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Amazon Echo speakers are a familiar face in many households and are undoubtedly a great success in terms of their distribution. But behind this success lies a financial burden for Amazon, as a recent report in the Wall Street Journal reveals.
A loss-making business despite high sales figures
Echo speakers and other devices from Amazon’s portfolio such as Kindles, Fire TV sticks and video doorbells from Ring and Blink have driven the company deep into the red in recent years. Internal documents and statements from informed persons show that Amazon has suffered losses in the billions in its device business. Between 2017 and 2021, the losses amounted to over 25 billion dollars. More precise figures for the years before and after are not available.
User behavior as a cause
A key factor in the enormous losses is user behavior. Many buyers of Echo devices mainly use free apps and services, while paid offers are hardly noticed. As a result, the revenue from the Echo speakers and other devices is not sufficient to cover the high production and development costs.
Future plans and skepticism
To improve the situation, Amazon is planning to add new artificial intelligence-based functions to its digital assistant Alexa. A monthly fee of around five dollars (approx. 4.70 euros) is to be charged for these additional features. The new version is due to be launched this month and will not be linked to Prime membership.
The enhanced, more conversational version of Alexa should be better able to compete with the new generative AI-based chatbots from companies such as Google and OpenAI (Chat-GPT).
However, even within the company there are concerns about the chances of success of this measure. Some engineers involved in the project doubt that the introduction of paid functions will achieve the desired financial effects.
A balancing act for the future
Amazon faces the challenge of making the Echo business profitable without losing its user base. The introduction of new, paid-for functions could be a step in the right direction, but also carries the risk of deterring customers. The coming months will show whether Amazon can achieve a financial turnaround with this strategy or whether the Echo devices will continue to be a loss-maker.
The Wall Street Journal report makes it clear that the success of a product cannot be measured by its sales figures alone. Rather, it must also be economically viable in order to contribute to the company’s success in the long term.
