Amazon has established itself as a smart home leader, with its digital assistant Alexa powering and controlling everything from speakers, to microwaves, to clocks, to switches. However, amid reports that the massive Alexa wing of the company has come up short of internal revenue expectations in recent years, Amazon is highlighting the many other things the digital assistant can do.
Amazon today unveiled a new top 10 Alexa skills list of 2019, and not a single smart home capability showed up in the company’s picks. Amazon took into account customer reviews, engagement, user experience, innovation and more when choosing the skills to highlight.
“Smart Home remains popular on Alexa, but this year we wanted to highlight emerging categories that help customers discover new experiences to make their lives easier, more entertaining, and more delightful,” an Amazon spokesperson said.
Seven of the 10 skills on the list are either games or quiz apps, several of them focused on kids. The rest are entertainment or informative skills, including music on Spotify, guided meditation and TED Talks.
In addition to its favorite skills of the year, Amazon highlighted 33 Alexa capabilities released in 2019, across areas like entertainment, tasks at home and on the go, family activities and inclusion. Taken together, these lists are an example of Amazon’s push to highlight the fruits of its massive investment in Alexa over the years as it looks ahead to the next step for the digital assistant.
Alexa’s first few years have been characterized by rapid growth, with the digital brain amassing more than 100,000 skills. Amazon has made important moves like opening up the digital brain to third-party developers and creating no-code skill templates to encourage people to build their own voice-powered apps.
According to a new report from The Information, Amazon is now exploring how it make more money off the digital brain through premium content and other services. Earlier this year, Amazon Devices Senior Vice President Dave Limp said “there are now billions of dollars flowing through the Alexa flywheel every year.” It makes sense that Amazon would want to capture a bigger chunk of that action.
Alexa skills brought in revenue in the hundreds of thousands of dollars, well short of the company’s expectation in 2018, per The Information. The numbers are a little bit better this year, with Alexa skills responsible for $1.4 million in revenue. However, that remains short of the company’s goal of $5.5 million.
Alexa contributes to the company’s balance sheets in other ways. There’s sales of Alexa-powered devices, and Alexa users shop more on Amazon, buy more Audible books, and subscribe to Amazon Music at higher rates.
The Alexa unit’s headcount ballooned to more than 10,000 people over the years, per The Information. Amazon has 1,788 open Alexa positions, according to its jobs site, but The Information reports that hiring for that division has slowed somewhat, and the team no longer has the go-ahead to poach whoever they want from other parts of the company.
Amazon is reportedly encouraging developers to build in-app purchases into skills. And it has also kicked around the idea of partnering with companies like The New York Times, Wall Street Journal and Spotify to share in subscription and ad revenue.
“Customer and developer adoption of Alexa is inspiring our teams to invent at an even faster pace, creating novel experiences that will increase utility and further delight our customers,” an Amazon spokesperson said in response to The Information’s report. “Alexa is a long-term bet for Amazon, and we’re as optimistic as ever about its future. We’ve just scratched the surface of what’s possible with Alexa.”
Amazon revolutionized the smart speaker market with the original Echo in 2014 as the primary vehicle to deliver Alexa to customers. Amazon has held big devices events the last two years, where it has released roughly a dozen new and refreshed gadgets each time.
Amazon remains the leader of the increasingly competitive smart speaker market. In the third quarter, Amazon sold 10.6 million smart speakers in the third quarter, good for a 36.6 percent market share, per an analysis from Canalys.
Amazon doesn’t generate huge profits from the sale of its Echo devices, Limp said in an interview with CNBC in September. The tech giant has consistently lowered prices on flagship devices like the Echo and Echo Dot.
As Amazon pushes for profitability with Alexa, analysts expect Amazon to continue lowering prices for devices to use them as a gateway to bring customers into the digital assistant’s ecosystem. Earlier this year, Amazon said it has sold more than 100 million Alexa devices in its lifetime.
“We don’t think Amazon intends to make significant money from hardware sales directly, but rather from increasing touchpoints to the overall ecosystem and app store-like models,” Ben Schachter, an analyst at Macquarie Research, wrote in September.
Both Alexa and the devices the digital assistant powers are young businesses. Amazon is known for plowing resources into priority areas to grow them to a point of critical mass before refining them to increase profitability. It’s done that with the flagship retail operation, and the Amazon Web Services cloud unit.
At least one analyst thinks Alexa is on the path to becoming Amazon’s next big driver. RBC Capital Markets analyst Mark Mahaney predicted a year ago that Alexa could be a $19 billion business by 2021. Mahany expects the company to generate more than $9 billion in revenue a piece from two different sources: device sales and voice-driven e-commerce sales.
“In general, Amazon’s device philosophy has been to sell the product (Kindle, Fire Tablet, Fire Stick, and even the Fire Phone…) at cost and capture margin on the services it provides when consumers use the product,” he wrote in the report last year. “We see increasing evidence that Amazon’s approach to Alexa is following a similar path.”