Amazon's Echo smart speakers have long been a cornerstone of the company's strategy, but behind their ubiquity lies a financial reality that's anything but rosy. Known for its “loss leader” approach—selling hardware at a loss to boost overall sales—Amazon has pursued this strategy with its Echo devices, betting that the long-term gains would outweigh initial setbacks.
This strategy seems to have worked from a market saturation perspective. According to Jeff Bezos, Alexa is now embedded in 100 million homes across 400 million devices. Yet, the financial implications are starkly different. A recent Wall Street Journal report reveals that Amazon’s devices division lost an eye-watering $25 billion from 2017 to 2021, with the Alexa unit alone hemorrhaging $10 billion in 2022.
The mounting losses became unsustainable, leading to significant layoffs in the Alexa team by the end of 2023. Despite its massive revenue and scale, Amazon is feeling the strain of such substantial losses, especially against a challenging macroeconomic backdrop.
Amazon is not alone in facing challenges in the smart assistant arena. While Bixby and Cortana have faded into obscurity, consumer enthusiasm for Google Assistant and Siri has also waned. Nevertheless, both Google and Apple are doubling down on their AI investments. Apple highlighted Siri at WWDC with its new Apple Intelligence initiative, while Google is infusing its Assistant with new capabilities powered by Gemini.
A 2021 Bloomberg report highlighted that Alexa’s usage is often limited to basic functions like playing music, controlling lights, and setting timers. This limitation, described by a former Amazon senior employee as a "10,000-person timer problem," underscores the difficulties in expanding Alexa’s capabilities beyond these fundamental tasks.
In response, Amazon is turning to generative AI to rejuvenate Alexa. The company sees AI as a potential game changer, aiming to make interactions with Alexa as natural as conversing with a human. Amazon’s recent preview of Alexa’s AI-powered future suggests a focus on improving conversational abilities and user experience.
As November marks a decade since the launch of Alexa and Echo, the coming months will be crucial. Amazon’s success in transforming Alexa through generative AI could determine whether the assistant enjoys another decade of prominence—or becomes a relic of the past.
