Owning an Ecosystem vs owning a Device

When we look at Alexa, we see an Amazon strategy to own an emerging interaction model — voice. This is made clear in Bezos’ interview with Recode (watch the first 10 minutes if you haven’t already) where he outlines the two distinct strategies:

  • Alexa Skills Kit (ASK)
  • Alexa Voice Services (AVS)

ASK allows app developers to build apps for Alexa. However in the Alexa world, they don’t call these 3rd party applications “apps” but rather “skills”. So you can call an Uber from your Echo because Uber implemented a skill using ASK.

AVS enables other companies to add Alexa to their device or product. So technically and legally, Google can launch an Alexa powered speaker to compete against the Echo. AVS isn’t limited to devices. You can build a software app that is Alexa powered. For example, you can use Alexa in your browser today.

So why did Amazon create a third party platform that enables others to build and sell devices that competes against its own devices (Echo, Tap, Dot)? Since Amazon is focused on owning the next ecosystem— voice. Endpoints for Alexa, such as Echo, Tap and Dot are just enablers to get users onto Alexa. They are devices that are easy to replicate and ship. If voice truly becomes the third significant interaction model for users, after the smartphone and web, owning the voice medium gives Amazon significant ecosystem owner benefits. A couple examples of the benefits:

  • Increasing retail revenue — The ability to direct all purchases through Amazon (including both 1st and third party merchants on Amazon)
  • Owning an advertising platform — charge businesses, merchants, CPG companies and others to advertise on Alexa
  • Lower advertising spend — savings on the ad spend that Amazon would have to make to acquire customers on a new medium
  • New revenue from 3rd party developers — revenue gained from skills built by developers. See here for how 3rd party developers can monetize Alexa
  • Revenue from 1st party hardware — Amazon designed devices like Echo
  • Most significantly, the power to dictate and control the direction and development of an ecosystem

If you look back at 2007–2010, the Google Android strategy of licensing the OS for free to others was pivotal in it winning and becoming the defacto smartphone OS for most of the world. Google now commands the attention of thousands of companies that are dependent on Android for their revenue. Google understood that overtime the value was in the ecosystem and not in the device itself.

If voice truly becomes the next medium, wouldn’t you rather own the entire ecosystem rather than just some devices?