Despite becoming a household name, Amazon’s Echo smart speakers, powered by the virtual assistant Alexa, have been a financial drain on the company, racking up billions in losses. As the company pivots under new leadership, drastic measures are being taken to stem the tide of red ink.
Andy Jassy, who stepped into the role of Amazon CEO in 2021 following Jeff Bezos’s departure, has made it clear that cost-cutting is a top priority. Reports suggest that the smart device business, once a flagship initiative, is now facing the axe. This comes after internal documents reviewed by the Wall Street Journal revealed staggering losses exceeding $25 billion from 2017 to 2021 in Amazon’s devices segment.
Since their debut in 2014, Amazon has sold over 500 million Alexa devices. Yet, the aggressive pricing strategy—selling at or below cost to outpace competitors and drive adoption—has not yielded the expected financial returns. The initial idea was that Echo users would make more purchases through voice commands, mirroring the success of the Kindle, which drives sales of e-books and subscriptions. Unfortunately, this vision did not materialize.
Instead, customers primarily use Echo devices for tasks like setting alarms, playing music, and checking the weather—all via Amazon’s free apps. A former Amazon employee candidly remarked to the Journal, “We worried we’ve hired 10,000 people and we’ve built a smart timer.”
Under Jeff Bezos, innovation was prized over immediate profitability. Employees often justified Echo’s low returns by citing “downstream impact”—the notion that financial value would come from increased Amazon purchases following the initial device sale. This concept, devised in 2011 by a team including a future Nobel Prize winner, has been a staple defense for the devices team. Former Amazon devices SVP Dave Limp encapsulated this philosophy in 2019, stating, “We don’t have to make money when we sell you the device. Instead, we make money when people actually use the device.”
However, the “downstream impact” theory failed to deliver the expected profitability. As losses mounted, Jassy took a pragmatic approach, focusing on financial discipline and dissolving teams working on unprofitable new devices. High-profile casualties included the Amazon Glow and the Halo fitness tracker, both of which were scrapped in response to their poor financial performance.
The devices team is now under pressure to boost Echo’s profitability through monetized subscriptions and fees. They are working on “Remarkable Alexa,” an advanced version of the virtual assistant, hoping to impress customers and turn a profit. However, insiders indicate that the technology isn’t fully ready, yet a deadline looms.
Despite these challenges, Amazon’s overall performance remains strong. The company exceeded expectations for earnings per share and revenue in the first quarter of 2023, leading analysts to raise their forecasts for the second quarter.
Andy Jassy’s commitment to trimming costs and refocusing on profitability marks a significant shift from Bezos’s era. As Amazon navigates these changes, it remains to be seen whether the devices segment can reinvent itself and finally deliver the financial returns long promised. In the meantime, Jassy’s pragmatic approach aims to ensure that Amazon continues to thrive in an increasingly competitive market.
