Alexa, What’s Next? Amazon Echo and the Future of Retail

This holiday season, one gift is sure to fill many stockings: Amazon’s Echo devices, powered by Alexa, the device’s voice-activated assistant. Last year, Echo was Amazon’s best-selling product during the holidays, with sales up 9X over the previous season. This year, millions of consumers will have Alexa’s help as they search for music, light their fires and shop for gifts. “Alexa, I’m looking for…”

The success of Amazon Echo was somewhat of an accident. Originally intended as another slick smart speaker, it was the inclusion of Alexa, Amazon’s virtual assistant, which transformed it into a true “device” on par with smartphones and tablets. Alexa’s voice-controlled user interface is as revolutionary today as touchscreens were a decade ago, and could potentially re-shape everything from how we search for information to how we shop for consumer packaged goods and manage our households.

The Growth of Amazon
Although we might say Echo was something of an accident, nothing is really an accident at Amazon. The company has pursued growth over profits since it was founded, and has never been afraid to stretch the limits of its empire, whether it’s been e-readers (Kindle), cloud infrastructure (Amazon Web Services), news media (The Washington Post) or, most recently, grocery retail (Whole Foods).

Amazon acquired Whole Foods for $13.7 billion. The acquisition was less about the grocery business and more about growing Amazon’s brick-and-mortar presence. Amazon has significantly expanded its distribution network – a key strategy as retail trends toward showrooming, webrooming and same-day delivery. Whole Foods can also be integrated into Amazon Prime membership, another incentive for consumers to stay loyal to Amazon.

Like the Whole Foods acquisition, Amazon Echo is a “trojan horse” that puts Amazon at the center of every household. In two years, the device has captured 76% of the home speaker market in the US, with Google Home a distant second. The stakes are high as the lines drawn between different sectors – search, e-commerce, mobile, retail, social media – become blurred, and Amazon and its competitors are jockeying for territory.

The Implications of Voice
What are some of the implications of Amazon Echo in a world where interactions and transactions are driven by voice rather than touchscreens or point-and-click?

• Branding – Nobody is quite sure whether Amazon Echo will help or hurt traditional CPG branding. One study found that Alexa is more likely to recommend products that are only available to Amazon Prime members, followed by best sellers and products with the top search rank on Amazon’s website. This could be a boost for traditional CPG brands investing heavily in brand recall. But the Echo also introduces a middleman into the brand-consumer relationship and could weaken traditional branding channels such as commercials.
• Retail – The traditional marketing mix (price, product, promotion, place) will need re-thinking as Amazon Echo gains market share. Consumers will want to spend as little time as possible at the grocery store, and may skip it altogether as Amazon learns their shopping habits and automatically delivers what they need. Even price may be a foregone conclusion as Amazon can do retail with less overhead and better economies of scale. Retailers will need to invest in advanced data analytics if they hope to compete with Amazon/Whole Foods.
• Media – Amazon Echo helps the company to build entertainment and retail services together. Consumers have already made the shift from digital downloads to streaming music services. Streaming subscriptions account for 62% of the US music business, and nearly 3 out of every 4 smartphone users stream music daily. It’s no wonder that Amazon Echo started as a smart speaker – if the device is a trojan horse, music is key to getting inside homes and unlocking Echo’s real potential for retail and everything else.

Alexa, What’s Next?
There’s no doubt Amazon Echo is a big deal not just for the future of Amazon, but for the future of everything – commerce, retail, media, advertising, the Internet of Things and more. Still, we’re only two years in and the device’s potential will hinge on transforming its users into shoppers, and its shoppers into customer data that feeds back to the wider Amazon empire. In the meantime, the future of Amazon looks brighter than ever, and everyone should be on their toes as it aims to transform tech, business and everyday life.

Have you upgraded to Echo 2^nd Generation yet? Let us know what you think about the device and how you see the future of Alexa shaping up.