The Alexa Skills Race: Early Results

The speed of innovation on the internet seems to be keeping pace with Moore’s Law.  But unlike Moore’s Law, which only explains how our microchips get smaller and better, the innovation occurring on the internet is happening with the help of hard-won lessons of previous market game-changers.  Websites were challenged by apps, and now apps are being competed with by voice skills, and the leader and definer in this market is not one of the traditional tech giants like Apple, Google, or Facebook: it’s Amazon.

Fast growth

It wasn’t that long ago, just November 2014, in fact, that Amazon released the Alexa service as part of its Echo smart speaker.  This AI service provided a lot of fun and experimentation early on, but in mid-2015 Amazon moved past the fun and welcomed third-party developers onto its platform.  Within 6 months there were 130 skills on the platform.  Six months after that, the number was north of a thousand.  The meteoric rise continues, and as of early this summer, Amazon was quoting the number 40,000.

Fueling their own fire

Amazon wasn’t content to let the market figure this out on its own.  Because Amazon currently mandates that no Skill can cost money to be added to Alexa, the road to monetization for developers can be longer than in the app world.  Enter the Alexa Developer Rewards program.  Launched in mid 2017, the program pays developers who create highly rated skills in categories like “education and reference” or “trivia and accessories.”One beneficiary of the program is 22-year-old David Markey, a recent Brown University grad and early adopter of Echo.  Early in 2017, he created an interactive game called “Word of the Day” which teaches users a new word and definition each day.  The skill gained a great user base, though Markey felt stuck as there was not yet a way to monetize his users.  Email correspondence with Amazon encouraged him to stay committed and before too long, the Developer Rewards program launched.  Since Markey’s “Word of the Day” skill wasn’t in one of the payable categories, he created “Word of the Day Quiz,” giving his already loyal users a chance to opt into the new skill.  Not long after that, he started getting checks, and developed another skill which put him on the radar of gaming company Volley, who bought all of his skills and gave him a job developing.  The total partnership with Volley, which includes shared revenues from the skills he already developed adds up to $10,000 per month in recurring revenue.  The fact that Amazon will soon make worldwide what is already available in the US, in-skill purchasing (for one-off or subscription-based buys), and you can see that there’s a lot of upside for innovators like David.

Keeping it open…even to competition

Amazon seems committed to keeping the platform open to competition.  You need look no further than Best Buy, which already has a skill launched that allows you to shop at Best Buy…using Amazon software and hardware.  There’s nothing to stop other retailers from following suit.Similarly the audio company Sonos recently released a smart speaker that directly competes with Amazon’s Echo family of products, but the built-in assistant is…you guessed it, Alexa.  This despite the fact that Sonos already announced that Google Assistant will be allowed as a voice assistant on the device.  Google got the press, but Amazon got to be part of the launch.Amazon seems to be fully aware of how and why this new voice market will make it a major player for search and allow it to leapfrog the enormous head start that Google had in traditional text searching and the walled-garden searching that Facebook offers its users. Voice can cater to both of those markets, and at the moment, Amazon continues to lead the way, with somewhere between 70-75% of total market share for smart speakers among the smart home market.

Sifting through the Big Data

Some of you may know that Amazon Web Services hosts secure servers for the Central Intelligence Agency, of all entities, so it’s unsurprising that when it comes to their own data, Amazon is paying attention.  The numbers show that Amazon Echo users spend more on average per year on Amazon products and services (around $1700) than even Amazon’s Prime members (who spend around $1300).While the immediate data only adds to the reams of information Amazon already develops from smart deployment of its ever-improving algorithms, and is most directly identified with Amazon users, the data can easily be extrapolated out to look at consumers on the internet, and consumers in general.  One of the biggest advantages of being first to market, if you’ve got metrics in place, is to see where you can cut off the competition before they can ever become a threat, and while Voice has our attention now, who knows where these skills may lead next?  It seems certain that Amazon will be there to capitalize.