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What Alexa Can Tell Us About The Metaverse

With the massive layoffs at Amazon, are there some lessons here regarding the latest craze in the metaverse? Anirban weighs in.

November 18, 2022

Amazon (NASDAQ: AMZN) is reportedly making significant cuts to its workforce in the devices and Alexa AI division. A Vox report citing an Amazon’s Alexa AI Division employee noted that about 60% of that team had been let go.

Back in April 2019, writing in Amazon’s 2018 shareholder letter, Jeff Bezos waxed eloquently about Alexa, noting:

Since that first-generation Echo, customers have purchased more than 100 million Alexa-enabled devices. Last year, we improved Alexa’s ability to understand requests and answer questions by more than 20%, while adding billions of facts to make Alexa more knowledgeable than ever. Developers doubled the number of Alexa skills to over 80,000, and customers spoke to Alexa tens of billions more times in 2018 compared to 2017. The number of devices with Alexa built-in more than doubled in 2018. There are now more than 150 different products available with Alexa built-in, from headphones and PCs to cars and smart home devices.

Amazon’s bet on Alexa was about making voice the new computing platform. The idea was to usher in a new wave of voice-based apps called “skills,” enabling consumers to do much more than just ask for a weather report or play their favorite songs. 

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Back in 2018, at a meeting with the CFO of a Financial Services company, I saw an Alexa demo that gave us a high-level view of how a fund was performing on a given day. It was cool, but I did wonder why it might be needed! It appeared to me that the “skills” craze was reaching a crescendo!

Amazon and Alphabet (NASDAQ: GOOG), with the Google Home devices, kept the “voice as a platform” fight on for some time. However, as the 2020s rolled in, it became clear that stationary speakers have limited usefulness for consumers. 

Stationary smart speakers are good for listening to music, getting a weather report, setting timers, turning light bulbs on/off, and perhaps fooling around with jokes from Google or Alexa. Apparently, the number of Amazon Prime subscribers buying everyday items like tissue paper using voice commands turned out to be minuscule. More so, all these voice-based tasks and more, one could achieve using a smartphone. 

The limited utility for the consumer meant a lack of pricing power. Amazon apparently sold most Echo and other Alexa devices at a loss! So no wonder, with Alexa’s headcount approaching 10,000 according to a report by Reuters, it isn’t surprising that when cuts need to be made, the Alexa division was hit by a heavy axe. 

Amazon is not alone when it comes to hardware rationalization. 

Meta (NASDAQ: META) also shut down its Portal video calling displays and unreleased Smartwatch project. The complete shutdown comes after a silent pivot in June this year to selling Portal only to business customers, following tepid reception in the consumer market.

Voice as a platform has come full circle. Stationary devices can’t take over the place of smartphones or smartwatches, which are always with us. To some extent, it also validates the point that not all tasks can be managed via voice commands. In many cases, one needs a screen for interaction.

At a higher level, this fascination with building the next platform and owning it stems from Apple‘s (NASDAQ: AAPL) and Google’s tremendous success with the iOS and Android mobile computing platforms. Every technology company desperately wants to build and own the “next” big thing so that it doesn’t have to go through the framework and policies set by Google and Apple. The net result is there are a lot of head fakes. 

Voice was heralded in the technology media as the next big thing and the platform that Amazon was likely to own. It didn’t turn out so for Amazon. 

Given the history of head fakes, I have doubts about Meta’s expensive venture into the metaverse world. While Amazon reportedly lost $5 billion annually on Alexa and devices, Meta’s expenditure is at least three to four times higher. That’s a much bigger gamble.

Only time will tell how it works out!

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