After the blockbusting success of the original Echo device, Amazon launched a huge number of latest Alexa-powered products and gadgets for kitchens and living rooms. The e-commerce giant continued with that tactic in the running week and announced more than a dozen new voice-controlled devices, including smart glasses and wireless earbuds that can interact with Alexa.
Amazon came to know a massive spectator for its Echo’s portfolio, giving the firm a strong early lead in the growing voice assistant space. However, some analysts, as well as investors, start asking the financial strategy behind Alexa and whether a gainful business model is evolving for the products and underlying technology. Managing partner at Loup Ventures, Andrew Murphy said that Amazon magnificently shipped a huge number of devices to millions of customers, but to what end.
Murphy added, he owns the shares of Amazon personally; however, the company does not. Amazon said after the last holiday season of Christmas that it had sold more than a hundred million Alexa-powered gadgets. Moreover, Consumer Intelligence Research Partners shared a report which reflects that Amazon is controlling the seventy-percent of the United States smart speaker market. Unlikely Apple, which had only six percent of the market at present, Amazon is not focusing on making money from the sales of devices but takes them as a source for getting customers into the universe of Amazon, where apparently, they will spend in other ways.
That helps clarify why one can get the small Echo Dot for $50 and numerous products for below $100 whereas n Siri powered Apple HomePod will run you $300. The devices of Amazon are reliably best-sellers in its website’s category of electronics, but the firm does not reveal how much the revenue they generate.
Head of Amazon’s Hardware Business to focus on generating revenue when customers use the products
The head of the hardware business of Amazon, Dave Limp said while in an interview that the aim is to make money when customers use the devices not only when they purchase them. Though in his earlier interview he said that people who own the products buy more digital items such as audiobook and music subscriptions. Murphy stated that the approach so far has head-scratcher because shopping with voice remains tough. His company just managed a test that reflects Alexa lagging far behind in answering commerce-related queries from Google Assistant, and underachieving Siri of Apple in general performance. Murphy said that they could visualize Alexa as a continuous e-commerce platform; however, the truth is that it is only not there yet.
Amazon to Build App Store Model consists of over 100,000 services
An analyst at Macquarie Research, Ben Schachter, said that Amazon might be a longer-term focus in developing an app store model where it receives a cut of every transaction. The app store correspondent for Alexa named skills and includes more than 100,000 services such as exercise offerings, oral quizzes, medication, and comedy programs from 3rd-party developers. Schacter did not give an estimation for how vast the skills business could finally become, but he mentioned that the market of traditional app beats $100 billion internationally.
Amazon has plans to generate handsome income from hardware sales directly
In a note on Thursday, Schachter wrote that they do not think Amazon have intentions to make noteworthy income from the sales of hardware directly, instead of from growing touchpoints to the whole ecosystem and models like an app store. Amazon stated that their intentions are to build the best possible experience for their customers, and the rest will watch out of itself. Meanwhile, the firm intensive to make Alexa more universal. Along with smart glasses and wireless earbuds announced this week, Amazon also displayed a ring that can conversate with Alexa and declared a partnership to convey its voice assistant to a number of vehicles of General Motors.
Tom Forte of D.A. Davidson, one of the most optimistic analysts on Amazon said the market is still mainly underestimating the Alexa potential. Already it becomes the top voice technology for connected products, also shopping from the devices still in its very initial days. Forte said that they, the consumers, are all lab rats in the lab of Amazon as it attempts to understand how to monetize Alexa best. Amazon has the indulgence of a forbearing investor base that trained to expect fewer profit margins.
Even with the instant growing of its extremely profitable Amazon Web Services unit, the operating margin of the firm in the recent quarter was less than five percent, compared to 21% for Apple and 24% for Alphabet. Thus, breaking even for Amazon would pull down hardly its total earnings. Murphy said that rather than any other big companies, the investors of Amazon give more self-determination to experiment with unsuccessful businesses.