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Amazon's layoffs are slamming, and Bezos can't retain his son Alexa

Amazon's star project the Alexa voice assistant is hanging by a thread. When Amazon first introduced Alexa in November 2014, the press was buzzing about it as the computer of the future. Technology media CNET compared Alexa to the technology in the sci-fi movie Star Trek, while the US Computer World called it the future of every family. However, in the nearly 10 years since then, the voice assistant has not lived up to Amazon's expectations.

The largest source of loss, the hardest hit area for layoffs

Inside Amazon, the Alexa voice assistant is part of the global digital business, along with Echo smart speakers and the Prime Video video service. In the first quarter of this year, the business posted an operating loss of more than $3 billion, internal data showed. The vast majority of losses in Amazon's global digital business are related to Alexa and related hardware, people familiar with the matter said. That's by far the biggest source of losses in any of Amazon's business units, more than double the losses in its fledgling brick-and-mortar and fresh grocery businesses.

Although Amazon has a big business and has always been willing to burn money for the hardware business, the situation has changed now. According to media reports and internal emails, Amazon is initiating the largest layoffs in the company's history, and Alexa and the entire hardware device team are the main targets of layoffs. After news of the layoffs was announced, more than a dozen former and current employees of Amazon's hardware team described to the media a department in crisis. While Alexa was once one of Amazon's fastest-growing projects, the widening losses and now mass layoffs point to the rapid decline of the voice assistant business and Amazon's entire hardware division.

Amazon has explored the business model of selling hardware devices at cost prices and generating revenue through subsequent shopping activities of users. The latest changes confirm the failure of this business model. As one former employee put it: Alexa failed miserably at the imagination and wasted opportunities. Amazon did not respond to questions about the financial status of its hardware devices and voice assistant business, but David Limp, Amazon's senior vice president of devices and services, said in a previous announcement:

We will continue to be committed to Echo smart speakers and Alexa voice assistant, and continue to invest heavily in them.
Business model exploration failed

When it launched Alexa, Amazon saw a new business model. Amazon does not intend to make money from product sales like traditional hardware manufacturers but hopes that consumers can place orders through voice assistants and accelerate shopping frequency through Echo smart speakers. As one internal document puts it: "We don't intend to make money from the purchase of the device, but from the time the user uses the device."

The first-generation Echo smart speaker was a hit, selling more than 5 million units in its first two years on the market, according to research firm Consumer Intelligence Research. Amazon officials do not disclose sales data for Alexa and related hardware. By 2016, the device was even featured in Amazon's Super Bowl ad. Two years later, the Alexa team has nearly doubled in size to more than 10,000 employees.

This product idea came from Amazon founder Jeff Bezos (Jeff Bezos), so Alexa has become one of Amazon's most popular teams. Bezos himself has been working on pushing Alexa forward. Bezos even personally evaluated the product’s email marketing campaign and gave his opinion, according to a person who worked on the project.

Bezos is also the biggest supporter of the Alexa team. He asked the team to improve Alexa's response time by far below the industry standard. He's also floated other ideas, including an Alexa-integrated microwave.

Unlike Bezos, Limp, the current senior vice president in charge of Alexa, was less interested in the first-generation Echo smart speaker. During the testing phase, Limp rarely used the Echo, two former employees said. Four years after its launch, the product has been mired in controversy. Reports of Alexa sending voice recordings to the wrong people and Amazon employees secretly eavesdropping on private conversations have raised privacy concerns.

Cracks in the product's business model are beginning to emerge. Inside Amazon, the team raised doubts about the quality of user interactions. At the time, users were interacting with Alexa a billion times a week, but most of the conversations were trivial, such as ordering Alexa to play music or checking the weather. That means Alexa doesn't offer many money-making opportunities. Amazon doesn't generate revenue from Alexa playing the weather forecast, and very little revenue from listening to music through Alexa.

In 2018, the Alexa team has become an investment black hole. It was reported that year that the business lost about $5 billion. Losses from the Alexa and hardware devices business will hit about $10 billion this year, according to an employee familiar with Amazon's hardware team. At an all-hands meeting in 2019, Limp acknowledged the problems. He said,

If Alexa is going to get to the next level, it has to improve user engagement and security. There are two things we can do to improve user engagement and make sure users trust their interactions with Alexa.

But Alexa is still struggling financially, employees say. Although Echo smart speakers are among the best-selling items on Amazon, most of them are sold at cost. By the end of 2019, Amazon had a hiring freeze for its Alexa team, three former employees said. The team will no longer expand, although some open positions will still be filled. The once-promising project was losing momentum, and staff morale was starting to drop.

The team then tried various metrics to gauge the true financial significance of Alexa. They even hired a team of experts to track the behavior of Alexa and Echo users on the Amazon platform and observe the Prime membership tendency of these users and the frequency of consumption. Even so, the financial contribution from the Alexa business was lower than expected. In 2020, even Bezos' interest in Alexa is starting to wane. Bezos stopped commenting on the email campaign, and the Alexa team quietly stopped sending executives about it, said an employee involved in the campaign.

Other commercialization opportunities surrounding Alexa also fell through. Not long after launching the first-generation Echo smart speaker, Amazon released the Skills app, which allows users to create voice-activated shortcuts to hailing a taxi or ordering food. Uber, Disney, and Domino's Pizza have all tried the feature before, but it failed to garner interest from users. An employee said that in 2020, due to the unsatisfactory number of users, the team stopped publishing sales targets.

Attempts to build a developer community around Skills have also failed. Registrations for the Alexa Live developer conference have continued to decline in recent years, according to an employee familiar with the matter. Alexa's competitiveness has also begun to decline after rivals Google and Apple launched voice assistant technology. According to data from market research firm Insider Intelligence, in the United States, Google's voice assistant currently has 81.5 million users, and Apple's Siri has 77.6 million. The number of users of Alexa is 71.6 million, ranking only third.

Amid declining revenue and market share and layoffs, some employees say the team's near-term strategy is also confusing. According to internal documents, Amazon's hardware team plans to develop a new wireless headset and a new augmented reality product, but whether these new projects can survive this round of cost reduction and efficiency improvement is still unknown. Amazon has always insisted on grabbing price-sensitive users with more affordable products, and now Amazon seems more willing to invest in Astro, a household robot that can cost up to $1,000. Employees say it's Bezos' new favorite, and Amazon's product decision to target high-income earners has sparked controversy and internal discontent.

The future is confusing

Amazon CEO Andy Jassy said in an email that has been made public that the company will continue to invest in Alexa. The future direction of this product is not at all clear.

Many have accused Amazon of having no ambitions for device sales. An employee revealed that Amazon has no incentive to build hit products that users actually want. “There is no clear mandate for the equipment business yet. What do we want to do? Be the best, or be the cheapest? When that is not clear, there are competing factions,” the employee said.

Employees say low morale, commercialization failures, and a lack of user and developer engagement have left them feeling the team has stagnated over the past few years.

Recently, Amazon management also remained silent after reports that Alexa would be the hardest hit area for layoffs. Many employees are also asking how they will be affected.

Limp later emailed his entire team, confirming the reports. He wrote,

I have to announce this painful news. As a result of this action, talented employees of the equipment and service teams will leave. I am very proud of our team. Every employee leaves, not ours desired result.

The Alexa team also lost several executives. In August of this year, Gregg Zehr, president of Lab126 (Amazon's ace consumer electronics research and development department, representative of kindle), who is responsible for a variety of personal hardware products, announced his retirement after working for Amazon for 18 years. Tom Taylor, senior vice president of Alexa, also announced his retirement on the same day, ending his 22-year career at Amazon.

The confusion spilled over into user-facing tech support as well. Earlier this year, Amazon found that voice shortcuts that allow users to buy items in their shopping carts were not working in the US and India. The issue was delayed for more than 200 days in India and 35 days in the US before the team resolved it. While Alexa has been overshadowed by the biggest reorganization in Amazon's history, employees say there's a successor to Amazon's new favorite: the healthcare business.


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