How Alexa, Echo, and other devices became a drag on Amazon’s revenue

When Amazon CEO Andy Jassy announced earlier this week that Amazon would be conducting layoffs, he called out one team in particular: devices and books, which is responsible for products including Alexa, Kindle readers, Echo smart speakers, Fire tablets, Ring doorbells, and a household robot known as Astro.

In a memo to employees, Jassy described the “difficult decision to eliminate a number of positions across our Devices and Books businesses.” The news followed a prior announcement that Amazon would pause incremental hiring for corporate roles. In total, the company is expected to eliminate 3% of its corporate workforce, or roughly 10,000 people.

Analysts say that Amazon’s devices group makes for an easy target because it contains experimental products that have yet to catch on with consumers. They also wonder whether devices are helping to drive Amazon’s famous customer flywheel, and whether some of the most popular, like Echo, can be monetized.

Amazon did not respond to a request for comment.

Amazon’s devices group has grown over the years into a sprawling operation. According to The New York Times, the group was losing $5 billion a year as recently as 2018, when its ranks included 10,000 engineers.

By some measures, Amazon’s aggressive push into devices, as part of a broader effort to own the smart home, has been an enormous success. Consumer Intelligence Research Partners, which conducts market research, has consistently found that Amazon dominates the smart speaker market, for example. In a June survey CIRP conducted, 69% of respondents who had purchased a smart speaker in the past year said they had bought an Amazon Echo. Google Home followed with 25% market share, while Apple HomePod (5%) and Facebook Portal (1%) trailed far behind.

Nearly half of people who own an Amazon Echo own more than one, CIRP surveys suggest.

But Amazon doesn’t just sell Echo devices. It sells a dizzying array of Echos, Echo Dots, and Echo Dots for kids, all in various generations of release. Across the company’s catalog of devices, each category (e.g., smart speakers) contains multitudes. That kind of complexity gets expensive to design, manufacture, and market.

At the same time, some much-heralded device innovations, like the ability to place Amazon orders via Alexa, have failed to win over a dedicated audience. In other words, Alexa does not appear to be driving incremental retail sales in any meaningful way.

“We kept waiting, waiting, waiting for a huge percentage of consumers to say, ‘I bought a pizza’ [on my Echo],” says Michael Levin, cofounder of CIRP. “It never materialized. People do not buy stuff, by and large.”

On Wednesday, members of a team that manages Alexa skills posted on LinkedIn that they had been laid off.

Amazon has also struggled to convert certain devices from R&D darlings to hardware hits. Last month, for example, the company said it would be discontinuing the Amazon Glow, a video-calling device designed to help grandchildren play games with their grandparents, after just one year in the market.

“I thought it was fantastic, my kid loves it, but it’s incredibly difficult to explain what it does and why you should buy it,” says technology analyst Avi Greengart, president of Techsponential, who reviewed the Glow at the time of its debut. “It’s an intergenerational game interaction platform, which is a mouthful, and Amazon was not able to get consumers to understand what it was and buy it.”

In some device categories, Amazon is now going up against nimble startups that have turned perceived weaknesses into advantages. Yoto, for example, makes audio storytelling devices for children. Yoto devices have a speaker, but no microphone. Instead of responding to a child’s voice, Yoto uses a card-based system for story selection that echoes Montessori principles around physical play.

Ben Drury, founder and CEO of Yoto, says the approach has allowed him to compete with giants like Amazon without having the resources to invest in speech recognition technology. It also happens to be what parents prefer, he argues.

“We ask a lot of parents, ‘Are you happy to have an Alexa device in your kid’s bedroom?’ And a lot of them say ‘no,’” Drury says. “It’s not necessarily because they think Amazon is spying on their children, but because there’s no safety net, no control.”

Drury expects Yoto to do “well over $1 million” in sales on Black Friday.