According to a note by RBC Capital Markets published on Thursday, Amazon Alexa could potentially bring in $10 billion in revenues for Amazon.com Inc.
The smart personal assistant began life on Amazon Echo and related smart speaker devices for consumers, but is quickly making its way into a plethora of smart consumer devices though API integrations (Alexa Voice Service API, or AVS API.)
RBC’s take is that this could be a massive business for Amazon based on the sale of smart devices with integrated Amazon Alexa functionality.
We’ve been saying the same thing for a while now, but our take is that Amazon’s income from Alexa is not directly related to the sales of connected device with Alexa capability built in. Therefore, Amazon may not stand to make any money directly from the sales of such devices made by other manufacturers, because the API service itself is free.
So, How Does Amazon Alexa Actually Generate Revenues?
The real monetization of Amazon Alexa happens in the background. When consumers interact with these connected devices using voice, requests are sent to AWS servers, and these requests are charged.
The amount looks paltry – about 20 cents per million requests over the free tier limit – but at scale and volume, it could translate into billions of dollars in cloud revenue for Amazon Web Services.
We’ve explained this is greater detail in a recent article, an excerpt from which is posted below:
“When you create a function for an Alexa Skill on AWS Lambda, Amazon charges you on a per-request basis. The first 1 million requests are free, and after that you pay 20 cents for each additional 1 million requests.
Now, imagine a company like LG integrating Alexa into its smart refrigerators – that’s just one of the many integrations being developed with Alexa at the core. Let’s say LG sells about 10 million of these refrigerators in 2017. At a really conservative estimate, each refrigerator will send dozens of requests a day, possibly more. Multiply that by 10 million and you’re looking at perhaps close to half a billion requests per day.
That’s for one line of products from one company. Now, imagine hundreds of products with Alexa integrated into them either as a Lambda function or as a web service. Either way the request gets sent to Amazon’s cloud servers because that’s where Alexa’s compute resources live.”
You can read the full article here:
Amazon’s Strategy for Growth – Prime, AWS and, Now, Amazon Alexa
The note from RBC Capital says that the $10 billion estimate also includes revenues from voice shopping, and that’s something we’ve spoken about in detail before as well. Amazon Alexa is the only smart voice assistant with direct access to Amazon’s massive catalog of products – specifically, for Amazon Prime members, who now number over 66 million, according to an estimate by Recode.
Though Google Assistant offers a similar voice shopping option, that consists of a network of big box and chain retail stores – not as lucrative as having your own online store to sell items from.
The information from RBC is well in line with our own assumptions for revenues from Amazon Alexa, and we might even see the $10 billion figure turn out to be a lowball number by 2020. It depends on how quickly the device integrations are executed, how many different types of connected devices get Amazon Alexa integration over the next few years, how strongly voice shopping is able to grow and various other factors.
That said, we don’t know if Amazon will ever reveal actual numbers generated by Amazon Alexa. Aside from retail revenues and AWS income, the company does not breakout its revenues into segments. That might change in the future, but we don’t expect Bezos to clue us in on Alexa-generated revenues any time soon.
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