The Amazon Echo Is Dying of Success. Millions Are Sold, But the Company Continues Losing Money

Amazon’s numbers don’t add up. It's sold hundreds of millions of devices—from Echo speakers and Fire TV sticks—but lost billions of dollars. The key component of that strategy, Alexa, hasn’t turned out to be the revenue generator the company thought it could be. Now, Amazon CEO Andy Jassy and his team are looking for solutions.

According to The Wall Street Journal, an Amazon spokeswoman confirmed that there it has indeed sold hundreds of millions of devices and that, for the company, is “the best measure of success.” However, data collected by the media outlet shows that Amazon lost more than $25 billion between 2017 and 2021. Losses before or after that period, if any, are unknown.

The Echo Spots and Fire TVs have tried to follow a familiar model: Amazon sells them at a loss, then recoups the loss and profits from the services and products purchased through these devices. This business model is what Amazon did with the Kindle—selling e-books through the device—or what the Xbox X/S series and PS5 do by paying for themselves through the sale of games or subscriptions.

Former devices senior vice president Dave Limp pointed out in 2019, “We don’t have to make money when we sell you the device. Instead, we make money when people actually use the device.”

But things haven’t worked out that way for Amazon’s devices division. Alexa was supposed to revolutionize our interaction with technology.

Alexa’s Skills—small mini-apps that adapt the assistant to specific scenarios—have also failed to catch on, and the interactions are ultimately limited, including asking about the weather or setting alarms. A former company employee once said, “We worried we’ve hired 10,000 people and we’ve built a smart timer.”

In the war to win this market segment—Amazon especially competed with Google—there have been significant failures. The Astro home robot, which proposed a small revolution in this field, was $1,600. However, Amazon invested $1 billion in its creation, and the company finally abandoned the product a few weeks ago.

Other products, such as the video game streaming platform Luna—a theoretically good argument to boost sales of Fire TV sticks, games, and accessories—and the Halo quantifier wristbands, were also unsuccessful, and Amazon discontinued them in May 2023.

For years, the devices division had a special rule: It didn’t matter that it lost money because the vision was long-term. With the arrival of Jassy, a leader focused on making a profit, that strategy changed. Divisions had to make money, or there would be cutbacks.

The same thing happened with products like Glow, a video calling device for kids, which also lost money on every unit sold. It was only available in the U.S., and the company discontinued it a year after its launch.

The future of Alexa speakers looks similar. The company is now working on a juiced-up version of the assistant, where generative AI models will take center stage and theoretically offer remarkable features to the service. Amazon will purportedly rebrand it as “Remarkable Alexa,” but you'll have to pay a monthly fee for its AI features.

This latest version of Alexa is expected to arrive soon, perhaps this month. Upon arrival, it could become part of the current line of Echo devices or possibly new speakers specially prepared to take advantage of it. Products like the Echo Frames smart glasses could also evolve in this direction, competing with proposals like the Meta Ray-Ban glasses.

The question, of course, is whether Amazon will get it right this time. At this time, it will undoubtedly be difficult: Monthly subscriptions to services like ChatGPT Plus or Copilot+ may be attractive for regular users of these chatbots, but they’ll have to prove to be helpful to avoid user churn. We’ll see if Amazon can make the new Alexa profitable, even if the future of its vision is complicated.

This article was written by Javier Pastor and originally published in Spanish on Xataka.

Imagen | Brandon Romanchuk

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