Why is Amazon encouraging you to use Alexa to place orders?
Background
I have always wanted to get an Echo (Amazon’s smart speaker). I love the simplicity of being able to talk to a speaker, asking Alexa (Amazon’s siri-esque voice assistant) to play you a song, tell you the weather or even make a to-do list.
It was the middle of June last summer and I received an email from Amazon. The Echo Dot was being sold for £25. These speakers are usually sold at £50; so naturally, I went on the prime app to buy myself one. The only problem was the speaker was still being sold at £50. I was confused. Why couldn't I buy the Echo for the price shown in the email? Was there an error on the site? Did Amazon lie to me?
I looked at the email again.
Turns out I had misread the email. The Echo speaker was available for £25 only if you placed the order through Alexa!
I didn’t have an Echo speaker so I couldn’t place the order using Alexa. I was about to give up on the purchase when I was told by a friend you can just download the Alexa app without any speaker. I downloaded the app and placed my order by telling Alexa what I wanted to buy. I then went on to the app and confirmed my order for the half-price speaker.
Finally…. whew! I was fortunate enough to have a friend to tell me I could download Alexa, others wouldn’t. Amazon risked losing a significant number of people in the sales funnel just to promote placing orders through Alexa.
Why might Amazon have done this?
Impulse Buying
Most Prime users (myself included) are guilty of impulse buys. It’s no secret Amazon thrives off of this human behaviour, it’s designed this way. You’ll get a quick dopamine hit with every purchase and little to no effort is required. Sit back, browse through a selection of 12 million products and anything you buy will be at your door within a day.
You’re more likely to spend money shopping online than in person.
Here’s the idea: You already tell Alexa to set timers when you put something in the oven, you ask Alexa about the weather every morning. Why not tell Alexa to add toilet rolls to your cart too?
It’s habit-forming.
The process of buying something this way is extremely simple for the customer. Instead of rummaging around the app, you just say what you want throughout the day and then click a button to checkout. This could change the way the customer's weekly shops are done and increase the number of impulse buys one makes.
Revenue over profit
Since its origin, Amazon has used a business model where the company focuses on increasing revenue over short-term profits. Profits have always taken a back seat to market share at Amazon.
Figure 2 comes from Amazon itself, note how there is no arrow for taking profits. Jeff Bezos is notorious for reinvesting all profits right back into the company or even persuading investors that no profit may in fact be a good thing. Amazon has always ruthlessly prioritised growth and revenue over profits.
By selling the Echo smart speakers at a loss (or significantly reduced profits), Amazon would gain a significant number of users of both Alexa and Echo. This, in turn, would translate to more Amazon products being used, whether it’s listening to Amazon Music using the speaker, watching Prime Video on the Echo Show or just stopping you from buying a competitor’s smart speaker.
There’s also the ecosystem effect where a customer is less likely to cancel their Prime subscription if they’ve already bought the Echo and are users of all the different prime products (Music, Video, Shopping).
Amazon’s focus on selling the Echo on the cheap could theoretically make them more money in the long run.
Data
I have to address the elephant in the room, data. Alexa already collects more data than any of its competitors. This would further enable Amazon to anchor Alexa as a data-collecting machine.
This data could then be used for numerous things, targeted adverts the next time you go on the site, recommending you new products using collaborative filtering or even pushing specific products on you strategically.
Let’s go through some specific examples.
Example 1. You use your Echo speaker when baking, you ask Alexa to give you a recipe for cookies. Amazon now knows you’re a baking aficionado, the next time you go on the Prime app you see highly rated baking trays and measuring cups on the front page. Amazon can recommend products to you it knows with a high degree of certainty it knows you’ll like.
Example 2. You talk to Alexa on a daily basis, it knows your accent, your speech patterns and your vocabulary. There’s a big debate about the ethicalities of this but we won’t dive into that right now. Amazon takes this information and groups you with other people who fit your speech profile. Using this data, Amazon can place you in a specific category and send you personalised adverts.
Amazon can use Alexa to gather your data in numerous ways. You ask Alexa to play a specific song, next time you go on Amazon music you’ll start getting recommendations from that artist. You tell Alexa to order toilet rolls, the next time you go on the Prime app it recommends the same product.
Conclusion
What seemed like a minor business decision, only granting Alexa users a discount for the Echo, has much larger implications than initially expected.
The tech giant has leveraged human psychology and data to become one of the biggest tech companies in the world. Its’ singular focus on prioritising revenue and growth over any other metric has enabled it to become a leader in over 12 different industries.
Amazon is obsessed with using these values to drive its strategy. Simple decisions that may seem arbitrary are backed by a long thought process. It’s these little choices, taken so seriously, that has enabled Amazon to become a tech behemoth.
