After sacking senior Australian executives in their hardware division last year, it’s now been revealed why, with a new report revealing that the low cost Amazon Echo was costing the company billions of dollars with the business now looking to charge for access to Alexa.
Launched in 2014 Alexa and Echo products have been widely sold at Australian CE retailers mostly at rock bottom prices as Amazon tried to lock consumers into their network.
The expectation was that the speakers would lead to sales via their online store.
Then there was the Amazon Kindles, which was used to prompt users to purchase Amazon e-books or e-book subscriptions.
But that theory hasn’t played out for Amazon’s devices business, which includes Echo’s, Kindles, Fire TV Sticks and video doorbells, with billions in losses revealed that resulted in the exit of high-profile executives in Australia including the former Intel CEO Kate Burleigh who left Intel to head Amazon’s hardware division.
Amazon has sold more than 500 million Alexa devices as of 2023. But between 2017 and 2021, the company lost more than $25 billion from its devices business, according to internal documents reviewed by the Wall Street Journal.
Under former CEO Jeff Bezos, Amazon engineers were reportedly pushed to innovate — not necessarily prioritize profits.
The Wall Street Journal reports that to defend products like Echo speakers with low returns, employees often turned to “downstream impact” — the idea that the speaker should get its financial value from how much customers will spend at Amazon after the initial purchase, not just the initial sale.
“We don’t have to make money when we sell you the device,” former Amazon devices senior vice president Dave Limp told the Journal in 2019. “Instead, we make money when people actually use the device.”
The decision to change direction came when Andy Jassy was appointed CEO.
He immediately dissolved teams working on new devices without a clear line to profitability — a.k.a. those relying on the old “downstream impact” argument.
In October 2022, Amazon axed Amazon Glow, its year-old video-calling device that was rapidly losing money.
Then came company layoffs, with a focus on the devices team.
In 2023, Amazon also killed the Halo, its wearable fitness tracker.
Jassy has reportedly been pushing the devices team to find ways to improve Echo profits through monetized subscriptions and fees.
The team has been working on “Remarkable Alexa,” a more advanced version of Alexa, according to Business Insider. And it is running out the clock to present new technology to wow customers and boost profits.
“The technology isn’t there, but they have a deadline,” a person who worked on the Alexa team told the Journal.
