Celebrating 10 Years of Alexa: Amazon's Next Steps with Generative AI

Amazon has faced significant financial losses with its Echo smart speakers—a reality that's been apparent since the launch of Alexa. This situation exemplifies a loss leader strategy that only a massive corporation like Amazon can sustain over an extended period.

Selling devices at a loss can be a strategic move. Consider how printers and razors attract customers with low-priced units while profiting on ongoing purchases of ink cartridges and blades.

From a market saturation standpoint, Amazon's approach has proven effective. Earlier this year, founder Jeff Bezos announced that Alexa now resides in 100 million homes across 400 million devices.

However, the financial landscape tells a different story. A recent report from The Wall Street Journal reveals that Amazon's devices division suffered a staggering $25 billion loss between 2017 and 2021, with the Alexa division alone losing $10 billion in 2022.

At some point, a loss leader transitions into simply a loss. This harsh reality struck at the close of 2023 when Amazon laid off hundreds from the Alexa unit. Such massive annual losses, in conjunction with a challenging macroeconomic environment, present an untenable challenge, even for a company generating over $600 billion in annual revenue.

Alexa isn't the only intelligent assistant that has faced challenges recently. Offerings like Bixby and Cortana have disappeared altogether, and consumer enthusiasm for Google Assistant and Siri has diminished as well.

Nonetheless, both Google and Apple have shown they're not ready to concede defeat. Siri took the spotlight at WWDC in June, with Apple injecting new energy into the brand through its Apple Intelligence initiative. Similarly, Google confirmed just this week that Assistant will receive an upgrade powered by Gemini for enhanced capabilities in the home.

According to a 2021 Bloomberg report, despite Alexa's widespread use, most queries revolve around just three tasks: playing music, controlling lights, and setting timers. A former senior Amazon employee, speaking to the Wall Street Journal, candidly stated, “We worried we’ve hired 10,000 people and we’ve built a smart timer.” This sharp critique underscores the challenges that Alexa has faced throughout its decade-long journey.

Although Amazon has continued to release new Echo devices—including an upgraded Spot model announced last month—the momentum has slowed. It's likely that many internal discussions have taken place at Amazon regarding its strategy. Like Google and Apple, the company views generative AI as key to revitalizing Alexa.

The "10,000-person timer problem" illustrates how the devices have often fallen short of user expectations. Encouraging third-party developers to create skills has been part of Amazon’s broader effort to enhance Alexa's usability, alongside attempts to refine the assistant’s conversational abilities.

Generative AI presents a potential turning point. Technologies like ChatGPT exhibit remarkable conversational capabilities. Late last year, Amazon unveiled a preview of its generative AI-powered vision for Alexa.

“We’ve always considered Alexa as an evolving service and have been enhancing it since its launch in 2014,” the company noted. “Our long-standing goal is to make interactions with Alexa feel as natural as conversing with another person. Thanks to the rapid advancement of generative AI, that vision is now achievable.”

November will mark ten years since the introduction of Alexa and Echo, positioning the company perfectly to showcase its ambitions for the next decade. The future of the assistant will significantly hinge on developments in the coming months.