Hi. Meet Alexa.

Meet Alexa, the voice service behind Amazon's latest Internet of Things product, the Echo. Think smart speaker / personal assistant.

It’s Monday morning at 7:00AM, and your alarm goes off. “Alexa, turn off the alarm. Alexa, turn on the lights to 50%. Alexa, turn up the heat. Alexa, play my flash news briefing.” Meet Alexa, the voice service behind the Echo “smart speaker” from Amazon.

The technology industry has been searching for the next big computing platform after mobile, and Amazon may have found it in the Echo. Amazon has sold over 3 million Echo devices since its launch in November, 2014.[1] Think of the Echo as a personal assistant that among other things can play music for you, answer obscure facts, tell you the weather, make to-do lists, control your home, and (of course) order products for you from Amazon.

On top of the integrations Amazon built into the device, third-party developers can use the Alexa Skills Kit to add additional capabilities to Alexa, such as ordering a pizza from Domino’s, or requesting a ride from Uber.[2] All of the Skills code is in the cloud; nothing is on a physical device. The Echo is also compatible with internet-connected appliances made by companies such as Nest and IFTTT (If This Then That).[3] Prior to the Echo, consumers had to use their phones or various other devices to do what the Echo has consolidated into one voice-activated device. By making the Echo a central hub for controlling other connected-home devices and digital offerings, Amazon is simplifying the digital experience for consumers. Moving beyond the cell-phone to voice allows consumers to seamlessly integrate the Echo into their lifestyle.

In addition to creating value for consumers, the Echo has created an operational edge for Amazon. The Echo is the hardware connection between consumers and Alexa, which is based in the cloud. When most people think of Amazon, they think of ordering products and receiving packages, but its biggest source of profits comes from its Amazon Web Services (AWS) division, which is projected to bring in more than $10 billion a year in revenue.[4] AWS is a popular cloud service for companies that want to rent computing capacity, rather than run their own hardware and software.

Alexa has been collecting voice data since 2014, giving it a significant edge over companies such as Apple, Google, and Microsoft. Amazon is constantly refining its machine learning algorithms, improving the quality of Alexa’s responses.[5] There is a network effect present where the more users that buy the Echo and provide Amazon with their voice data, the better the Echo will be, and as a result more consumers will choose the Echo over competitors’ products.

Looking forward, there are many additional steps Amazon can take to hold its lead over other technology companies in the voice and cloud platforms. Amazon can use all the data it has collected in the cloud in order to learn more about its consumers, and conduct better, targeted advertising. Amazon could advertise not only for its own products, but third-party products as well. For example, if a family asks Alexa about travel destinations or fun things to do in another country, Amazon could show them ads for travel-related products, or send them information about travel agencies. However, many consumers have privacy concerns about the data that Amazon is collecting, and there is an opportunity for them to clarify their policies. Additionally, it is important for Amazon to increase security for the Echo. As consumers rely on the Echo for more and more aspects of their lives, such as ordering products online or controlling their home, a security breach becomes more impactful.

Another opportunity is for Amazon to use Alexa as a broader platform for other devices. The Echo Dot was release in early 2016 as a smaller, more inexpensive version of the original Echo, and consumers can also access Alexa through Amazon’s new Fire TV stick.[6],[7] Third-party hardware makers have even started to integrate Alexa into their own products. Starting in 2016, Ford vehicles with the new Sync connectivity system will have Alexa integration.[8] At home consumers can interface with the car using Amazon Echo, and inside the car consumers can access Alexa through the voice recognition button on the steering wheel. Also, Samsung’s latest smart fridge has an app that consumers can use to talk to Alexa.[9]

With Alexa and the Echo, Amazon has placed itself on the forefront of the rise of cloud and IoT products, giving them many opportunities to expand on their business and operational strengths in cloud data storage and data algorithms.

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[1] https://www.wired.com/2016/06/amazon-echos-head-start-biggest-advantage/

[2] https://www.amazon.com/Amazon-Echo-Bluetooth-Speaker-with-WiFi-Alexa/dp/B00X4WHP5E

[3] https://ifttt.com/amazon_alexa

[4] http://www.nytimes.com/2016/04/29/technology/amazon-q1-earnings.html?_r=0

[5] https://www.wired.com/2016/06/amazon-echos-head-start-biggest-advantage/

[6] http://www.wsj.com/articles/the-cheapest-way-to-get-alexa-amazons-new-fire-tv-stick-1475067623

[7] https://www.amazon.com/dp/B01DFKC2SO

[8] https://media.ford.com/content/fordmedia/fna/us/en/news/2016/01/05/smart-cars-meet-smart-homes.html

[9] http://www.consumerreports.org/french-door-refrigerators/samsung-family-hub-refrigerator-review/

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5 thoughts on “Hi. Meet Alexa.

  1. Hi Roanna, this is a great example of a new product in the market with a strong tension between the potential benefits it may bring to the customer, as well as the potential threats to security and privacy. I appreciate how you outlined both the strengths as well as opportunities, risks and challenges.

    I personally am still quite torn about this product, and the articles I have read about Echo so far have been mixed. I believe one of the reasons is that people are still trying to figure out how helpful and useful Echo can really be as a “home assistant”, or whether Echo is just another gimmicky product that will lose interest over time. As you wrote about in your article, I think a big part to Echo’s success will be developing new features (including third party), to expand Alexa’s capabilities and to really “prove” to customers that Echo is worth the purchase.

    I think a bigger risk/challenge for Echo’s success may be abroad, in particular in countries where privacy protection measures are higher than in the United States, such as in the EU. One recent example is Facebook’s struggle against regulations that limit the amount of user data collected, stored and shared (e.g., The Wall Street Journal’s article “Facebook goes on privacy offensive in Europe”). This could drastically limit the international adoption to Amazon’s new product, and thus reducing attractiveness to third party developer to provide software add-ons. I think time will tell how other countries react to the product, though if I were leading the Echo team at Amazon, this would be top of mind.

    Wall Street Journal: “Facebook Goes on Privacy Offensive in Europe”,Sam Schechner, Oct 13, 2015.

  2. The Echo reminds me of those movies with the advanced AI that responds to all the human requests (think Hal from Space Odyssey). One of the concerns I think about as an extension of that is the potential for these kinds of devices to be used against us. I don’t mean that in the sense that the devices will somehow turn against humanity but rather that they can be used for nefarious purposes including–as you mentioned above–collecting private data to could be used to incriminate or embarrass.

    Regardless, I think the potential for these kinds of devices is enormous and that we are just at tip of the iceberg with respect to how much technology can be incorporated into our lives.

  3. This is a very interesting article! As the number of apps begin to overwhelm the consumer, there is clearly a race between the tech giants to capture the interface from which the consumer can interact with all the other services. While many have focused on messenger being that interface (Facebook Messenger, Slack, Apple’s iMessage), Amazon is really the only one focusing on audio. My biggest concern for Amazon is as you said this requires a network effect, but there is a barrier to purchasing the product. While it is making efforts to make it more affordable with the Echo Dot, $50 is still a meaningful purchase. I wonder how Amazon can compete with its hardware when Facebook is free and Slack has a freemium model and is just a download away on any device. I wonder if it is feasible for Echo to become part of the smartphone or perhaps for Amazon to give the hardware for free and set up a freemium model for the services you can use it for. It will be very interesting to see who wins this race to be the main interface!

  4. There is an app for everything nowadays – from throwing a virtual paper ball into a basket… to finding a partner. As this becomes a part of regular life for us, Echo brings on something completely different. It takes us past the virtual tasks siri does to actual physical tasks like turning lights on. I think this technology is here to stay, and no matter how much initial flack it gets about privacy, it is on its way to becoming a part of future regular life.

  5. What I thought interesting is that this Echo’s technology is not fundamentally different from Apple’s Siri or Google’s Android but differentiates itself by having an exclusive hardware. I felt that this device can become a part of our lifestyle. I wonder why Apple and Google do not have such device. My concern is that the entry barrier seems to be relatively low (especially for companies like Apple or Google). I feel that continuous business effort is necessary for Amazon to continue to be different from its rivals.

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