Amazon

Alexa will talk you into loving Amazon

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Written by Kamil Arli

The Cnet Columnist  Ben Fox Rubin says that Amazon’s digital butler likely isn’t a big moneymaker yet, but analysts expect it will eventually draw in even more loyal Amazon customers.

YET BEHIND ALL THAT LUSTER IS A SOMEWHAT UNCOMFORTABLE QUESTION ABOUT AMAZON

Yet, behind all that luster is a somewhat uncomfortable question about Amazon’s 2-year-old artificial intelligence platform: Does Alexa make Amazon any money?

The answer, say several analysts: No, but it will. And when it does, it’ll be huge.

As part of Amazon’s fourth-quarter earnings report on Thursday, the company mentioned that Alexa-powered devices were Amazon’s top-selling products this holiday season. Even so, Amazon isn’t seeing any profit from Alexa or the Echo smart speaker that houses the virtual butler because the company keeps plowing massive investments into the voice software, said Michael R. Levin, co-founder of market researcher Consumer Intelligence Research Partners. And since its debut two years ago, Echo has produced only $800 million in sales, he estimated, a tiny sum for a company of Amazon’s size.

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MARK MAHANEY, AN ANALYST FOR RBC CAPITAL MARKETS 

Mark Mahaney, an analyst for RBC Capital Markets, pegged Echo revenue higher — at up to $1 billion, or roughly 10 million devices, just the latest holiday season — but still not much for Amazon.

“It’s just in the initial stages,” Levin said, “so it’s not surprising that it hasn’t had a big impact.”

However, both analysts expect Alexa to eventually become a profit powerhouse for Amazon by becoming the voice-powered operating system for our homes, cars and perhaps more. If that happens, it could give Amazon a huge advantage over tech rivals Apple and Google as well as other retailers by making it nearly effortless for you to buy practically anything from Amazon.com by just saying so out loud. That also makes it just as effortless for Amazon to turn you into a consistent, loyal shopper, even while it mines data about how you shop — showing the e-retailer new ways to sell you more TVs and household cleaners.

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ECHO SALES DONT MATTER

In that way, Echo sales don’t matter, Levin suggested. Amazon’s real goal, he said, is introducing you to Alexa and placing her in as many places in your life as possible. That’s assuming you’re not weirded out by having microphones around you that are always listening for the world “Alexa.”

For the latest quarter, Amazon said it posted $43.7 billion in revenue, up 22 percent, but slightly missing Wall Street estimates. Earnings hit $749 million, ahead of expectations. Shares were down 4 percent after hours.

Most of that revenue came from Amazon’s core dot-com business and only a tiny sliver likely stemmed from voice shopping through the Echo, since Amazon is still figuring out how to sell things through the device, said Spencer Millerberg, CEO of e-commerce data provider One Click Retail.

“It’s a great device to play your music. It’s a great device to find out the weather,” he said. “It’s just not a device where we’re ordering things yet.”

Amazon itself is secretive when it comes to sharing hard data about itself. It’s never even disclosed how many Prime members it has, so there’s not much chance of it revealing Echo sales anytime soon. Still, it’s in Amazon’s best interest to get Alexa into as many products as it can.

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“At this point it’s all about building on that momentum, building great products, delighting customers, and also building this ecosystem of developers,” Amazon finance chief Brian Olsavsky said on a call with reporters Thursday. “By those measurements, we’re really happy with the progress.”

Amazon doesn’t charge licensing fees for other companies to use Alexa, Mike George, the head of Alexa, told me at CES.

“Over time, I’m positive we’ll find many ways to monetize the various things that we do,” he said, “but right now we just want to create a great experience for customers and a great set of services for customers.”

Even if we never find out what Amazon makes from Alexa and Echo, we may know the new business is working by just looking at how much stuff Amazon is selling, said Levin.

“You’ll see it as they get bigger and bigger,” he said.

About the author

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Kamil Arli

Editor of DigitalReview.co. Digital Media Consultant

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