Alexa — Amazon’s moat around e-commerce business?

Everyone has heard about Amazon’s new favourite child — Alexa. Launched in November 2014 along with the Amazon echo devices, it has taken over the America households in waves. According to a study done by Morgan Stanley, more than 11 million Alexa-powered Echo devices have been sold by Amazon till date. The success of these Alexa devices has inspired other technology behemoths to launch their own intelligent personal assistants such Google Home, Lenovo Smart and Bonus (powered by Microsoft Cortana).

During 2017’s holiday season, Amazon sold nines as many Alexa-powered devices (Echo, Dot) as compared to previous year — Source

How did we get here?

Alexa powered Echo is most sold home-centered voice assistants in the US followed by Google’s Home. This ubiquity of Alexa-powered device can be attributed to two key factors — convenience of hands-free interactions and changing customer expectations

Convenience of hands-free interactions: With Echo and Dot devices, Amazon has taken human- device interactions to next level- Voice conversation. Alexa powered device use voice commands to perform tasks such as managing to-do lists, ordering on Amazon or controlling IoT home devices.

With these devices, users do not have to learn new application interface or interactions pattern, but rather use something that mankind as honed for ages — voice and natural language. It is almost as effortless as talking to personal butler waiting to execute your orders and help you manage your home. In my opinion, to make these devices least obstructive, Amazon made special care in designing these devices not to stand-out and easily blend into the user’s home decor (Living room, kitchen or bedrooms)

As of February 2017, Alexa is adept in more than 9,000 skills, with approximately 1000 new skills added every month.

Changing customer expectations: AI has starting to play an important role in today’s world. Intelligent personal assistance has become a norm with technologies like Google Now, Apple Siri or X.ai. For example, a survey done by Accenture’s Digital Strategy shows that 46% respondents use Voice Assistants in the US and 68% think AI is less biased compared to human counterpart.

As acceptance for AI-driven intelligence increase over time, Amazon plans to capitalise this changing trend through a range of Alexa-powered home devices. With each interaction, these devices become smarter and more personal, being able to accurately cater to users needs.

With Amazon, it’s always about the bigger picture

Amazon has already surpassed Google in terms volume of product searches. In 2016, 55% of product searches started in Amazon compared to 28% in Google and 16% in retailers’ website. It is phenomenal to see how Amazon, over the years, become the go-to brand when it comes to online shopping.

Until now, Amazon’s website and apps served as a medium to provide limitless options to consumers for the cheapest price possible. Customer relied on Amazon’s review system and recommendation to find the products that best fit their needs.. With Alexa, this buyer-seller interaction is bound to change. As Alexa becomes more intelligent and personal, customers may start relying more on Alexa to suggest them what to buy.

For example, over time conversations with Alexa will become more natural, where owners don’t exactly specify what items to buy. Owners may very well just say — “Alexa, add milk to cart” , leave it on Alexa to decide which product/ brand to buy based on buyer’s profile. This puts Amazon in driving seat in influencing customer’s buying decision and would definitely give consumer goods CEO’s nightmares.

With Amazon pushing more deals and promotions for shopping through Alexa -powered devices, we are going to see an increase in usage of these devices by consumers. This would provide a two-fold advantage to Amazon:

Customer Retention: The effortless experience for shopping on Amazon using Echos and Dots will help increase repeat business and increase customer lifetime value. Like Prime, this will Alexa — powered device will provide another level for Amazon to ensure customers remain in the Amazon’s eco-system to fulfil their needs.

Better negotiation power: Being able to control the positioning of the products during product exploration phase for Alexa, Amazon can gain higher stakes while negotiating with vendors or merchants.

Jeff Bezos and Amazon has always prioritised long-term strategy over short-term financial gains and Alexa is another initiative by Amazon that does the same. With Alexa being always present in our living area, it takes Amazon big step in becoming your personal home assistant.

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