Last week, Amazon held an event in Seattle to announce that Alexa is now being used on over 70 new devices and launched many new hardware products of their own that support Alexa.
Creative Strategies Principal Analyst and Techpinions columnist, Carolina Milanesi, did a great overview of the actual products Amazon announced at last weeks event for Tech.pinions subscribers and it is clear that Amazon has great faith in the role Alexa can play in their own future.
Amazon’s hardware strategy and its Alexa tie-in is at the heart of one of their most important long-term strategic goals and needs to be factored into these new device announcements.
One of the biggest problems the tech industry has dealt with for decades is that once they sold a piece of hardware, that was the end of the sale. Yes, they could sell things like extra power supplies, monitors, additional memory, printers, etc. but in most cases, these were one time sales with no further revenue attached to them.
The PC makers did try to find a way to gain some continuous revenue by striking deals for loading software from third-party developers and get a small cut from these deals, but this created what was called “bloatware,” and most PC makers had to discontinue this practice. Even today, most PC’s, printer and other peripherals are sales that have no additional or long-term revenue stream attached to them.
Over the last ten years, things have shifted a bit, thanks to Apple and their creation of the iPod and eventually the iPhone that was centered around a hardware, software and services model. Over the last 10-12 years, Apple has helped define the concept of how to sell a piece of hardware and reap continuous revenue through its various services. In this case, the iPhone especially serves as the receptacle for receiving and playing music, activating apps, watching videos, etc. While many of the apps are free, many have monthly fees like Apple Music and others that charge for the apps. This brings a level of aftermarket services to Apple that delivers close to $10 billion in revenue to Apple each quarter.
What is impressive with this is that these are charged services revenue, and almost none come from advertising. Today, Microsoft, Google, and Amazon have followed Apple’s lead and are tying more and more services and, in some cases, add revenues to their business models to make sure that even after they sell you something hardware related, they can still earn money from that sale.
Much of what Amazon introduced last week reflects this approach to hardware and services, and by using Alexa, they are making it much easier to even buy by products and services Amazon offers too. However, one of the more interesting things I was asked by a couple of media folks after these Amazon hardware announcements is that it looks like Amazon is just throwing stuff at the wall and seeing which one sticks.
While it may seem that way, Amazon is using another tried and true industry strategy employed by Intel, Microsoft and other ODM’s that has been used for decades. These folks have a core technology that they want to get into the hands of more people. In Intel’s case, it was their CPU’s. In Microsoft’s case, it was their OS and specific software apps. For both, they needed to broaden the types of devices that could use their products and thus began creating what we in the industry call reference designs.
Although Amazon does believe they can sell all of the new products they have created and earn some revenue from them, their real goal is to push third-party hardware vendors to develop similar products and broaden the base of devices that support Alexa and in turn accelerate the number of products that feed into their overall services model.
An excellent example of this is the Amazon Basic Microwave. Carolina explains this new product in the following manner in her analysis:
“One of the devices that were leaked before the event, the AmazonBasics Microwave, ended up being a little different than anticipated. While Alexa’s smarts are integrated into the Microwave, her voice is not, and the Microwave must be connected to an Echo Device to use Alexa. This little difference changes the way I think about the role this new device has to play in Alexa’s ecosystem.
Rather than being a way to deliver Alexa to those users who might not have wanted to invest in an Echo, no matter how cheap it was, this Microwave represents a way to learn how well established user interfaces and device interactions can be changed by voice. Even though microwaves got smarter over time, the way we interact with them has not changed a great deal over the years. You open the door, put some food into the device and input some numbers to either selecting a meal setting or a cooking time. Now with Alexa, we can say what we are cooking, and Alexa will automatically set up the correct cooking time. Amazon also integrated the Dash functionality to replenish food.”
Amazon could sell many of these but what would benefit them is if many makers of Microwaves also use either the Echo or even do a deal to integrate Alexa directly into the Microwave itself. This concept could be applied to the those making some form of setup box alternative and license Amazon’s new Fire TV Recast product.
The same goes for Echo Auto. Alternatively, Echo Wall Clock. If Amazon sells these branded products that are good for them. However, if they get others to see these as reference designs and come to them to license Alexa technology for their version of these new products introduced last week, Its a more significant win for Amazon.
Amazon has emerged well beyond the online retailer that defined them over the last 20 years. They have joined the ranks of significant players that now offer hardware, software, and services. Also, given their scope and the strategy that also uses reference designs to get many other hardware vendors to back them, their growth opportunities could be extraordinary.