This has to rank up there with one of the most spectacular product failures in tech history. According to leaked documents acquired by Insider, Amazon’s “Worldwide Digital” unit – the unit that includes Echo smart speakers, Alexa voice technology, and Prime Video streaming – lost over $3 billion in just the first quarter of this year. It is on pace to lose $10 billion for the year and the company has announced its largest layoffs ever – cutting more than 10,000 jobs…many targeted to hit this division specifically…as Amazon reorients their business strategy.
See the latest news on the failing Amazon Alexa business
For many longtime Strata-gee readers, this news won’t be much of a surprise. We first reported on the underperforming Alexa business all the way back in 2018, in a post where we recounted the company’s “horror” (our word) of discovering that consumers were not using their Alexa-powered devices to shop from the company.
Alexa was launched originally back in 2014 and initially caused quite a stir with many in media calling it the computer of the future that would be found in every home. Indeed, in the first two years, reports say the company sold 5 million units. It seemed Alexa had a promising future. Now, just 8 years later, it seems as though the train has jumped the tracks.
Not Just a New Product, a New Business Model
Alexa, in the form of the first Echo smart speakers, was more than just an all-new kind of product. The genius of the product is that the company employed a new business model where they would not seek to make money on Alexa devices…rather they would make money off the products users purchased through the device.
Amazon founder Jeff Bezos was always seeking ways to reduce friction in e-commerce. For example, he was the creator of the 1-click purchase button – with one click, an order is created, entered, and paid. To him, Alexa was just another way to reduce friction in the buying process. With a simple voice order, for example, “Alexa, order a new box of Tide laundry detergent,” the item is ordered.
Sell Echos at Cost, Make Money on Voice Purchases
Accordingly, the company’s plan was to sell all Alexa devices at cost. In fact, some third-party break-down analyses showed the company was actually selling them at a loss. And later teardowns suggested the company was cheapening the manufacture of Echo to try and bend the cost curve and reduce their losses…to no avail, it would seem.
Then, as we told you in 2018, in contravention to the product’s reason to exist, company documents were leaked establishing that in fact, very few customers were using the devices for shopping – only around 2% of Echo owners. Worse than that, when users tried using an Echo for a voice purchase, Amazon’s data showed that 90% of them never tried it again.
Voice Shopping, the Company Now Knows, is a Bust
Voice shopping was a bust. And by 2018, the year of my post, the division responsible for designing, creating, and “selling” Alexa devices had doubled in size in just two years to more than 10,000 employees.
Then, earlier this year, I reported that internal Amazon documents leaked to the media showed that despite the best efforts of the team to build user engagement by expanding the type of Alexa devices they sold, not only was it NOT growing engagement..but engagement was even worse than realized. In that post, we learned that purchasers of any Alexa device quickly tired of it and usage dropped off rapidly.
Many Buyers Stop Using Smart Speakers After Just One Week
How rapidly? As many as one-in-four purchasers stopped using the device within a week after purchasing it. This was devastating news and a really bad sign for the future of Alexa devices.
Amazon, the company that practically invented voice control, now suffers the embarrassment of declining market share, as Alexa is now in third place in voice control behind both Google Assistant and Apple Siri. As the company approaches the 10-year mark, it must rethink its investment here.
The Biggest Losing Division in All of Amazon
Now Amazon has a new CEO and he is bent on making changes to right the ship. As he looks at which divisions are underperforming, he certainly can’t miss Worldwide Digital. In 2018, the New York Times reported that the division lost $5 billion; and, as I mentioned earlier, it is now on pace to lose $10 billion this year. According to internal data, as reported by Insider, this “loss was by far the largest among all of Amazon’s business units and slightly double the losses from its still nascent physical stores and grocery business.”
While the perceived strategic value of the division [it was the apple of Jeff Bezos’ eye] has in the past insulated it from adhering to tough financial metrics, things have clearly changed at the company. “Amazon’s Alexa and the devices team at large is now the prime target of the biggest layoffs in the company’s history, according to press reports and an internal email seen by Insider.” [Emphasis in original text]
Privacy Concerns Still Stop Some from Buying an Alexa Device
I’d be remiss if I didn’t also report that the company is well aware of the fact that many consumers refuse to have an always-on/always-listening Alexa device in their homes due to privacy concerns. This reality has dogged the product from the beginning and remains in the minds of many consumers as contemporaneous surveys continue to reveal.
It didn’t help when controversy erupted over just these kinds of issues in past reports of Alexa mistakenly sending voice recordings to the wrong person…or even more horrifically when it emerged that Amazon employees were secretly listening to private conversations. There even was a report, ultimately confirmed, that some Alexa devices creepily laugh at you out of the blue!
Once His Baby, Now Bezos has Lost Interest in Alexa; Division in ‘Crisis Mode’
Between consumer privacy concerns and low user engagement, it’s looking pretty bad for Alexa. Why even Jeff Bezos lost interest in Alexa back in 2020. In the past, Bezos is said to have been very involved in the line, even personally approving email marketing campaigns for anything Alexa. He has long since stopped doing so.
In another sign of potentially impending doom, certain top executives such as Lab126 president Greg Zehr, whom Insider says was responsible for many of Amazon’s personal devices, recently retired. Also, Tom Taylor, the senior vice president of Alexa, announced his retirement on the very same day as Zehr. That is the end of an 18-year and a 22-year, Alexa-focused career respectively.
Employees tell Insider that Alexa is in crisis mode…
See current Alexa devices by following this link…