Alexa, how did Amazon’s voice assistant rack up a $10bn loss?

Intrigued by an Ars Technica post about Amazon’s Alexa that suggested all was not well in the tech company’s division that looks after its smart home devices, I went rooting in a drawer where the Echo Dot I bought years ago had been gathering dust. Having found it, and set it up to join the upgraded wifi network that hadn’t existed when I first got it, I asked it a question: “Alexa, why are you such a loss-maker?” To which she calmly replied: “This might answer your question: mustard gas, also known as Lost, is manufactured by the United States.” At which point, I solemnly thanked her, pulled the power cable and returned her to the drawer, where she will continue to gather dust until I can think of an ecologically responsible way of recycling her.

I bought the device on 5 December 2016 (on the basis that one shouldn’t pontificate on kit that one hasn’t purchased oneself) and wrote about it in January 2017. Rereading that column now reveals that I thought the device’s arrival represented a significant moment in the evolution of surveillance capitalism. Why? Because its target market was the home, which was, as the veteran tech analyst Ben Thompson observed at the time, “the one place in the entire world where smartphones were not necessarily the most convenient device, or touch the easiest input method: more often than not your smartphone is charging and talking to a device doesn’t carry the social baggage it might elsewhere”.

Initially, it looked like a shrewd beachhead for the invasion of our homes. Alexa became a kind of hub for other IoT (internet of things) gizmos – lights, thermostats, heaters, doorbells and so on. Clearly, other tech giants also thought it was significant – Apple, Google and Facebook raced to get their home hubs over our thresholds. And people seemed to like using Alexa: children loved conning her into saying stupid things, while their elders used her to set timers for cooking, compiling shopping lists, playing music, requesting definitions of words or information from Wikipedia and so on. But since it was of no real use to me, I switched it off and put it away, assuming that Amazon’s big bet had really paid off.

How wrong can you be? “Amazon Alexa is a ‘colossal failure’,” ran Ars Technica’s headline, “on pace to lose $10bn this year.” It was picking up on a long piece by Business Insider reporting that during the first quarter of this year Amazon’s worldwide digital unit, which includes everything from the Echo smart speakers and Alexa voice technology to the Prime Video streaming service, had an operating loss of more than $3bn, the “vast majority” of which was accounted for by Alexa and related devices and was the largest among all of Amazon’s business units.

Alexa was getting a billion interactions a week, but most of these ‘conversations’ were like mine: trivial and inconsequential

So what went wrong? Basically, the business model underpinning Alexa failed to deliver. The company thought that the Echo device (which apparently was sold at cost) would lead people to buy more stuff on Amazon. As an internal report cited by Business Insider put it: “We want to make money when people use our devices, not when they buy our devices.” And when more than 5m of the devices were sold in its first two years, that must have looked like a plausible idea, especially when it transpired Alexa was getting a billion interactions a week!

Sadly, it seems that most of those “conversations” with the device were rather like mine had been: trivial and inconsequential, asking it to play some Bach, for example, to provide a weather forecast, set a timer or check the date of Easter Sunday next year. Amazon made no money from interactions such as these, save perhaps for a minuscule share of the royalty paid to a record label for the Bach. And, as time went on, the “smart assistants” offered by the other tech giants muscled in on the market. In the US, according to Business Insider, Google Assistant currently leads with 81.5 million users, followed by Apple Siri’s 77.6 million tally. Alexa, with 71.6 million users, now occupies third place but even the thought that the other two are also losing money on their gizmos will not provide much consolation for the Alexa team as its unit is slimmed down.

Amazon, which went on a hiring spree during the pandemic, is now, like all the big tech outfits, shedding jobs on an industrial scale; beginning this month, it plans to lay off 10,000 workers, quite a few of whom will probably be in its hardware division. So maybe the industry is about to discover that invasions – of homes as well as countries – don’t always work out as well as you hoped. And if I hadn’t put Alexa back in her drawer, I would have asked her for the Wikipedia entry on Napoleon’s retreat from Moscow.