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Amazon is pushing for profitability in its embattled Alexa division with a new plan to offer customers an AI-powered version of its voice assistant for $5 to $10 per month. Dubbed “Remarkable Alexa,” the upgraded offering will provide a more personalized experience for customers and can perform more complex tasks than free Alexa versions, including writing emails, ordering food, or even making coffee after a morning alarm (at least when connected to a smart-device), Reuters first reported.
There’s a lot riding on the success of Remarkable Alexa. The Alexa division has been struggling with profitability for years, reportedly losing $5 billion in 2022 alone. Two rounds of layoffs in late-2022 and 2023 have helped stem the bleeding, but the latest AI push will need to translate to revenues quickly. Emphasizing this do-or-die sentiment, unnamed Amazon employees told Reuters that senior management called 2024 a “must win” year for Alexa.
“If Amazon does not see adoption of a paid tier…we think Amazon could cut Alexa investment further to reduce losses,” Bank of America analysts, led by Justin Post, also warned in a Monday note.
Amazon didn’t immediately respond to a request for comment.
Post and his team did some back-of-the-napkin math to figure out just how much revenue Amazon’s AI-enabled voice assistant might generate with the pricing that has been reported.
They found that while many Alexa devices are out of service, if just one in five are active with a unique user, that would translate to 100 million active users. And if 10% of those users are willing to pay $5 per month for Alexa, that would provide Amazon with $600 million a year in revenue. At $10 per month, that number doubles to $1.2 billion.
This means Amazon can expect between $600 million and $1.2 billion in incremental revenue from an AI-enabled Alexa, even with limited adoption—but Post noted that these estimates are conservative for a reason.
There are a number of free alternatives to Remarkable Alexa, including ChatGPT, Google Assistant, Apple’s Siri and even the regular, free version of Alexa, that could draw customers away. “We think Alexa’s capabilities will need to improve to stay competitive with AI advances from competitors,” Post wrote.
The analyst also said he believes that “AI functionality may be more useful on a PC/phone vs. voice device like a home speaker.”
Still, Post and his team remain bullish on Amazon overall, arguing plans for an AI-enabled Alexa offering show the company is “committed to improving Alexa’s economics.”
Other changes at Amazon, including new fees for ad-free Prime Video and adjusted fees for grocery deliveries, also suggest an “ongoing focus on profitability” that should benefit share prices, according to BofA. Growth in Amazon’s advertising business should also boost profitability, said Post, who has a “buy” rating and a $210 12-month price target on shares of Amazon.
The stock dipped 0.98% to $187.51 by 1 pm ET on Monday.
