had told the Wall Street Journal that the company is "focused on the value we create when customers use our services, not just when they buy our devices," and added, "Our Devices & Services organization has established numerous profitable businesses for Amazon and is well-positioned to continue doing so going forward." 

In September last year, Amazon announced it was working on the latest Alexa. However, insider reports have revealed that neither the device nor the technology is even close to being ready due to a lack of data. This new Alexa device could be the answer to making a profit off the devices. 

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