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Amazon – a winning strategy continues with Alexa

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Amazon’s Alexa – a winning smart home device for more than just your retail needs

Since it’s founding in 1994, Amazon has taken the ecommerce world by storm growing to over $100B in sales by 2016[1]. Continuously driving towards ever-greater presence in its consumers’ lives, Amazon has developed numerous services to ensure it remains top of mind. For example, Amazon Prime, at $99/year, provides its now 54 million members[2] with unlimited free two-day shipping, streaming video service and more making it the go to online retailer.

To unlock additional revenue from its customers and remain top of mind, Amazon launched in 2014 the Echo with its AI – Alexa. The Echo combines the core components of AI and Ecommerce in an architectural innovation that delivers an all-encompassing consumer experience.

Through three key actions, Amazon has created value for its customers and captured value through an estimated 8.2M unit[3] sales of the Echo, threatening the future viability of products from such competitors as Google, Apple, and Microsoft.

  1. Echo delivers over 1000 skills with ease of consumer use

Amazon’s development of Echo began in 2011 and pushed to reduce latency beyond the industry standard while ensuring the AI was conversational and the ease of use flawless.[4] The result is a reduced latency conversing AI, which provides more than just a voice activated retail platform.

Alexa acts as the consumer’s personal assistant with over 1000 different and unique skills. Beginning with basic music and retail features, Amazon’s Echo has since added functionalities to Alexa like checking bank accounts, ordering pizza, or calling an Uber taxi by just talking to it.[5] By connecting an Amazon Prime account to the device, Alexa assists with the playing of music and the purchasing of both previously ordered products and new ones. With Amazon Prime members spending on average $1,100 per year compared to $600 per year for non-members[6], the Echo provides another great connection point for consumers to easily order their favorite products and deliver increased revenue for Amazon.

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Source[7] Source[8]

  1. Open-System Approach

In addition to providing over 1000 skills on the Echo, Amazon has developed Alexa utilizing an open-system approach. With this open-systems approach, and financial incentives for developers, Amazon’s Echo has successfully inspired thousands of developers to develop products that either integrate with Echo or utilize the Alexa technology in their own devices.[9]

One such successful integration is the recently designed LG smart refrigerator with Alexa embedded technology that allows the consumer to search recipes, add items to a shopping list[10] or order products online, all through ease of voice captured by the refrigerator’s Alexa technology.

amazon-alexa-lg-refrigerator-smart-fridgeSource[11]

Alexa has allowed Amazon to position itself as a key software player, enabling consumers to utilize the hardware they like best while still remaining a part of the Amazon ecosystem.[12] Alexa is now integrated with more than 7,000 services and products ranging from appliances and speakers to outlets and automobile infotainment systems making it the winning product for customer use.[13]

  1. Marketing Success

In addition to Amazon’s work to ensure Echo and Alexa provide a wide range of skills in the consumer’s home through its integrative software, Amazon also invested heavily in the product’s success through solid marketing. In its first ever Super Bowl commercial, Amazon demonstrated Alexa’s benefits through celebrity appearances effectively showcasing the ability to play music, answer questions, and purchase products online through voice activation. This first catchy ad has over 19M views online[14] and drove awareness of Echo for Amazon customers from around 50% to now over 80%[15] leading to increased sales and further use of the Alexa’s technology.

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Amazon Echo: #BaldwinBowl Party feat Alec Baldwin, Dan Marino, Jason Schwartzman, & Missy Elliott

Source[16] Source[17]

  1. Future Challenge

Despite Amazon’s success in this space at an estimated 8.2M Echo units sold, with a Prime membership base of 54M subscribers, there is still significant room for Echo sales to grow. However, Amazon will need to continue to push the adoption of smart home device technology. Technological fragmentation of the smart home ecosystem; consumers needing multiple networking devices, apps and more to build and run their smart home, is currently viewed as the largest barrier to mass adoption of smart home devices.[18] However, with Alexa, Amazon currently holds the competitive advantage and the valuable technology partnership and connections to resolve this fragmentation and provide the consumer with a seamless and enjoyable shopping, listening, and more experience at home and beyond.

 

[1] https://www.statista.com/topics/846/amazon/

[2] http://www.fool.com/investing/general/2016/01/26/how-many-prime-members-does-amazon-have-and-why-it.aspx

[3] http://www.fool.com/investing/2017/01/30/alexa-how-big-is-amazons-echo.aspx

[4] http://www.businessinsider.com/the-inside-story-of-how-amazon-created-echo-2016-4

[5] http://www.businessinsider.com/the-inside-story-of-how-amazon-created-echo-2016-4

[6] http://www.fool.com/investing/general/2016/01/26/how-many-prime-members-does-amazon-have-and-why-it.aspx

[7] http://www.businessinsider.com/amazon-echo-success-could-spell-big-trouble-for-google-2017-1

[8] https://www.amazon.com/Amazon-Echo-Bluetooth-Speaker-with-WiFi-Alexa/dp/B00X4WHP5E

[9] http://fortune.com/2017/01/27/apple-amazon-smart-home/

[10] http://www.retaildive.com/news/lg-introduces-smart-refrigerator-with-amazon-alexa-enabled-grocery-ordering/433366/

[11] http://www.businessinsider.com/amazon-echo-success-could-spell-big-trouble-for-google-2017-1

[12] http://www.marketwatch.com/story/amazon-is-winning-ces-without-even-showing-up-2017-01-04

[13] http://www.marketwatch.com/story/amazon-is-winning-ces-without-even-showing-up-2017-01-04

[14] https://www.youtube.com/watch?v=qTz5jAn-XX8

[15] http://www.geekwire.com/2017/8-million-people-amazon-echo-customer-awareness-increases-dramatically/

[16] https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwjAgeurh-_RAhUEKyYKHYOtCcgQjhwIBQ&url=http%3A%2F%2Fwww.tvcommercialspots.com%2Fcategory%2Fretail-and-stores%2Famazon%2F%3Fvpage%3D3&psig=AFQjCNEjJ7Jr6ygMvXeDZE5cX75BC_G0WA&ust=1486043955037563

[17] http://www.geekwire.com/2017/8-million-people-amazon-echo-customer-awareness-increases-dramatically/

[18] http://www.businessinsider.com/voice-assistants-novelty-2017-1

13 thoughts on “Amazon – a winning strategy continues with Alexa

  1. Great post and take on Amazon’s Alexa strategy in the AI space. I’m really curious to see whether Amazon chooses to double-down here. They have so many different areas they’re going after right now (and doing many of them really well), and I have to wonder how Jeff Bezos sees it all fitting together (if at all).

    1. Great point Alice! I wonder if there is some of the same logic we learned with Samsung at play here – R&D in everything until you see where the customer’s money shifts and then double down there. With Alexa’s technology, Amazon would have the first access at data showing where more money is being spent. We’ll have to wait and see!

      1. Hi Megan,

        Thanks for the great post!
        Disclaimer first, I’m probably biased as I am a fairly heavy Alexa user myself.

        That out of the way, Amazon has historically prided itself on focusing its strategic efforts on three pillars: (1) Marketplace, where the retail happens; (2) Prime, probably the largest membership “club” in the world; and (3) AWS, where they changed the world of computing with their cloud offering.

        The first two are B2C businesses, aiming at improving the customer retail experience and creating more loyalty and “stickiness”, the third is a B2B business, creating value for companies and developers through on demand computing services that considerably change software businesses’ capital and operational expenses.

        And then comes Alexa, the Amazon IoT hub, overarching the two models and recently being announced as the fourth pillar. Alexa is on the one hand a consumer device, creating great value through access to skills and allowing purchases (a.k.a more stickiness), and on the other, it creates an additional incentive and ecosystem for which companies and developers need/want to develop cloud hosted services for (or, more AWS customers).

        Alexa is a strategic decision on which Amazon went all-in, pushing the hardware out, making the software “droppable” into 3P devices, and facilitating a very active development community.

        I’m excited to see where else this goes.

        -G

  2. I think the point on Amazon using alexa to drive use of its own services and products is a great one. If you ask alexa to play you music it defaults to amazon music and that is a no brainer. I wonder how Amazon will take advantage of the things alexa will do that it doesn’t already have products for. Will it use data to decide what markets to enter next, or simply move for a revenue share model for preferred providers.

    1. Completely agree – I think similarly to today’s class on GE, Alexa gives Amazon the ability to see where the consumer is moving and what is trending to determine future business outlets. Thanks for the comment!

  3. Do you think Alexa is will really be able to take hold across mainstream markets (not just a zeitgeisty / niche thing) and if so, how long will that take? I wonder if drones and other devices are still stuck in the fun & hobby category – seems like the ‘robot acceptance’ curve is still steep for many consumers.

    1. Edit: do you think Alexa will (not “is” will)

      1. Good question Libby. I think the fact that Alexa is already tied to 7,000 unique services and products has shown that they are significantly ahead of the competition in terms of market penetration and access to the consumer. As I said in future challenges, the bigger question is how long will it take for consumers to latch onto the idea of a smart home. However I feel Amazon is certainly on its way to making this more mainstream.

  4. Hi Megan – Great article on Alexa. As an Echo user I can def. say that Alexa has made life easier and created value for me. I wonder how do you feel about Google entering this space with the launch of Google Home (https://techcrunch.com/2016/05/18/google-unveils-its-amazon-echo-competitor-a-smart-speaker-called-google-home/)? It is following a very similar approach to Echo as far as the open ecosystem is concerned. Moreover, Google has access to more data points about the users (through its various apps, Gmail, YouTube etc.) and, therefore, its offering is expected to be more customized to the users than Echo.

    1. Bipul – great question. To answer, I feel the first question to ask is what is the job to be done for the consumer. (BSSE style). In the articles I have read, Google is certainly given credit for a better search engine than Amazon. However if the consumer is looking for a service that encompasses music, shopping, app connection (uber/food delivery etc) and web information – than I think the fact that Amazon has already successfully integrated themselves into 7,000 different services/applications puts them at a great advantage to Google’s new home system.

      I would love to ask the question back to you – given that you are an Alexa/Echo subscriber – is there anything you see the Google Home that you feel Amazon’s Echo is currently missing. If so, is that a technology or service that you think Amazon couldn’t immediately replicate in Echo as well?

      1. Megan – Great post! And Bipul – you raise a very interesting question.
        I was just infact reading Seanna’s post on how Siri has lost the game: https://digit.hbs.org/submission/hey-siri-can-you-help-yourself/#comment-1881

        And I raised the question whether there’s going to be a winner in this market or all – Google, Alexa, Siri, Cortana – will live in harmony (and fair competition) with each other. My sense is the latter. They all cater to different form factors (Android vs iPhones, home-bound vs mobile, etc.) and slightly different use cases.

        Bipul – Answering your question around Google vs Alexa, Google Home (powered by Google Assistant) ofcourse has the advantage of google search engine and many other google products – Youtube (you can stream video on your screen through Google Home), Nest Devices, Google Maps, etc. I feel Amazon has built this great technology but has failed in several aspects (rather yet to catch up). While Alexa has over 7,000 skills, most of them are not useful for the masses. Even among the ones most useful to the masses – Uber, Lyft, Domino’s Pizza, the user ratings are terrible. See the figure below from Amazon Alexa app.
        Further, the sales of Alexa products had been dismal until last year. I think they really gained some numbers in 2016 with constant improvement in the product and technology.

        I love Alexa and am a big believer in this technology. But I also believe Amazon has a long way to go before it can make Alexa a part of the lives of the masses.

        1. Sorry, I am not able to upload the screenshot of Amazon Alexa app showing the ratings but I will list them here:
          Uber: 2.0 out of 5.0
          Lyft: 3.0 out of 5.0
          Domino’s Pizza: 2.5 out of 5.0
          Pizza Hut: 2.5 out of 5.0
          Opentable: 3.0 out of 5.0

  5. Thanks Megan! I’m contemplating investing in a smart home device and this was a great overview of Alexa! Your mention of consumers slowly shifting to a fully-integrated smart home made me think of the GE Internet of Things case. Similar to GE wanting to win the race in providing a universal software system that gains value as it become pervasive throughout an industry, it seems that Amazon is attempting to capture the network effects from being the common digital assistant standard. As a follow up to Bipul’s point on the competition (namely in Google), I wonder if Amazon is doing anything more aggressive than allowing for an open system and pursuing partnerships. I agree that they are currently well-positioned with 7,000 partnerships but wonder if a Nest-like product, email/calendar functionality, or other Amazon initiative is on the way, given the high stakes in this market.

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