Amazon has long been losing money on its Echo smart speakers—a fact that has been an open secret since Alexa‘s launch. This approach reflects a loss leader strategy that only a company of Amazon’s scale could sustain for so many years.

Selling hardware at a loss isn’t a new tactic; it’s a strategy that has worked for other products like printers and razors, where the profit is made on consumables like ink cartridges and razor blades.

From a market penetration standpoint, Amazon’s strategy can be seen as successful. Earlier this year, founder Jeff Bezos claimed that Alexa is now present in 100 million homes and spans 400 million devices.

However, the financial side of things tells a different story. According to a recent report by The Wall Street Journal, Amazon’s devices division lost a staggering $25 billion between 2017 and 2021, with the Alexa division alone losing $10 billion in 2022.

At some point, a loss leader can turn into a liability, and that reality hit home at the end of 2023, when Amazon laid off several hundred employees from the Alexa unit. Eleven-digit annual losses, combined with a challenging macroeconomic environment, created an unsustainable situation, even for a company with annual revenues exceeding $600 billion.

Alexa isn’t the only smart assistant experiencing a reality check. Consumer interest in other assistants like Google Assistant and Siri has also waned, and options like Bixby and Cortana have largely disappeared.

Despite these challenges, both Google and Apple have signaled that they’re not ready to abandon their smart assistants. Siri was highlighted at Apple’s WWDC in June, rejuvenated by the new Apple Intelligence initiative, while Google announced this week that its Assistant would soon receive a boost from its Gemini AI technology.

While Amazon continues to roll out new Echo devices, such as the recently upgraded Spot, the company appears to be re-evaluating its strategy. Much like its competitors, Amazon sees generative AI as a potential game-changer for Alexa.

The core issue is that Alexa devices have often fallen short of customer expectations, with a 2021 Bloomberg report noting that most Alexa interactions revolve around just three tasks: playing music, controlling lights, and setting timers. One former Amazon executive bluntly told the WSJ, “We worried we’ve hired 10,000 people and we’ve built a smart timer.”

To address these limitations, Amazon has been encouraging third-party developers to create more useful skills for Alexa and has been working on enhancing the assistant’s conversational abilities. In this regard, generative AI could be transformative. Platforms like ChatGPT have shown remarkable proficiency in natural language conversations, and Amazon previewed Alexa’s generative AI-powered future late last year.

As Amazon marks a decade since the launch of Alexa and Echo this November, the company is at a critical juncture. Whether Alexa will continue to evolve and thrive over the next decade depends largely on how well it can leverage AI advancements and meet consumer expectations in the coming months.

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