An article in last week's Wall Street Journal detailed how Amazon was losing billions on its Alexa-powered smart speaker lineup

Amazon greatly overestimated the downstream impact (DSI) of Alexa The company expected that consumers would use Alexa to order products and services through their smart speakers, thereby making up the difference between the cost of the Echo speaker and its selling price

As a result, Amazon drastically downsized its Amazon Devices division, laid off thousands of employees, and killed off many products, including the Halo fitness band and Amazon Glow

But the losses continue, and having used Echo devices and related products since Alexa was first introduced, I have three thoughts on how Amazon can rebuild its business

With over 500 million Alexa devices in the world today, Amazon has definitely achieved its goal of saturating the market Google is not as bullish as Amazon on releasing a new smart speaker every year, so it is far more likely that we will see an Echo or Echo Dot than Google's Nest Mini

Now that Amazon's devices are so popular, there is less need to aggressively lower prices to saturate the market However, it still makes sense to bundle them with profitable Amazon products, like Ring's video doorbell

And like Ring's device, Amazon should make some features of future Echo speakers available only through subscriptions Consumers will not like it, but will probably pay if the fee is small enough

The core option, as Avi Greengart explained at Techsponential, is for “Amazon to insert ads into every interaction, weather the inevitable consumer backlash, and see how many people keep their Echo connected”

Amazon's hope when it launched the Echo was that people would use the smart speaker to order more products by voice, which would help justify the low price of the device itself However, this approach has not been very popular

But instead of lowering the price of the speaker, Amazon should lower the price of products purchased by voice There would still be a loss, but at least consumers could get into the habit of ordering products with Alexa instead of through the Amazon app

If they can order toilet paper or batteries more cheaply through Alexa, they might be tempted to try to see what else they can get cheaper And the discounts Amazon offers here could be less costly than selling Echo devices at a loss

This is already underway, as Amazon previewed Alexa Enhanced last fall Not to muddy all the work people have done for Alexa and other smart assistants, but the emergence of OpenAI ChatGPT and other artificial intelligences shows that Alexa is pretty dumb I can't think of a single suggestion Alexa gave me that I wanted to hear, other than random dad jokes So I, like many others, use it only to set timers, turn on smart lights, and play music

When I saw a preview of the new Alexa, it certainly seemed smarter and more natural However, people are so used to using Alexa and other smart assistants for limited purposes that they need to get used to their new habits You can't make people pay for Alexa Enhanced

If Alexa says, “By the way, the paper towels I always buy are now 20% off, do you want to order some?

Until then, they will continue to use Alexa to let them know that their boiled eggs are ready