Why is Alexa EVERYWHERE?
Have you noticed how Amazon’s Alexa seems to show up in a conversation every week? That is, if you’re not talking to Alexa from your own kitchen… or car… or computer… or earphones…or glasses… or watch… Yes, the tech giant’s digital assistant’s presence appears to grow by the minute as the company continues to launch new products over and over that integrate with her.² Even worse, every day that I check the Amazon website, there’s some discount/promotion for some Alexa product, and Jeff Bezos himself admitted during the latest Congressional hearings that they sell these products with a negative margin many times.³ So what’s the catch here? Why is Amazon employing this aggressive strategy?
Hypothesis #1: Data collection
Naturally, the first reason that comes to mind is data collection. Amazon cares about two specific types of data here that are easily collected through Alexa:
- Automatic Speech Recognition: more people using Alexa means more training data for the voice recognition algorithm, which allows for the assistant to get better and better over time⁴
- Consumer data: the more you use Alexa, the more Amazon will understand your behavior and your needs. This way their product recommendations will continue to improve as the algorithm “understands” you. A hypothetical example would be that if you ask your Echo device a lot of questions about how to raise newborn babies, Amazon just might start suggesting you diapers and toys, because now it “knows” that fact about you
As it seems, Amazon is paying the premium of not getting any profit out of the Alexa products as a way to buy your data! And I don’t know about you, but Amazon knows me pretty damn well at this point and recommends things to me that I want before I even know that I want them.
“But wait Roberto, something’s missing, why are the other companies not doing the same aggressive strategy?” That’s true, Microsoft has Cortana, Apple has Siri, Google has its assistant; and all of them would highly benefit from getting more and more data. So why is competition acting differently?
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Hypothesis #2: Lack of Operating System
This is where all those other companies historically have a comparative advantage in relation to Amazon. All of them have some kind of operating system, be it mobile or computer, and all of them have their digital assistants embedded in them. These OSs serve as a touch point with their consumers, that is, the company is always with the consumer everywhere he or she goes.
Let’s illustrate this with an example: say you own an iPhone. If you’re like me, you probably take it with you literally everywhere you go: office, cafe, dinner with friends, private time in the bathroom, … Apple has a connection with you at all those times and is able to collect data about apps you use, their OS performance, how long you use your phone, and so and so on. And it is also a communications tool from their side: they can offer new OSs, suggest new applications in the app store, Siri, and other limitless possibilities. Similar things happen if you have a Macbook, a laptop with Windows 10, a Pixel phone or other paraphernalia that can be used as touch point to these companies.
Since the Fire phone was a t̵r̵e̵m̵e̵n̵d̵o̵u̵s̵ ̵f̵a̵i̵l̵u̵r̵e̵ flop a few years ago⁵, Amazon needs a more powerful way of collecting data from and staying as close as possible to their users or it will be left behind by competitors. And let’s be honest, trying to design a phone or a computer to compete with the big guys is somewhat of a complicated endeavor.
“Ok, ok, that seems like it could be right, but is that all?” I’m glad you asked.
Hypothesis #3: Prime subscription business model
This is where the whole thing gets really interesting. If we analyze Amazon’s revenues, the vast majority, 75%, comes from sales (online, physical and third parties). How did the company get to $212.2bn revenue in sales per year?⁶ Well, although the title of this section might be a big spoiler, let’s start taking a look at its user base. Amazon has an astounding 150 million Prime members as of the end of 2019 (I can only imagine how much this number grew with coronavirus)⁷. For those who are not familiar with it, Prime is a subscription service in which the customer pays an annual fee ($119) to get free 1 day delivery for most of the products bought on their website (and a lot of other perks). “Ok, so what?”
Not only that is an incredibly high source of revenue (subscription revenues accounted for $19.21bn, 7% of last year’s revenue), but the reason why Prime is so important becomes clear when we analyze a few of the top factors considered by consumers when selecting where to shop online: free shipping, price, selection and speed of delivery.⁸ Prime plays an integral role in fulfilling the customers’ most important selection criteria. It’s no surprise that it got so successful. In fact, it seems that Prime members spend almost twice as much as regular Amazon shoppers per year.
“Ok, Prime is important, now how does that connect to Alexa again?”
Wrapping up: the integrated environment
Finally, let’s tie everything together. As I wrote this, I kept trying to think of a single word to describe these benefits from the subscription program. This word is seamless. Put simply, the tech giant is simply trying to make the customer experience as easy and convenient as possible.
If you are not a Prime member, within a few days Alexa will start telling you about all these powerful features that are available for members: voice shopping, exclusive deals, Prime Music, …, and the list goes on.⁹ At the end of the day, you can listen to music, watch some videos, cook without leaving your bed (although I don’t recommend cooking from the bed). But you can also continue buying things that the company will suggest you, it’s only one voice command away.
Before you know it, she will be more and more present in your life, contributing to this positive feedback loop that results in her increasing the share of participation in your life over time, resulting in this big seamless experience.
Now you tell me, what are your thoughts? Did I miss any important point? How do you think Alexa will be part of our life in a few years?
Who are you and why are you writing about this?
My name is Roberto Bandeira de Mello, ̶a̶̵̶k̶̵̶a̶̵̶ ̶̵̶B̶̵̶e̶̵̶t̶̵̶i̶̵̶n̶̵̶h̶̵̶o̶̵̶, Brazilian currently doing my MBA in Stanford, nice to e-meet you! I’ve been meaning to start writing for a while, as a way of practicing knowledge, exercising creativity and, who knows, maybe help democratize some information and start some debates that I think are important for our society. If you’re unsure, let me be very clear that my goal here is not to be an absolute source of truth, but rather give my opinion ̶(̶o̶r̶ ̶l̶a̶c̶k̶ ̶o̶f̶)̶ on all these subjects and get the world talking about it.
I wanna say I’ll write something every week, but the truth is I’ll probably be doing this once every two weeks or a month ̶(̶o̶r̶ ̶m̶a̶y̶b̶e̶ ̶n̶e̶v̶e̶r̶ ̶a̶g̶a̶i̶n̶ ̶l̶o̶l̶)̶. You’ll probably see me talking about technology, entrepreneurship, capitalism and my ̶r̶a̶n̶d̶o̶m̶ ̶s̶t̶o̶r̶i̶e̶s̶ adventures in this life.
¹ Bonnington, Christina. “Alexa Is Ready To Leave Home.” Slate, Jan 06, 2018. https://slate.com/technology/2018/01/amazon-alexa-is-coming-to-headphones-and-wearables.html
² “Amazon Echo & Alexa Devices.” https://www.amazon.com/smart-home-devices/b/?ie=UTF8&node=9818047011
³ Hollister, Sean. “Amazon doesn’t sell Echo speakers at a loss, says Bezos — unless they’re on sale.” The Verge, Jul 29, 2020. https://www.theverge.com/2020/7/29/21347121/amazon-echo-speaker-price-undercut-rivals-loss-sale-antitrust-hearing
⁴ Hardesty, Larry. “The 16 Alexa-related papers at this year’s Interspeech.” Sep 10, 2019. https://www.amazon.science/blog/the-16-alexa-related-papers-at-this-years-interspeech
⁵ MANGALINDAN, JP. “Why Amazon’s Fire phone failed.” Fortune, Sep 29, 2014. https://fortune.com/2014/09/29/why-amazons-fire-phone-failed/
⁶ Clement, J. “Global net revenue of Amazon 2014–2019, by product group”, May 25, 2020. https://www.statista.com/statistics/672747/amazons-consolidated-net-revenue-by-segment/
⁷ Protalinski, Emil. “Amazon reports $87.4 billion in Q4 2019 revenue: AWS up 34%, subscriptions up 32%, and ‘other’ up 41%.” VentureBeat, Jan 30, 2020. https://venturebeat.com/2020/01/30/amazon-earnings-q4-2019/
⁸ Compiled from RBC survey, Sep 2019
⁹ “10 ways Alexa makes life easier for Prime members”. https://www.amazon.com/primeinsider/tips/alexa-tips.html
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