Amazon Alexa is a ruinous business: layoffs and million-dollar losses

Alexa is probably the most popular voice assistant on the planet. However, its popularity is not translating into economic benefits for Amazon, but rather the opposite: the company founded by Jeff Bezos is carrying out the biggest layoffs in the company’s history right now, with a plan to eliminate about 10,000 jobs. One of the most affected areas is the voice assistant unit Amazon Alexa, which is apparently falling out of favor at the e-commerce giant.

That is what a Business Insider report has revealed, detailing “the fast fall of voice assistant and Amazon’s largest hardware division”.

Alexa is a disaster: Amazon loses 10,000 million a year for the division dedicated to this assistant REUTERS/Rick Wilking

Alexa is a disaster: Amazon loses 10,000 million a year for the division dedicated to this assistant REUTERS/Rick Wilking

Alexa has been around for 10 years and has been a pioneering voice assistant that was widely copied by Google and Apple. Nevertheless, Alexa never managed to create a continuous income stream, so she doesn’t really make any money. The Alexa division is part of the “Worldwide Digital” group along with Amazon Prime Video, and Business Insider says that division lost $3 billion in the first quarter of 2022 alone, with “the vast majority” of the losses attributed to Alexa. . That’s apparently double the losses of any other division, and the report says the hardware team is on track to lose. 10 billion dollars this year. It seems that Amazon is tired of burning all that money.

A division in crisis

To carry out the report, we spoke with “a dozen current and former employees of the company’s hardware team”, which described “a division in crisis”. Almost all plans to monetize Alexa have failed, with a former employee calling Alexa “a colossal failure of the imagination”and “a missed opportunity.”

This month’s layoffs are the end result of years of trying to turn things around. Alexa was given a long run at the company, when she was reportedly the “pet project” of former CEO Jeff Bezos. In 2019, a crisis meeting of all the company’s managers took place to find a way to monetize the assistant, but it was unsuccessful. At the end of 2019, Alexa saw a hiring freeze, and Bezos began to lose interest in the project around 2020. Of course, Amazon now has a whole new CEO, Andy Jassy, ​​who apparently isn’t all that interested in protecting Alexa.

Amazon confirmed last Wednesday in a public memo that the company has begun layoffs and “consolidations” at its division. The news came via senior vice president of Devices and Services Dave Limp, whose industry includes the popular Alexa virtual assistant and the not-so-popular Astro home robot, which launched last year.

“As you know, we continue to face an unusual and uncertain macroeconomic environment. In light of this, we have been working over the past several months to further prioritize what matters most to our customers and the business. Following a series of extensive reviews, we have recently decided to consolidate some equipment and programs. One of the consequences of these decisions is that some functions will no longer be necessary”wrote.

Products sold at cost price

The report says that although Alexa’s Echo line is among the “Amazon best sellers, most devices sold at cost price.” An internal document described the business model by saying: “We want to make money when people use our devices, not when they buy them.”

However, that plan never came to fruition. It’s not like Alexa plays ad breaks after you use it, so the hope was that people would buy things on Amazon through their voice. Not many people want to trust an AI to spend their money or buy an item without seeing a photo or reading reviews. The report says that in the fourth year of the Alexa experiment, “Alexa was getting a billion interactions a week, but most of those conversations were trivial commands to play music or ask for the weather.” Those questions are not monetizable.

Amazon also tried to partner with companies for Alexa skills, so a voice command could buy a Domino’s pizza or call an Uber, and Amazon could get a commission. The report says: “For 2020, the team stopped posting sales targets due to lack of usage”. The team also tried to paint Alexa as a halo product with users who are more likely to spend on Amazon, even if they’re not shopping by voice, but studies of that theory found that the “financial contribution” of those users “to often fell short of expectations.

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