This post is by Benedict Evans from Benedict Evans
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Amazon’s Alexa has been a huge, impressive and unexpected achievement. Amazon created a category from scratch and left both the AI leader Google and the device leader Apple scrambling in its wake. It’s now sold 100m units (including third party devices with Alexa embedded) – not all of these will equate to active users, but if even 50m are in use this is still a significant proportion of Amazon accounts. After the very limited success of the Fire tablet and the failure of the Fire Phone, Amazon has a big success.
So far, though, this success is pretty contingent – we do still have to ask what Amazon actually gains from this. What do consumers do with these devices that helps Amazon? What fundamental strategic benefit does it get? Amazon has put an end-point into tens of millions of homes – what does it do with it?
Answering this would be much easier for Google, Apple or Facebook’s equivalent devices:
Google and Facebook are fundamentally about reach. Satellite devices that make it easier to touch their services give them more ways to make your use sticky, and more ways to learn about you and give more relevant data.
Some people worry about whether Google or Facebook can put advertising on devices that don’t have conventional ad inventory or even surface area that could support it (especially audio-only devices), but I strongly doubt that the core revenue-generating behaviors (sharing, feed browsing, searches and purchase funnels) will move to audio-only modes at scale any time soon – this is an accessory to drive additional use (and data), not a replacement
And Apple, obviously, sells devices to make money, so aims first to make an actual margin from them and second to use them to link you more closely into their ecosystem – if you buy a HomePod or Apple TV you’re more likely to replace your current iPhone with a new iPhone rather than an Android.
For these three companies, if you buy the thing and use it for the most basic use cases that it comes with out of the box, then the strategic aim is met.
Amazon, on the other hand, sells things. Its TV shows help it sell things by driving Prime, which pulls your purchase of children’s shoes or soap into Amazon. It’s not yet clear what Alexa does for this. Indeed, the bear case for Alexa is that Amazon has succeeded in selling a huge number of glorified clock-radios – today, the survey data suggests that people mostly use these for audio (music and podcasts), the weather and kitchen timers, plus maybe trivia questions and controlling a smart light. If that’s all that people ever do, then as far as Amazon is concerned, Alexa is at best just a form of marketing.
That is, one could say that Alexa has achieved some level of product-market for for consumers, but not for Amazon.
Hence, we’ve had two statistics recently from Amazon about Alexa: that 100m units have been sold, and that Amazon has 10,000 people working on it. This is vastly more people than one would normally expect to get the device made and the software working, especially given that the Echos themselves are produced by contact manufacturers. Rather, this is about experimentation and iteration. What can we do with this and how can we expand the use case? What is step 2?
There are a couple of obvious strands to think about. Alexa’s capability to control ‘smart home’ devices might expand to enable more delivery models (‘open the garage door automatically when an Amazon delivery robot arrives’, or more prosaically just ‘unlock the door for the Fedex delivery’, and send me a video of it happening), or more automated ordering (the washing machine can order more soap for itself, perhaps). Another thing to ponder is the ways that brands can use Alexa to help customers with products. For example, there could be an Alexa skill that talks you though how to use a product when you need ongoing instructions and can’t use your hands. I don’t know what the answer is, and that’s really the point – Amazon is deep in experimentation mode. Indeed, this is an experimentation company, as seen in the Fire Phone and Tablet and indeed in the new crop of retail store pilots.
The same experimentation, I think, also applies to the Skills developer mode, which is another contingent success. Yes, thousands of ‘skills’ have been created, but it’s not clear how many of them get used, let alone drive purchasing. There is a fundamental UX puzzle to solve: the paradox of an audio-only interface is that it looks like a much more flexible and free-form interface than a graphical interface, but in fact it has no way to tell you what it can do. If it has 5,000 ‘skills’, you can’t ask it to recite them, one by one. Solving this discoverability problem is one reason both Amazon and Google are exploring devices with small screens (through that doesn’t help the devices that are already out there).
Taking a step back, though, I think there is a deeper strategic value to Alexa – option value.
One of the fundamental shifts that came with mobile was that the users’ device became a lot less neutral. On the desktop, there were pretty narrow limits to what a web browser could do to control the economic models and interaction models of websites. On a smartphone, the management of everything from system permissions to default apps to notifications and interaction models (not to mention in-app purchase) means that Apple and Android are in much more direct control of what companies using these devices to reach customers can do. Ironically, a major reason why Google bought and built Android in the first place was fear of what Microsoft and Nokia might do with such power. Now both Amazon is faced with this. The end point has become much more strategic for web platform companies. So, anything you can do to get an end-point of your own has value for the future, even if no-one today uses it to buy soap powder.