Amazon’s $10B Alexa gamble and a shift toward simplification

The news: Amazon’s hardware failures have taken their toll as the company navigates a $10 billion loss from Alexa devices and smart speakers.

The hardware pivot unravels: David Limp, Amazon’s senior vice president of devices and services, will be leaving the company by year’s end, indicating a change in strategy is at hand.

• Limp, who has been with the company since 2010, oversaw the launch of major Amazon projects like the Echo smart speakers, the Alexa voice assistant, Fire tablets and TV devices, and the Amazon Appstore.
• Despite massive adoption, with over 68 million US Echo speaker users in 2023, Amazon’s hardware has failed to meet income-generating expectations.
• Most Alexa users do not make purchases through the devices.
• Amazon also went on a pre-pandemic hardware shopping spree, amassing IoT brands like Eero, Ring, and Blink, ostensibly to form a connected home ecosystem.
• Along with laying off more than 18,000 employees in multiple rounds of cuts, a markedly larger number than previously planned, it also consolidated the devices team that oversees smart assistants and smart home.

What’s next: Expect Amazon to continue restructuring its hardware business, possibly focusing on popular Kindle e-readers and Fire tablets, while simplifying its smart home and IoT lines. 

It will likely reduce aspirational projects like delivery drones and the Amazon Astro robot, which was announced in 2021 but is still in a $1,600 invite-only preview.

Trendspotting: Amazon isn’t the only Big Tech company reeling from failed hardware plays. 

• Microsoft canceled its Cortana smart speaker and discontinued its Surface Duo foldable phone. The company bowed out of the retail store business in 2020 and took a $450 million hit.
• Google’s own hardware pivot is tenuous. While its Pixel smartphone sales are rising, its Pixel Fold dual-screen phone seems to be plagued with issues.

Our take: Big Tech might ease off on consumer electronics, focusing instead on profit centers that run through software, apps, and online subscription platforms.