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. 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. 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). 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. 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. 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., 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. 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.
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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