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Amazon Learns a New Skill: Making Money From Alexa

December 21, 2019

For most of Alexa’s five years in existence, Amazon has focused on making its voice assistant as ubiquitous as possible, putting it in everything from microwaves to wearable rings to its growing family of Echo devices. Now Amazon has a new focus for Alexa: making money from it.

 

The company is exploring how it can profit from premium content on Alexa, such as video, music, and news, according to two people familiar with the matter. Amazon could take a cut of subscription and ad revenue from such content, the people said. Meanwhile, Amazon is keeping a closer eye on costs at the large organization responsible for its voice assistant. After several years of rapid growth saw the unit balloon to more than 10,000 people, the group’s headcount has stopped swelling, said three current or former employees. 

 

Until now, the priority for many people in the unit was proliferation—more device sales, more partnerships, and more “skills,” Amazon’s name for voice apps. But Amazon has told employees that next year it will begin assessing the success of Alexa teams partly based on “engagement” metrics that reflect customer usage of the assistant, one of the people said.

 

The changes in Amazon’s focus come as the market for smart speakers such as Echo is growing more crowded. In the third quarter, Amazon accounted for about 37% of shipments in the category, while Google, Alibaba, Baidu, and Xiaomi each had between 12% and roughly 14% of the market, according to research firm Canalys.

 

Keeping people hooked on Alexa is important because if a customer unplugs their Echo device and puts it in a closet, Amazon has little chance of gaining that user back. And since Amazon makes, at best, a small profit on sales of the actual devices, it needs to find ways to keep users engaged and get them to pay for services the company can take a cut of.  

 

In one small example of those money-making efforts, Amazon last week began selling a feature that allows Alexa to speak in the voice of actor Samuel L. Jackson (the company hired him to do voice work). Amazon is selling the feature for the introductory price of 99 cents, but that will eventually rise to $4.99. Amazon plans to sell other celebrity Alexa voices as well.

 

Judged by Amazon’s initial goal of ubiquity, Alexa is an unqualified success. Its Echo devices established a new category of hardware—smart speakers—and inspired imitations by Google, Apple, and others. So far, the company says, there have been 100 million Alexa-enabled devices sold, a figure that includes third-party hardware.

 

Alexa is now in more than 85,000 smart home devices, in addition to Amazon’s own speakers. Developers have created more than 100,000 Alexa skills so users can do things like play games or listen to relaxing sounds as they sleep.

 

But Alexa hasn’t transformed the technology industry in the way many predicted it would, as The Information has previously reported. Voice shopping, which Amazon once promoted as a use for Alexa, hasn’t taken off. Instead, people mostly still use the devices to play music, announce the weather, or set timers.

 

In an interview, Rohit Prasad, vice president and head scientist for Alexa, said customers interact with Alexa “billions” of times each week. Asked about the company’s plans to measure its progress based on how customers engage with Alexa, he said, “Our thesis has never changed about Alexa.” However, he acknowledged that engagement is an important way to judge Alexa devices. 

 

“Of course you start with launching a product customers would love, and we have that validation. And one key indicator of success...is how often they use the device, or the AI service on other devices,” said Prasad, adding: “It has to be very useful.”

 

The company has encouraged developers to design apps for Alexa that include “in-skill purchases”—opportunities to pay, say, $2 to get a new level of an Alexa game. Amazon takes a 30% cut of any revenue generated by skills.

 

So far, it hasn’t made much progress in that regard. Last year, Alexa skills brought in revenue for Amazon in the low hundreds of thousands of dollars, according to two people familiar with the matter. The company had internally set a goal of bringing in $5 million from skills last year, one of the people said.

 

Amazon has done slightly better this year, bringing in about $1.4 million in revenue from Alexa skills for the first ten months of the year, though it still fell short of its $5.5 million target for the same period, this person said.

 

Asked about the revenue from skills, Prasad said he wasn’t the best person to answer the question, adding, “This is early days and what we’re focused on is to make skills better.” He pointed to Amazon’s announcement in September that there are “billions of dollars flowing through the Alexa economy.”

 

Within Amazon, the company is batting around various ideas to increase revenues from its devices, including some that take advantage of its expanding line of Echo Show products, which have screens. Amazon could nudge users toward skills they may find more helpful and premium content, the two people familiar with the matter said. While more specific parts of its plans couldn't be learned, the company could attempt to take a cut from subscription video services that Echo Show users sign up for through the devices.

 

Another idea the company has discussed is partnering with The Wall Street Journal and The New York Times to share in the revenue from subscriptions purchased using Alexa, one of those people said. A person close to the Journal said Amazon has not approached it with such a proposal.

 

Amazon recently held talks with Spotify about sharing in the advertising revenue from Spotify’s free, advertising-supported music service when it is streamed through Alexa devices, two people familiar with the matter said. One of those people said part of Amazon’s pitch to Spotify was that it could take over the selling of ad inventory on the service and better target ads to users. The talks didn’t move forward, according to the other person.

 

There are already an abundance of ways to subscribe to news and entertainment online, which could limit Amazon’s opportunity in those areas with Alexa. The company’s moves are a nod toward the success of Apple, which has built an enormous services business in recent years through its App Store and newer services for distributing news, video, and games.

 

A Spotify spokesperson didn’t respond to requests for comment. An Amazon spokesman declined to comment about the internal discussions and Spotify talks. 

 

In an interview, Prasad said that Amazon has found its Alexa devices with screens can be useful for shopping—for example, if someone is looking for a shirt rather than ordering batteries. He said devices with screens are also “very engaging” to customers for watching videos, checking the news, or reading recipes.

 

Organizational Changes

In Alexa’s early years, one of the most prominent signs of its privileged status inside Amazon was that its managers were allowed to poach talent from other parts of the company. As the Alexa group’s headcount soared, it lured many of the best and brightest at the company to work on a project that CEO Jeff Bezos routinely singled out in public as one of the company’s most ambitious experiments.

 

Now the Alexa team is no longer allowed to freely raid other groups at Amazon for recruits, said two people familiar with the matter. Meanwhile, last year, Tom Taylor, Amazon’s senior vice president for Alexa, told Alexa employees that the headcount in the group would no longer grow as much as it had in the past, according to two people familiar with the matter.

 

Those changes have coincided with leadership turnover inside the Alexa organization over the last six months. Al Lindsay, an early Alexa team member who spent about 15 years at Amazon and was most recently a vice president, retired in July. Pete Thomson, a vice president for Alexa voice services, departed to become chief product officer at eBay in July. And Priya Abani, previously a general manager for Alexa, became CEO of the medical device company AliveCor the same month.

 

Asked about the moves to keep headcount relatively flat after years of growth, Prasad said the company has “a very long-term focus on Alexa.” He added that because the unit has about 10,000 people, “even a small increment, as a percentage, is a massive number of people.”

 

An Amazon spokesman said that the company’s investments in the Alexa business aren’t slowing down and that it has more than 1,500 job postings for the department.

 

“Again, I don’t view anything as a slowdown for our customers right now,” Prasad said. “Frugality is one of our leadership principles....We’ll put [in] the right set of teams and the right size for what we want to deliver for customers.”

 

 

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