In a laboratory on the 30th floor of Amazon’s Day One building, the tech giant’s new skyscraper overlooking Seattle, Dave Limp unveils one new product after another. The room, which serves as a test space for Amazon’s manufacturing team, is designed to look like the interior of a home, with a fake kitchen that merges into a miniature living room. In the “kitchen”, Limp, Amazon’s head of devices, is demonstrating the power of the Echo Plus, one of Amazon’s new gadgets, and how it will turn homes into technologically controlled hubs, beginning with one crucial word.
“Alexa, good morning,” says Limp, using the wake word that powers the Echo products. The Echo – a silver cylinder the size of a bottle of wine – lights up and the house responds to his command. Ceiling lights turn on and electric blinds are lifted, revealing a clear blue skyline featuring Seattle’s iconic Space Needle. “You might not have seen, but the kettle also started boiling,” Limp says.
The media event, a rarity for Amazon which is notoriously secretive about how it works, was an attempt to cement the web giant’s claim as leader in the nascent voice assistant market. After the success of the first Echo speaker, released three years ago, it launched half a dozen products, including a video alarm clock, two speakers and a landline speaker phone.
At the heart of them all is Alexa, the voice-activated software used to control the devices, which have few, if any buttons. Amazon also announced a partnership with BMW, which will offer Alexa in a selection of its vehicles from the middle of next year.
Voice-activated intelligent assistants are seen as the next great prize in consumer electronics and Amazon has quickly become the dominant player. There are now more than 10m Alexa-powered devices in homes around the world.
Last week’s event served as an introduction to Amazon’s expanding hardware department as much as it showcased its latest products. Just over a year ago, Jeff Bezos said Amazon had “more than 1,000” employees working on Alexa and the Echo. Fifteen months later that figure has risen to 5,000. Amazon’s hardware machine, which was a siloed in an experimental California-based division when the original Echo launched in 2014, has come a long way.
Amazon is best known for its colossal online retail operation and in recent years it has also become a cloud computing powerhouse thanks to its Amazon Web Services arm, but last Wednesday’s event in Seattle was more reminiscent of the product launches held by the likes of Apple.
Unlike its fellow tech giant, which seeks to make profits directly from selling gadgets, the prices of Amazon’s devices show that it is looking beyond hardware as its next big bet. The web giant has stealthily become a major player in consumer electronics, but its primary focus is still to dominate in retail. With a top price tag of £199.99, compared to the more than £1,000 that the top iPhones retail for, the new Echo devices are unlikely to be a big moneymaker.
“For Amazon, hardware is a means to drive more consumption, be it media or washing powder,” says Geoff Blaber, an analyst at CCS Insight. “Software, developer and hardware announcements are all designed to deepen Amazon’s role in our lives.”
Amazon’s Alexa products are a gateway to its other services, including shopping and streaming, rather than a revenue stream in themselves. Just like the Kindle, the e-book reader it first released in 2007, it makes no money on selling the devices themselves, but hopes extras will prove lucrative.
“We try to sell all our products at effectively break even,” says Limp. “Most consumer electronics manufacturers make all their money the day they sell to you. Then all they care about is the next Christmas [and]selling you the newest version of their widget.
“It’s super early but I think the best thing we can do is build a great product that customers want to use every day. And if people want to use it every day then I think we’ll figure out ways to monetise that long-term.”
Amazon is hoping to sell as many Echo devices as it can at a low cost so that over time it can cash in on customers using its other services, such as Prime Music, TV and Audible, its audiobook service. “Nothing makes me happier than when I walk down an aeroplane aisle and I see somebody with the original Kindle,” says Limp. “It’ll be 10 years old this year and people are still getting utility out of it. Have we made a little money along the way? Yeah, they’ve probably bought a couple of books. But they have also got 10 years of value from that product.”
Amazon’s main consumer business will remain its shopping platform, which launched in 1994. But as it repositions itself as a subscription company based around Prime, its next-day-delivery service, it wants to make sure customers are engaging with it on a regular basis. “Amazon’s objective here is not for Echo to be a revenue generator, but more [about] devices that draw customers into its ecosystem, which it will make profit from,” says Werner Goertz, analyst at Gartner. “In that sense, Amazon is different from competitors, such as Google and Apple that still want to make profit from hardware.”
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To that end, Amazon is not looking to rival Apple or Google, even though it might initially appear so. Amazon’s plan to put Alexa in every household extends beyond its Echo range. It has partnered with scores of companies who have already built Alexa into 1,100 products. The online retailer licenses its artificial intelligence technology to partners free of charge purely to get the public to use it. Even if somebody does not have an Echo, they are bound to have something that features Alexa technology, from a smartphone to wireless headphones or, increasingly, their car.
“In a voice-enabled smart home, users and customers should be able to speak to Alexa without thinking what room they’re in or what task they’re conducting,” says Priya Abani, director of Alexa voice services. Amazon wants users to be able to say, “Alexa, what’s the weather today?” and receive an answer no matter where they are. If they’re in the living room their Echo could reply. If they are outside, their phone or smartwatch might do so. “Eventually Alexa will have more third-party access points [those not made by Amazon] than first-party ones,” says Abani.
“This is something that speaks to our vision of having Alexa everywhere,” says Jon Kirk, director of Echo and Alexa voice services at Amazon. “We think of Alexa as a touchpoint with our customers that provides so much value. We think it benefits customers to be able to access Alexa through a wide variety of products. We really want that day to come when you say ‘Alexa’ and the product that’s nearest responds.”
HTC, Huawei and Lenovo are among the brands that offer devices with Alexa built in. The latest addition to the family is BMW, which will start selling vehicles fitted with the smart assistant in the middle of 2018.
“What we’ve done here with Amazon is to offer a huge opportunity to add what you do outside the car in your personal life into the vehicle,” says Thom Brenner, head of digital services at BMW. The in-car version of Alexa will connect to devices in an owner’s home to let them perform tasks while they drive, such as opening the garage door, turning on the heating and starting the laundry. “This is really the start of a new era. People can take their favourite capabilities and Alexa skills and use them in the car,” says Brenner.
One of the major challenges for Amazon will be engaging customers with its services once they leave the house. As a first mover in the voice assistant space, the firm has an early advantage when it comes to smart home products. Almost 36m Americans use voice-activated speakers at least once a month, according to research from eMarketer, with 70pc of those doing so through an Echo. But its products, which connect to a mains power supply, are designed for inside.
“Clearly Amazon is leading the connected home and is poised to expand,” says Goertz. “But the minute you step outside you lose contact with Alexa and that is something I think Amazon will be working on next. That’s where the competition can still effectively challenge them.”
There is a possibility that Amazon will need to release its own smartphone if it is to maintain a competitive edge against other technology giants. But its Fire phone, released in 2014, flopped. “The Fire phone was just short of a disaster. That was not a successful product,” says Goertz. “Today Amazon is trying to reach smartphone users by having Alexa embedded [in apps]. So it is somewhat present, but it is still not the same experience.” He predicts Amazon could try launching a phone again, as early as next year.
That may not be soon enough. This week, Google is expected to unveil a new generation of smartphones and smart speakers that could see it catch up with Amazon. Later this year, Apple, which retains more clout than any rival, will release the HomePod, a smart speaker rival to the Echo. Amazon has the first-mover advantage, but if it is to define an industry in the same way the iPhone did, it cannot afford to rest on its laurels.