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


To enlarge / The fourth-generation Echo device is a fabric-covered sphere with a halo at the bottom, contrasting with the squat plastic cylinders of previous-generation Echoes.

Amazon

Amazon is currently undergoing the largest layoffs in the company’s history, with plans to cut nearly 10,000 jobs. One of the hardest hit areas is the Amazon Alexa voice assistant division, which is falling out of favor with the e-commerce giant. That’s according to a Business Insider report detailing the “rapid collapse of the voice assistant and Amazon’s larger hardware division.”

Alexa has been around for 10 years and has been the leading voice assistant, somewhat copied by Google and Apple. Alexa has never been able to generate a steady stream of revenue, so Alexa doesn’t really make money. The Alexa division is part of the Worldwide Digital group along with Amazon Prime video, and Business Insider reports that the division lost $3 billion in the first quarter of 2022 alone, with the “vast majority” of the loss coming from Alexa. That’s probably double the losses of any other division, and the report says the hardware team is on pace to lose $10 billion this year. Looks like Amazon is tired of burning all that money.

A unit in crisis

The BI report spoke to “dozens of current and former employees on the company’s hardware team” and described “a division in crisis.” Almost every plan to monetize Alexa has failed, with one former employee calling Alexa “a colossal failure of imagination” and “a wasted opportunity.” This month’s cuts are the culmination of years of trying to turn things around. Alexa had a huge runway at the company when it was reportedly a “pet project” of former CEO Jeff Bezos. An all-out crisis meeting was held in 2019 to address the monetization issue, but to no avail. At the end of 2019, Alexa saw a hiring freeze, and Bezos began to lose interest in the project in 2020. Of course, Amazon now has a brand new CEO, Andy Jassy, ​​who isn’t all that interested in protecting Alexa.

While Alexa’s Echo line “is among the best-selling products on Amazon, most of the devices sell for price,” the report said. One internal document described the business model: “We want to make money when people use our devices, not when they buy them.”

Although this plan never came to fruition. It’s not like Alexa plays ad breaks after you use it, so it was hoped that people would buy things on Amazon with their voice. Most people don’t want to trust AI by spending their money or buying an item without seeing a picture or reading reviews. In the fourth year of the Alexa experiment, the report says, “Alexa was having a billion interactions a week, but most of those conversations were meaningless commands to play music or ask about the weather.” It is not possible to make money from these questions.

Amazon also tried to partner with companies for Alexa skills, so a voice command could order a Domino’s pizza or call an Uber, and Amazon could get a refund. The report says: “By 2020, the team stopped publishing sales targets due to lack of use.” The team tried to paint Alexa as a halo product with users more likely to spend on Amazon even if they didn’t make voice purchases, but research on that theory found that those users’ “financial contribution” often fell short. less than expected.”

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

Are all voice assistants doomed?

We have to wonder: Is time running out for Big Tech voice assistants? Everyone seems to struggle with them. Google expressed similar problems with its Google Assistant business model last month. Simple voice commands, which most consumers actually want to do, can’t be monetized, and Google’s attempts to monetize Assistants with display ads and company partnerships haven’t all worked out. With the product eating up server time and losing big money, Google responded by cutting resources to the division, as did Amazon.

While Google and Amazon hurt each other in a low-cost price war, Apple’s smart speaker plans are more bottom-line. The original HomePod’s $350 price tag was significantly more expensive than the competition, but it was probably a more sustainable business model. Apple’s model didn’t catch on with consumers, and the OG HomePod was killed off in 2021. There’s still a $99 “mini” version, and Apple isn’t giving up on the big speaker idea. in affairs. Siri may at least be a loss leader in iPhone sales, but Apple is also trying to generate more revenue from ads.



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