Amazingly it has been eight holiday seasons since Amazon launched its first smart speaker device. The original Amazon Echo. With that big gift-giving day is just around the corner, we’re not surprised to find articles in the business press about the state of Alexa, Amazon’s voice brand.
We found this piece on Bloomberg particularly interesting. The article’s premise is that engagement with smart devices is waning just eight years into the product’s life cycle.
Bloomberg did some extensive document mining for the piece. And we learned some new things about the state of the Alexa business. Here are some examples.
- While there are lots of device sales during the run-up to Christmas, lots of those gifted an Alexa device appear to be inactive users. Bloomberg reports that 15% to 25% of new Alexa users are no longer active by the second week of ownership.
- The smart speaker market had entered a mature phase. Amazon’s own internal estimates indicate the market would grow just 1.2% in the coming years.
- The following below shared by Bloomberg points to slightly better weekly use for Alexa devices with screens than the original audio-only devices.
- The Alexa product line holds an enviable 74% market share of the smart speaker market according to Statista.
- Amazon employs more than 10,000 people to work on Alexa with estimated fixed costs of around $4.2 billion in 2021 according to Bloomberg (that would place the Alexa group – $420,000 per employee – somewhere around No. 313 in terms of revenue per employee according to Tipalti; well behind technology sector leader Apple at No. 61 at $1.9 million per employee).
The Bloomberg article notes that Amazon took exception to the premise of the article. “The fact is that Alexa continues to grow—we see increases in customer usage, and Alexa is used in more households around the world than ever before,” Amazon said in a statement to Bloomberg.
An Expensive Egg Timer?
We’re not here to arbitrate the debate but to understand the challenges the Alexa team at Amazon faces.
First, we already have a set of everyday use cases for smart speakers. Running a timer to boil an egg or bake a cake. Maybe getting today’s weather forecast. Or perhaps finding out if your beloved Steelers won.
Those of us who have smart speakers often turn to them for these routine tasks. It certainly beats setting a timer or opening a phone, tablet, or laptop to learn how the Steelers below another game. Even store hours are sometimes easy to find via a smart speaker.
But as this piece points out there are three primary obstacles in the way of smart speakers gaining the wider spread penetration and use. The three hurdles include:
- Developer Support. Not enough developers want to build apps for the smart speaker market given the relatively slow growth these days
- Discoverability. Users know just a selection of applications for the smart speaker – and there’s an underwhelming process for learning about new applications
- Privacy. This is perhaps the most daunting challenge facing the market
Still, some analysts, including Pioneer Square Labs‘ Greg Gottesman, remain bullish. “It takes time to marinate,” Gottesman said. “We’re still early. Five years from now, 10 years from now, people will be using Alexa [smart speakers] for much more.”
Nevertheless, apparently, Apple’s lower-priced HomePod Mini has helped it shift the sales curve upward. According to a report from Strategy Analytics Apple now has a 10.2% market share of smart speakers. Sales grew 92% in the last year.
We have yet to see a dramatic increase in local search queries via smart speakers. Yet we remain confident that in due time consumers will turn to these sorts of devices to find a 5-star rated plumber with a truck nearby. That reality isn’t here yet. But if enough devices get into the homes and are integrated into daily life, it’s a matter of time before true local search happens on smart speakers. For now, though, knowing that the Steelers blew another game is good enough.