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Amazon Needs to Kill Alexa, Maybe Exit Echo Devices

The online retail giant had a plan to own your living room. It didn't work because AI-powered voice assistants don't work.

Amazon (AMZN) - Get Free Report had a grand plan to infiltrate every home in America -- maybe in the world -- using its devices to put a store into everyone's living room. 

It was a simple idea, whereby the company would make easy-to-use voice-based devices that ran off a powerful artificial-intelligence system that would serve as a low-cost virtual assistant.

Everyone would buy Echo devices because they were cheap and useful. Amazon used its scale to keep prices cheap and Echo dots and other Echo speakers became common in homes across America.

The Echo-purchase part of the plan worked. The problem is that Alexa, the AI that powers the Echo devices, does not work all that well. 

It's a really good kitchen timer and it can tell you the weather, play music from your library, and maybe find a podcast. But that's pretty much the end of its usefulness.

For consumers, Alexa may not be the robot assistant we all hoped for, but it's a good value for the price. And the things that it does well, well, it does them really well. 

Echo devices are useful as smart speakers and kitchen assistants. What they aren't -- and this is a big problem for Amazon -- are stores that sit in our living rooms, bedrooms, and kitchens.  

Amazon wants Echo/Alexa to increase your purchases from Amazon. That hasn't happened and it may be time for the online retailer to give up on that dream.

Amazon Echo Lead KL 113022

Amazon Echo Is Very Limited

Echo launched in 2014 with great promise. That was back when we still believed that Apple's (AAPL) - Get Free Report Siri digital assistant might become a useful product, even after three years of it not being all that helpful. 

Amazon's devices, some of which sold for below $50, were a cheap way for everyone to get in on the AI/Digital assistant game while also adding a smart speaker to their home (something that is actually useful).

As of June 2021, more than two-thirds (69%) of smart speakers in use in the U.S. were Amazon’s Echo brand, with Google  (GOOGL) - Get Free Report Home at about 25% and Apple 5%, according to Consumer Intelligence Research Partners via a Retailwire report. More than 50 million U.S. homes had at least one Amazon Echo device. Over 20 million had multiple units.

That's stunning penetration -- but consumers did not use the devices the way Amazon intended. Alexa works for simple tasks, but using it to order products from Amazon is a clunkier process than simply going to your phone or computer to make the order.

Yes, you can say "Alexa, order me paper towels," and you may, a day or two later, get paper towels delivered, but what brand? What package size?

Alexa tried to solve a problem that phones were better suited for, something that's been obvious for quite some time. Yet Amazon continues to lose billions of dollars each year chasing the Alexa dream.

Amazon Echo Is a Really Good Smart Speaker

While Amazon's strategy of getting the devices into people's hands first, then making money as they bought more stuff, made sense, it simply hasn't worked.

"Alexa, which sells at cost, continues to be tapped for trivial tasks such as playing music or checking the weather and hasn’t become the core household shopping tool as hoped for to support its monetization," Retailwire's Tom Ryan wrote.

"Voice shopping’s continued inhibitors are the absence of screens on most devices and concerns over payment security and privacy." 

Basically, the company has created a device people like because of its ability to provide useful, but very basic, functions. That's good for consumers -- especially with Amazon selling them for very low prices -- but it makes it very hard for the online retailer to justify billions of dollars in losses.

The Echo devices may sell well at higher prices without the promise of AI offering much more than the things people actually use Alexa for. In theory, that could stem Amazon's losses as development costs could be cut while each Echo could be sold at a profit. But they won't drive further sales for the company.

Maybe Voice Assistants Are a Dud

When was the last time you used Apple's Siri for something beyond a very basic task (or even at all)? Do you even remember the name of Microsoft's  (MSFT) - Get Free Report voice assistant (Cortana), or Samsung's (Sam)?

And are you familiar enough to know that one of those is wrong? Samsung's voice assistant is actually named Bixby.

Voice assistants offered so much promise, but at best they're mildly useful and at worst they're the handwriting recognition on the Apple Newton.

"In theory Amazon should make money from subscription services like Audible and streaming music services, but take up has been relatively low," commented GlobalData Managing Director Neil Saunders on the Retailwire story. 

"Another possibility is to use Alexa to advertise, but this is a virtual non-starter because people’s tolerance of Alexa parroting advertisements is extremely low. Then there is voice shopping, which hasn’t taken off in the way some predicted -- mainly because it has a lot more friction than traditional online shopping."

Alexa has become mostly a novelty, and with Amazon laying people off, it might make sense to focus on getting the devices division to breakeven while waiting for someone else to develop a useful AI voice assistant. 

When the technology gets perfected (which may be a few weeks before sentient robots rise up to throw off their human oppressors), the retail giant would be in a good place to acquire or license it.

For now, we're simply not going to shop with Alexa.