Amazon’s next win is in voice

“Alexa, set the temperature to 72”
“Alexa, play The College Dropout”
“Alexa, track my order”
These are all apparently things that Alexa can do.
With what has become a recent Amazon shopping addiction, I keep seeing Amazon Echo banner ads. I took this as a sign to explore why they’ve prioritized this product and how Alexa might play a bigger role in the company’s next chapter.
For quick context: Amazon Echo is the smart speaker and Alexa is the voice assistant. For the sake of simplicity, think of mobile analogs iPhone and Siri.
Voice assistants and the concept of smart speakers have been around for years, but things have really accelerated recently. Shown below, we see that in a 6 month period smart speaker adoption has ~doubled.

This doesn’t appear to have happened by accident. Given that 2/3 of these types of speakers are enabled by Amazon’s Alexa, let’s look at why and how they increased adoption so rapidly.
Why adoption is #1
Amazon doesn’t aspire to be exclusive — it’s the everything store and it’s pretty much for everyone (estimated 40–60% of US households have Prime). So it’s not surprising that their foray into smart speakers looks to similarly appeal to their existing large customer base. Given that Prime is a bundle of services, it would make sense that Amazon enters other markets thinking about how they can improve the value proposition for their current users.
In the short-term, Amazon can directly make more money by easing the process of making purchases — instead of having to get on a laptop to order new bath towels, you can just announce it in your living room. In any case, as Alex Taussig mentioned in a recent newsletter, today monetization is far behind adoption with only ~2% of users making purchases through Alexa.
Longer-term, I think we can think about voice as just a medium. Consumers began to engage with computers to do things that required significant effort or were impossible to do beforehand. Then, we engaged with mobile devices to do things that were easier to do on mobile than web.
With this line of thinking, there are things that would be easier to vocalize than to have to use a physical device. This incremental value presents an opportunity. To really do voice well, the more users and data, the better.
Voice assistants can replace some of the things that we otherwise rely on mobile devices, web, or even household devices. The specific advantage is in the home, where having a mobile device near you isn’t always the best option. However, partnerships suggest strong opportunities in vehicles as well, where mobile devices are not the best way to get things done.
This is reflected in Amazon’s openness to collaborate with all types of household devices like thermostats, lights, locks, etc. The more of these types of appliances that build around Alexa, the better competitive position for Amazon. Again, number of users is critical here because the home is new real estate that is up-for-grabs. The goal is to get in to as many homes as quickly as possible and integrate so well in the home that it would be hard to displace.
How Alexa gained popularity
The first Amazon Echo was first released at $179 which is a far departure from today’s 2nd generation Amazon Echo priced at only $99. This price decrease alone likely drove an uptick in volume.
On top of that, the Amazon Echo Dot (think: iPhone 8 vs. 8-Plus) is only $49 and during big holiday sales it’s been widely advertised as only $29. It’s hard to not at least consider a piece of hardware made by a trusted company when it’s priced that low.
My home page on Amazon right now features this ad for the Echo dot and it has felt like on any given day there’s a different ad highlighting one of their speaker products.
lower prices + lots of advertising = increased adoption

Despite this, I still think the rate at which they are selling these speakers is surprising, with Bezos mentioning earlier this year:
We don’t see surprises of this magnitude very often — expect us to double down
If this wasn’t enough, Amazon has also partnered with speaker manufacturers. For example, the Sonos One is a slightly-more-premium speaker that is now enabled by Alexa. This allows Amazon to get Alexa into even more homes by leveraging hardware manufacturers’ brand equity and expertise.
Since a company like Apple makes a lot of money on hardware, they wouldn’t be incentive to make this same move and isn’t as well positioned to drive up adoption given their existing business.
As mentioned before, this makes sense because this is more about voice assistants than speakers.
Creating and successfully launching Amazon Echo catalyzed consumer interest, but Amazon is not in the business of making their money on high margin hardware. They are better suited to differentiate and compete on voice assistance where more information (ie more users) and strong integration will allow them to retain market leadership.
Sidenote: Alexa works to some degree by always listening to identify any triggers — this does put Amazon and the competition on the hotseat for data security and privacy.
Please clap if you found this article interesting and comment any thoughts you had on the piece! I’m always interested in learning more about marketplaces and am happy to continue the discussion.