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Amazon Alexa may lose $10 billion this year, according to one analyst.

Amazon Alexa may lose $10 billion this year, according to one analyst.

Introduction

Alexa is a “colossal failure,” on pace to lose $10 billion this year. But Amazon’s cloud business is booming. The popular Amazon Alexa voice assistant is on track to cost Amazon as much as $10 billion this year, according to a new report released Tuesday by Consumer Intelligence Research Partners (CIRP). Even though the company sold more than 100 million of its Echo smart speakers featuring the Alexa voice assistant, revenue from selling the hardware is failing to make up for the costs of giving away that hardware and running its server farms to host the service, according to CIRP partner Josh Lowitz . “Amazon sells hardware at near-cost or below cost to encourage adoption of its services,” says Lowitz in CIRP’s earnings report for Amazon’s fourth quarter.”We believe Echo [devices], Fire TV, and Kindle represent a $4 billion annualized revenue opportunity for Amazon but cost around $16 billion in operating expenses.”

“Alexa is a colossal failure, as is the Echo,” says one industry analyst in a new report.

Amazon’s Alexa voice assistant is on pace to lose $10 billion this year, according to a new report from Bernstein Research.

The analyst firm says that while the Echo smart speaker has been a popular product for Amazon, it’s also a “colossal failure” because of its cost—which is why Bernstein expects the company to sell around 20 million units in 2019 and 2020 at best, compared with expectations of 50 million units sold last year (in 2018).

But Amazon’s cloud business is booming.

Amazon Web Services (AWS), the cloud computing arm of Amazon, is a fast-growing business for the company. It’s also a profit center—and it’s on pace to lose $10 billion this year.

One reason for this is that AWS has grown so fast that it now accounts for about half of all new net income generated by Amazon’s main businesses, according to an analysis conducted by Bernstein Research analysts Andrew Rassweiler and Matthew Fassett.

The popular Amazon Alexa voice assistant is on track to cost Amazon as much as $10 billion this year, according to a new report released Tuesday by Consumer Intelligence Research Partners.

Amazon is losing money on the Alexa platform by giving away Alexa devices for free.

The popular Amazon Alexa voice assistant is on track to cost Amazon as much as $10 billion this year, according to a new report released Tuesday by Consumer Intelligence Research Partners.

Amazon has long argued that it makes up for its losses through sales of content and services such as e-books, Prime Video streaming and cloud computing services. But CIRP said the company’s “colossal failure” would continue until it brought its prices down or changed its business model — either by lowering the price of an Echo device or offering more services through them in order to make up for revenue lost from selling hardware and software at zero profit margin (or even negative profit margin).

Even though the company sold more than 100 million of its Echo smart speakers featuring the Alexa voice assistant, revenue from selling the hardware is failing to make up for the costs of giving away that hardware and running its server farms to host the service, according to CIRP partner Josh Lowitz.

Alexa is a part of Amazon’s cloud business and, as such, the company is giving away the hardware to encourage adoption of its services. But selling that hardware doesn’t make up for the costs of giving away that hardware and running its server farms to host the service. CIRP partner Josh Lowitz says: “It’s not clear whether or not they can make more money by selling more devices or just increasing their advertising spend.”

The key point here is that even though Amazon sold more than 100 million Echo speakers featuring Alexa’s voice assistant in 2017—and those devices have been wildly popular since launch—the company still hasn’t made enough money from them yet to justify their $180 billion market cap (as of this writing). As it stands now, Alexa seems poised to lose $10 billion this year alone—and perhaps even more than that if trends continue as they have been over recent months!

See Also

“Amazon sells hardware at near-cost or below cost to encourage adoption of its services,” says Lowitz in CIRP’s earnings report for Amazon’s fourth quarter. “We believe Echo [devices], Fire TV, and Kindle represent a $4 billion annualized revenue opportunity for Amazon but cost around $16 billion in operating expenses.”

According to Lowitz, Amazon is losing money on the hardware, but it’s worth it to get people hooked on Alexa. “Amazon sells hardware at near-cost or below cost to encourage adoption of its services,” he says in the earnings report for Amazon’s fourth quarter. “We believe Echo [devices], Fire TV and Kindle represent a $4 billion annualized revenue opportunity for Amazon but cost around $16 billion in operating expenses.”

The company has been aggressively pushing its streaming devices since their launch last year thanks to increased competition from Apple TV and Google Chromecast—but with no signs that consumers are buying into these products beyond early adopters (and even then), there may be more pressure than ever before on Jeff Bezos’ product line.

This is because Amazon sells its Echo Dot smart speaker for just $39, but that it costs about $79 to produce and ship each unit, according to CIRP.

The Amazon Echo is a smart speaker that incorporates Alexa, the name for Amazon’s virtual assistant. This can play music, order products and services, and control smart home devices like lights or heaters.

The device costs around $100 ($39 for the Echo Dot) but it’s not easy to find one in stock at brick-and-mortar stores like Best Buy because they don’t sell it directly; you have to get them through third parties like Target or Walmart instead. In fact, those retailers are struggling with their own sales figures: CIRP estimates that sales have fallen by almost half over last year’s levels (PDF).

Conclusion

This is a problem for Amazon, but I think it’s one that the company can easily solve. The key is to make Alexa much more useful and useful in more places. The company already has plans for an Alexa app for mobile devices, so that should help expand its reach even further.

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