It turns out that Amazon's device business has lost at least 4 trillion yen, and plans to make money from Alexa collapse
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The Echo series, a smart speaker equipped with Amazon's voice assistant Alexa, has become one of the best-selling Amazon devices of all time , thanks to its affordable price and wide range of functions. However, Amazon's plan to make money from Alexa, which has spread to homes around the world, has not worked out, and internal documents have revealed that the company's device business is bleeding huge losses, according to The Wall Street Journal (WSJ).
Alexa Is in Millions of Households—and Amazon Is Losing Billions
https://www.wsj.com/tech/amazon-alexa-devices-echo-losses-strategy-25f2581a
According to internal documents obtained by the WSJ, Amazon's device business, which includes the Echo and Kindle, lost more than $25 billion (about 3.917 trillion yen) between 2017 and 2021.
This means that the classic revenue model of selling razors at low prices and making a profit on replacement blades has failed, the WSJ points out.
In fact, contrary to expectations that users would use Alexa to do a ton of Amazon shopping, research has shown that most Echo users only use the free features like checking the weather and setting alarms, which Amazon employees have called a 'huge fail.'
Amazon Alexa is a 'huge failure,' employees say, with losses running at 1.4 trillion yen per year - GIGAZINE
The reason Amazon continued to make huge losses is said to be because the company was hiding its losses using a metric called 'downstream impact (DSI),' which determines the value of a product or service based on how much customers who buy products on Amazon will then pay within the Amazon ecosystem.
DSI certainly works for some products: Kindle users are more likely to buy e-books on their Kindle, and advertising on Amazon Fire TV certainly brings in revenue for Amazon. It also turns out that most people who buy Amazon's Ring smart camera doorbell also buy a security subscription.
But with the Echo, the idea of DSI has completely fallen apart, insiders said.
The failure of the smart speaker was one of the biggest miscalculations of founder Jeff Bezos. In 2021, CEO Andy Jassy, who succeeded Bezos as head of Amazon, is trying to get the company back on track, and it is expected that a paid version of Alexa will be launched as early as July 2024.
Possibility of Amazon redesigning its AI assistant 'Alexa' to offer it as a subscription-based service - GIGAZINE
But people familiar with the Alexa paid effort say even some of the engineers working on the project are concerned the venture may not work.
'Back then, you didn't launch a product without planning for how you were going to monetize it,' a longtime device industry executive told the WSJ. 'You just had to get the device in people's homes and you were successful. The idea was that you could innovate and make money later.'
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