First Twitter, now Alexa. We are seeing an important shift in the “users = profit” dogma that could have huge ramifications in the tech startup space.
Alexa began the smart speaker race. Alexa units have are one of the best selling products on Amazon. The name “Alexa” has become synonymous with voice assistants in a way “Siri” and “Hey Google” never quite did. And yet, ten billion dollars later, Amazon’s Alexa unit has yet to turn a profit.
People don’t buy things on Alexa, which Amazon thought they would. The interface for paying for skill (app) subscriptions is too complicated and variable. Too few other platorms have licensed the technology.
The net result is a smart speaker, sold at cost, in millions of homes, chewing up computing power every time a wants to know the time, what the weather is, or boil an egg. (Things we already had means to find out or do – you can’t monetise utility when there are other, cheaper, ways to do the same thing).
For a long time, startups have been able to pull in huge investment to loss making businesses because they have growing user bases. The belief has been that more users equates to more profits, even if the way in which the business will monetise its users is unclear.
Apple were the only business to take a different route, sticking to their model of making money on the hardware, not on some intangible and unknown future revenue stream. They canned their expensive smart speaker as a consequence when it failed to pull in the required sales figures.
Tech startup culture has proved that “If you build it, they will come”. It’s just not guaranteed that they will spend any money.