Amazon: ‘Alexa, can you tell me where the money went?’

In Andy Jassy’s first letter to shareholders as chief executive of ecommerce giant Amazon he pointed out how far the Echo smart speaker and Alexa personal assistant had come. He left out how customers use these. Many Echo owners still rely on their speakers simply to play a song or set a timer. Monetising such interactions is proving difficult and worth watching ahead of full-year results.

Digital voice assistants from the likes of Apple, Amazon, Google, Microsoft and Samsung were expected to replace smartphone scrolling and tapping. Yet despite devices such as Amazon’s Echo proving popular, they have not been transformational. In the latest round of job cuts, the largest in Amazon’s history, teams working on Alexa and Echo are reported to be hit particularly hard.

Echo launched in 2014, priced at $199. Newer versions are even cheaper. The low price point means strong sales. Research by Edison found that more than a third of Americans over the age of 18 owned a smart speaker. But these sales have not resulted in high enough revenue, at least worthy of disclosure, nor do other speaker uses create more sales.

Amazon reported a near $3bn drop in year on year cash holdings in the September quarter. Over-expansion and expensive acquisitions during the pandemic have hurt just as consumers rethink purchases. Net income in the 12 months to September 30 was $11.3bn, less than half the previous year.

In addition to job cuts, Amazon must rethink its investments. Along with home security devices such as video-recording doorbell Ring and home robot Astro, Amazon has pushed to integrate its products into the home. But it is not clear that this effort is boosting group income. Prime subscribers, who pay upfront for free shipping plus other bonuses, spend more on ecommerce. Echo owners so far do not.

Improvements in voice technology, through artificial intelligence innovation, could help by making Alexa interactions feel more realistic. But speakers have had almost a decade to make their mark. Amazon’s devices should not be a priority this year.