Amazon (AMZN) – Get a free report had a grand plan to infiltrate every home in America – possibly the world – using his devices to put a store in everyone’s living room.
It was a simple idea, whereby the company would create easy-to-use voice devices that would work with a powerful artificial intelligence system that would act as a low-cost virtual assistant.
Everyone would buy Echo devices because they were cheap and useful. Amazon used its scale to keep prices cheap, and Echo dots and other Echo speakers became commonplace in homes across America.
The Echo-purchase part of the plan worked. The problem is that Alexa, the AI that powers Echo devices, doesn’t work very well.
It’s a great kitchen timer and it can tell you the weather, play music from your library, and maybe find a podcast. But that’s about the end of its usefulness.
For consumers, Alexa may not be the robot assistant we’ve all hoped for, but it’s good value for money. And the things he does well, well, he does them really well.
Echo devices are useful as smart speakers and kitchen helpers. What they aren’t – and this is a big deal for Amazon – are stores that are in our living rooms, bedrooms and kitchens.
Amazon wants Echo/Alexa to increase your purchases on Amazon. That didn’t happen, and maybe it’s time for the online retailer to give up on that dream.
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Amazon Echo is very limited
Echo launched in 2014 with a lot of promise. This was when we still believed that Apple (AAPL) – Get a free report The digital assistant Siri could become a useful product, even after three years of absence.
Amazon’s devices, some of which sold for less than $50, were an inexpensive way for everyone to get in on the AI/digital assistant game while adding a smart speaker to their home (which is actually useful).
In June 2021, more than two-thirds (69%) of smart speakers used in the United States were Amazon’s Echo brand, with Google (GOOGL) – Get a free report Home at around 25% and Apple at 5%, according to Consumer Intelligence Research Partners via a Retailwire report. More than 50 million American households had at least one Amazon Echo device. More than 20 million had multiple units.
That’s amazing penetration – but consumers haven’t used the devices the way Amazon intended. Alexa works for simple tasks, but using it to order products from Amazon is a more complicated process than just going to your phone or computer to place the order.
Yes, you can say “Alexa, order me paper towels”, and you can, a day or two later, have paper towels delivered to you, but what brand? What size package?
Alexa tried to fix a problem that phones were better suited to, which has been evident for some time. Yet Amazon continues to lose billions of dollars every year chasing Alexa’s dream.
Amazon Echo is a very good smart speaker
While Amazon’s strategy of getting devices into people’s hands first and then making money buying more stuff made sense, it just didn’t work.
“Alexa, which sells at cost, continues to be exploited for trivial tasks such as playing music or checking the weather and has not become the basic home shopping tool as hoped to support its monetization,” wrote Retailwire’s Tom Ryan.
“Continued inhibitors to voice shopping are the lack of screens on most devices and concerns over payment security and privacy.”
Basically, the company has created a device that people love because of its ability to provide useful, but very basic functions. It’s good for consumers – especially with Amazon selling them at very low prices – but it’s very difficult for the online retailer to justify billions of dollars in losses.
Echo devices may well sell for higher prices without the promise that AI delivers much more than what people actually use Alexa for. In theory, this could stem Amazon’s losses as development costs could be reduced while each Echo could be sold for a profit. But they will not increase the company’s sales.
Maybe voice assistants are a dud
When was the last time you used Apple’s Siri for anything beyond a very basic task (or even nothing at all)? Do you even remember the name of Microsoft (MSFT) – Get a free report voice assistant (Cortana) or that of Samsung (Sam)?
And are you familiar enough to know that any of them are fake? Samsung’s voice assistant is actually called Bixby.
Voice assistants offered so much promise, but at best they’re mildly helpful and at worst they’re handwriting recognition on the Apple Newton.
“In theory, Amazon should be making money from subscription services like Audible and music streaming services, but adoption has been relatively low,” GlobalData chief executive Neil Saunders commented to about the history of Retailwire.
“Another possibility is to use Alexa to advertise, but that’s a virtual non-starter because people’s tolerance to Alexa parrot ads is extremely low. Then there’s voice shopping, which doesn’t hasn’t taken off as some predicted – mainly because there’s a lot more friction than traditional online shopping.”
Alexa has become mostly a novelty, and with Amazon laying off people, it might be wise to focus on achieving balance in the device division while waiting for someone else to develop a useful AI voice assistant.
When the technology is perfected (which may take a few weeks before sentient robots rise up to rid themselves of their human oppressors), the retail giant would be in a good position to acquire or license it.
For now, we’re just not going to shop with Alexa.
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