How Smart Assistants will Impact Each Provider’s Revenue: Amazon
I came across these awesome charts a little while ago from Visual Capitalist and I thought it might be interesting to write about how I see smart assistants impacting each of the major providers’ revenue (excluding Samsung and the Chinese assistant providers).
Let’s start with Amazon. Whenever writing about Amazon and Bezos’ vision for Alexa, it should always be noted that Amazon has 10,000 people working on Alexa. Think about that number for a minute. Clearly Alexa is set to play an important role in company’s future, but what is that role? One possibility, is that Alexa fits into the theme across all of Amazon’s offerings, which is that Amazon always ends up as, “The Tax Man.” I didn’t come up with this analogy, Ben Thompson did back in 2016 with a post that still resonates with me today.
Let me explain, starting with the e-commerce portion of the business. In 2017, More than 50% of all units sold on Amazon.com came from third-party sellers, and the “marketplace fees” it “taxes” the third-party sellers (commissions, shipping and fulfillment) accounted for 18% of its total sales in 2017. In essence, if you want to be a merchant in Amazon’s gigantic marketplace, Amazon takes a cut on every transaction from the merchant, for facilitating the marketplace.
On the consumer side, Amazon Prime could be considered a tax as well. As Amazon continues to capture more and more of the total number of e-commerce transactions, and U.S. retail continues to trend toward e-commerce and away from physical stores, Amazon is effectively collecting a $99/year tax on users who prefer e-commerce to traditional brick & mortar retail.
Along the same lines, the scale of AWS allows for network effects to compound to the point where Amazon’s offering is so appealing for businesses that most companies don’t really think twice about having Amazon service its infrastructure needs. As a business owner, would you rather build out your computing infrastructure yourself, pay the AWS “tax”, or pay one of AWS competitor’s tax, such as Microsoft Azure? It’s becoming increasingly obvious that the answer to that question for the vast majority of businesses, is either AWS or a competitor. Amazon has made it so that it doesn’t make much operational or financial sense to try and build out your own, so you’re better off paying the AWS tax.
Sellers can push more units on Amazon than any other marketplace, but you have to pay the tax man. Customers can get two-day, free shipping on the majority of items sold through Amazon.com bundled with video and audio content, but you have to pay the $99 annual Prime “tax.” You can have all your computing infrastructure needs established and managed by AWS, but you have to pay the tax. As Ben puts it in his piece, “Amazon has created a bunch of primitives, gotten out of the way, and taken a nice skim of the top.”
So what does Amazon “tax” with Alexa? I don’t know what Amazon’s grand plan for Alexa is, but the most obvious area to me is with the combination of Alexa and Amazon Pay. Shoppers can link their Amazon Pay account to their Alexa, so that anything that is purchased through Alexa (whether that be for Amazon goods, or if Alexa is brokering an exchange between the user and some other merchant on any given platform), Amazon facilitates the transaction and therefore reaps the payment fees. For merchants, they can enable payments to be made through Amazon Pay, and then take it a step further and allow for purchases of their goods to be made through Alexa-linked Amazon Pay accounts.
I think this is what’s flying under the radar with Alexa. It’s not as much about Amazon encouraging more buying from consumers on Amazon.com (although Amazon definitely wants that too), but more importantly, Amazon attempting to put Alexa right in the middle of any type of voice commerce transaction. This would effectively mean that Amazon is taxing any transaction that was brokered by Alexa, by fusing its payment offering for shoppers and merchants with its “master assistant” Alexa.
Stay tuned, as I will break down Apple and Siri next.
-Thanks for Reading-
Dave
