Can Alexa find a path to monetization?

Discussion
Source: Amazon.com
Nov 30, 2022

Echo devices continually rank among Amazon.com’s best sellers, but the Alexa business is reportedly bleeding money and management is facing questions about the initiative’s viability.

According to The New York Times, Alexa was losing $5 billion a year as recently as 2018, when its ranks included 10,000 engineers. A Business Insider article indicates Amazon’s Worldwide Digital division, which operates Alexa and Prime Video streaming, is on track to lose more than $10 billion this year, largely tied to Alexa. The unit also reportedly felt the brunt of Amazon’s biggest-ever layoffs.

Launched in November 2014, Echo has become the dominant smart speaker in the U.S. As of June 2021, 69 percent of smart speakers in use in the U.S. were Amazon’s Echo brand, with Google Home at about 25 percent and Apple, five percent, according to Consumer Intelligence Research Partners (CIRP). Over 50 million U.S. homes had at least one Amazon Echo device. (Over 20 million had multiple units.)

However, Alexa, which sells at cost, continues to be tapped for trivial tasks such as playing music or checking the weather and hasn’t become the core household shopping tool as hoped for to support its monetization. Voice shopping’s continued inhibitors are the absence of screens on most devices and concerns over payment security and privacy.

In October, The Information reported that Google was likewise reducing resources to its Google Assistant division due to similar challenges monetizing the business via display ads and partnerships. Apple and Google are also seen having an advantage because they can incorporate voice commands into their mobile devices.

Amazon’s launch last fall of a small robot, Astro, that in addition to incorporating Alexa’s abilities can move around (starting price $1,000) was seen by some as a signal Amazon was looking at premium opportunities around Alexa.

In an employee note from mid-November on the layoffs, CEO Andrew Jassy said Amazon still has “conviction in pursuing” newer initiatives in development over the last several years, citing Alexa as well as Prime Video, Kuiper, Zoox, and Healthcare.

The New York Times reported Amazon aims to cut up to 10,000 jobs, or three percent of its workforce, with its devices, retail and human resources divisions primarily being impacted.

DISCUSSION QUESTIONS: Do you eventually see voice shopping taking off, or do you see other ways to drive incremental revenue from Alexa-enabled devices? How would you assess the strengths and weaknesses of Amazon’s range of Echo devices?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Voice services will take a very long time to be truly useful, and even companies as flush as Amazon will have a difficult time hanging around to see that happen."
"Amazon is best off building an Alexa SDK that rivals Apple CarPlay, so that the voice assistance technology can be used in cars via mobile apps..."
"Does voice-enabled shopping have mainstream potential for replenishment items? Maybe (at best). For product discovery? Not a chance."

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17 Comments on "Can Alexa find a path to monetization?"


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Mark Ryski
BrainTrust

Voice shopping will find a place in the market, but I believe it will be small for a very long time. It’s clear that despite significant investments in creating Alexa and devices that use it, and being connected to the most prolific online retailer in the world, Amazon still couldn’t make money at it. The fact is, it’s really hard and that’s part of the challenge — high cost of development and low consumer usage for shopping means that this endeavor will burn cash, and that’s exactly what’s it’s been doing from the start. Given how much Amazon has invested in this I don’t believe that they will give up completely, but they are hitting pause.

Gene Detroyer
BrainTrust

If they didn’t quit a long time ago, they will not. They are not following this innovation foolishly.

Neil Saunders
BrainTrust

A lot of households have and use Alexa devices. However they tend to use them for very simple tasks like checking the weather, setting alarms and timers, or playing music. It is extremely difficult to monetize such things. In theory Amazon should make money from subscription services like Audible and streaming music services, but take up has been relatively low. Another possibility is to use Alexa to advertise, but this is a virtual non-starter because people’s tolerance of Alexa parroting advertisements is extremely low. Then there is voice shopping which hasn’t taken off in the way some predicted — mainly because it has a lot more friction than traditional online shopping. This leaves Alexa as a nice-to-have service which gathers data and enhances the Prime program rather than being a major revenue driver.

Dave Bruno
BrainTrust

Does voice-enabled shopping have mainstream potential for replenishment items? Maybe (at best). For product discovery? Not a chance. Product discovery online is gruesome as it is, when one can actually see the choices. Voice discovery is simply a non-starter. I use My two Echo devices constantly for things like shopping lists, order status, simple internet searches, kitchen timers, Yankees schedules and, of course, music streaming. But I don’t believe enough people yet trust ordering anything via voice, even for replenishment items, and I am not sure they ever will. As such, I suspect “Alexa, play music by Steely Dan on Amazon Music” is likely to remain my most common command for the foreseeable future.

Lisa Goller
BrainTrust

Alexa’s biggest opportunities include product replenishment, voice in vehicles and home healthcare. It takes time for consumers to shift habits but voice innovations offer convenience and ease. As physical and digital realms converge, Alexa will gain momentum.

Gary Sankary
BrainTrust

I’m a big fan of Alexa. I have Dots, Echos, and Alexa-powered TVs all over the house. I interact with them multiple times a day for news, weather and music. In the many years I have had these devices however, I’ve only made two purchases with them. Unless you’re reordering something and you know exactly what you want, it’s just too tedious. Browsing and selecting items comes with a lot of friction. You find yourself having to listen to Alexa talk through option after option. I quickly give up and grab my phone. It’s much easier to scroll and click to make a purchase.

I don’t see the massive adoption of this technology for anything other than a personal assistant. I would be really sad if Amazon gave up on this technology, I certainly don’t want to go back to converting pints into tablespoons in my head ever again.

Mark Self
BrainTrust
To me, Alexa right now is similar to free email, free GPS, etc. It is about increasing the number of users. Then at some point, when your audience is hooked, you start charging (what do you mean I have to pay for content?). The issue with Alexa and voice shopping, etc. is: it is just not that compelling. I have Siri on my phone and there are only two use cases that make sense to me: asking Siri to dial a number while I am driving and asking Siri what song is playing, neither of which I would be willing to pay for. In Alexa’s case, with the tight integration to a range of devices, Amazon was (obviously? I’m not sure) playing a long game, because if they had built the alleged $5 billion of costs into the price, I think it is very reasonable to assume they would not be selling many. My prediction is voice services will take a very long time to be truly useful, and even companies as flush as Amazon… Read more »
Gene Detroyer
BrainTrust

I do not have a voice-activated device. I cannot assess the strengths or weaknesses. My daughter has a Google device. The device responds with many services; music, recipes, weather, and even an interactive encyclopedia. Though she uses the device regularly, I don’t see where it is making money for Google.

My one take is that voice-activated devices are convenient. Monetizing? Certainly, shopping pops out. For groceries, building a shopping list comes to mind. Talk into the device as desired products are read off and order the list a few days or a week later. However shopping that needs viewing is more challenging.

Other controls add to its value: home heating/air conditioning, running appliances, security systems, and lighting. But I still find the monetizing issue a challenge.

Amazon and Google know that households will eventually be totally Jetsons. How they will integrate is the question.

Tara Kirkpatrick
BrainTrust

Amazon is best off building an Alexa SDK that rivals Apple CarPlay, so that the voice assistance technology can be used in cars via mobile apps that drivers want to shop from while on the road. For example, Dunkin’ Donuts installed the Apple CarPlay app and drivers could voice order their coffee while driving and the navigation would direct them to the nearest location. I am not sure what the Android equivalent of Apple CarPlay is, or if one exists, so Alexa could potentially fill that void or simply compete with CarPlay. The voice assistance in the car use case could alleviate user concern about Alexa listening to everything because people are in their cars a whole lot less. Besides, when driving, the need for hands-free help is necessary.

David Spear
BrainTrust

In 2018, the top 15 most-asked questions on Google Android were non-revenue related, like “take me home,” “where am I,” “what’s the name of this song?” There was only one that was tangentially related to monetization, “restaurants near me.”

Devices like Amazon’s Echo are typically found in the home and therefore are predisposed to non-revenue related activities, i.e. temperature, time, music. Voice activated mobile apps like Apple’s Siri, and Google’s Assistant are much better positioned for monetization activities versus Alexa. And depending on what source you look at, the CAGR growth for voice activation is expected to be at a 17 percent to 24 percent pace over the next five to seven years. With technology getting better, the digital savvy Millennials’/Gen Zers’ incomes swelling and shoppers having more confidence in security, voice shopping, will become larger over the next 10 years.

David Biernbaum
BrainTrust

Consumers need to see products and choices on first-time purchases but once they are in the habit of purchasing a certain brand and item, they might re-order via voice — if they are confident Alexa is offering the best of the available prices and values. Amazon has more work to do in building consumer confidence.

Doug Garnett
BrainTrust

Alexa is already in the only monetization path possible. After all, a great many devices are sold because of Alexa.

The problem seems to be that Amazon believed it’s own PR and thought people would want to shop by Alexa. That isn’t true, never was true, and is highly unlikely at any time in the future. Voice shopping is inherently ineffective because writing lists or checking online boxes is MUCH faster and more accurate. Alexa cannot win that battle.

Shep Hyken
BrainTrust

Selling millions and millions of Echos at cost puts the product into the consumer’s hands (actually their homes and offices). Next is getting consumers to use it for more than the “trivial tasks” described in the article. That comes through training the consumer. What they’re doing isn’t working (yet), but it wouldn’t surprise me if Amazon figures it out. Think about how the airlines taught passengers to use online reservations and check-in (through their website). They gave passengers an incentive in the form of extra miles/points. Maybe that’s the play here. Give an Echo customer a perk to try an Amazon money-making activity.

Steve Montgomery
BrainTrust

I don’t foresee voice shopping becoming a common practice because the alternatives have many benefits it does not. The principle one is the customer being able to see the products rather than listen to a description. If one chooses to actually go to a store, they cannot only see the product but touch it. If it is wearable, they can try it on to determine if the fit is right for them or order it in different sizes and return the ones that aren’t the right size.

Bottom line, there are too many better alternatives for voice ordering to become mainstream.

Ryan Mathews
BrainTrust
The short answer is yes, but in terms of the mass market, as a late stage adoption of the technology. Amazon did some things right and a lot of things wrong with the Alexa brand. First they used the, “Give them the razor and make up the loss by selling them razor blades” approach to marketing. Makes a certain sense if you are introducing a brand new technology. Get devices in as many homes as possible and the market will follow. Sadly, there are a couple of flaws in this strategy. First of all, putting Echos in homes and building trust are not the same thing. If you think Alexa is listening in on your love life, it’s hard to trust “her” with your money. Second, Amazon needed an anthropologist on staff to tell them how people use and adapt to new tools and toys. If they had had one, they would have figured out that the primary, secondary, and tertiary consumer uses of the new technology wouldn’t be all that commercially relevant. Third, Amazon… Read more »
Oliver Guy
BrainTrust

I had anticipated that it would lead toward commoditisation of Amazon’s products in that you ask for rice to be added to the cart and Amazon branded rice gets added rather than someone else’s.

Perhaps that will come, but for me I felt that was the way Amazon would monetize Alexa — thus it becoming a near-default sales channel.

Kenneth Leung
BrainTrust

I have Alexa in my kitchen for years and it is basically a timer, reminder and music player. I just don’t see voice shopping going beyond a niche application because shopping is visual and interactive. I think I used Alexa voice once to add an item to the Amazon shopping cart, but in general the application just isn’t there. I see Alexa more as a music/entertainment experience enhancer than for shopping.

wpDiscuz
Braintrust
"Voice services will take a very long time to be truly useful, and even companies as flush as Amazon will have a difficult time hanging around to see that happen."
"Amazon is best off building an Alexa SDK that rivals Apple CarPlay, so that the voice assistance technology can be used in cars via mobile apps..."
"Does voice-enabled shopping have mainstream potential for replenishment items? Maybe (at best). For product discovery? Not a chance."

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