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Amazon.com Inc.‘s (NASDAQ:AMZN) strategy of selling its Echo devices at low prices in the hope of generating profits elsewhere within the company has not yielded the expected results. The company has incurred billions in losses as a result.
What Happened: Amazon’s Echo devices, which feature the Alexa voice assistant, have been a popular choice for millions of customers. However, the company’s plan to capitalize on the devices’ popularity by driving sales on its e-commerce platform has not panned out, reported The Wall Street Journal on Monday, citing internal documents and people familiar with the business.
Customers primarily utilized the Echo for free applications like setting alarms and checking the weather. "We worried we've hired 10,000 people and we've built a smart timer," remarked a former senior employee, according to the report.
Amazon’s devices business, which includes Echos, Kindles, Fire TV Sticks, and video doorbells, has incurred losses of over $25 billion between 2017 and 2021. This is a significant miscalculation made under the leadership of founder Jeff Bezos, which current CEO Andy Jassy is working to rectify, according to the documents.
As part of the plan to reverse these losses, Amazon is set to launch a paid tier of Alexa this month. This move, however, is met with skepticism by some of the engineers working on the project.
An Amazon spokesperson stated that the devices division has created several profitable ventures and is well-positioned for continued success, adding: "Hundreds of millions of Amazon devices are used by customers around the world, and to us, there is no greater measure of success."
Jassy is also re-evaluating the obscure Bezos-era metric called “downstream impact” inside Amazon, which assigns a financial value to a product or service based on how customers spend within Amazon’s ecosystem after they buy it, according to the report.
This metric, developed in 2011, has been used across Amazon’s business lines and has been successful in some instances, such as with the Kindle e-reader. However, it has not worked as intended for devices like the Echo.
Why It Matters: Amazon’s struggles with its devices business come at a time when the company is making significant changes to its Alexa service. In June, it was reported that Amazon was planning a major overhaul of its Alexa service, integrating conversational generative AI. This project, known internally as “Banyan,” was set to introduce a two-tier system with a premium version potentially costing around $5 monthly.
The Seattle-based company planned to launch a more conversational version of Alexa later in the year, potentially positioning it to better compete with new generative AI-powered chatbots from companies including Alphabet Inc.‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary Google, and OpenAI.
Additionally, Amazon’s original book business has seen a resurgence, generating $16.9 billion in gross merchandise sales in the first 10 months of 2022. This success contrasts with the financial struggles of its devices business, highlighting the diverse performance across Amazon’s various sectors.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
