When Amazon launched the Echo in 2014, both the e-commerce giant and media observers set the bar very high for the smart speaker. One publication likened the voice-assisted machine to something out of Star Trek while others called it the “computer of the future” that would soon be in every home. These predictions seemed reasonable enough as Amazon sold more than 5 million Echos in the device’s first two years on the market. By 2016, the Echo and its voice assistant Alexa starred in their first Super Bowl commercial. Two years later, the company increased Alexa’s team to 10,000 employees who would often receive direct input from CEO Jeff Bezos, who considered the project a top priority.
Fast forward to 2022, however, and those high hopes for the Echo don’t appear to be around at Amazon anymore. In the first quarter of this year, the company’s “Worldwide Digital” department, which includes everything from Echo and Alexa to Prime Video, posted more than $3 billion in operating losses. According to claims from employees, Amazon could lose as much as $10 billion this year on Alexa alone. The company effectively froze hiring in the once mighty Echo unit in 2019, a year after the New York Times reported that the division lost more than $5 billion. Now Amazon is concentrating its latest round of layoffs in the Worldwide Digital department, with Echo and Alexa having lost the interest of Bezos a couple years ago.
One reason why the smart speaker failed so spectacularly is because it always needed to be more than just a bestselling product. Amazon priced the Echo at cost in the hope that consumers would use Alexa to purchase even more products from the e-commerce site. “We want to make money when people use our devices, not when they buy our devices,” said the company in an internal document. But this new type of consumer interaction never materialized, however, as Echo users primarily asked Alexa about the weather or to play music. The device also faced backlash from the public following reports that employees listened to conversations recorded through the Echo, creating a brand image that was far from the trusted shopping assistant imagined by Bezos. Although Amazon said it remains “as committed as ever to Echo and Alexa,” only time will tell how this division of the company will fare after losing so many employees and a ton of money.
Questions:
- Why has the Amazon Echo lost billions of dollars?
- Do you think Amazon can transform the Echo into a successful product? What would you change about Amazon’s approach to the Echo to make it a success?