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Research Says By 2020 $10 Billion 'Mega-Hit' Could Be Amazon’s Voice Assistant Alexa

Research Says By 2020 $10 Billion 'Mega-Hit' Could Be Amazon’s Voice Assistant Alexa
According to a note published by RBC Capital Markets, Amazon’s voice assistant Alexa could be a "mega-hit" and could bring the U.S. e-commerce giant $10 billion of revenues by 2020. Alexa is installed in its Echo smart speaker.
The investment bank has said that both Amazon and Google, which has its own technology called Google Assistant, "voice-activated internet (VAI)" it represents a "material opportunity".
But how this technology will make money for these firms is being attempted to be identified by many investors. Driven by sales of devices that contain Alexa, voice-driven shopping and platform revenues, it could be a huge business for Amazon, suggests RBC. Generation of $10 billion in total revenue could be the result of the sales and shopping by the device. Bringing the total install base to around 128 million, there will be 60 million Alexa devices sold in 2020, RBC said.
Breaking down each reason, RBC thinks that Amazon could have 500 million active customers globally by 2020.
Assuming 40 percent adoption rate in the U.S. and 25 percent internationally, this would mean 60 million Alexa devices sold that year. This would generate $5 billion in revenue in 2020 assuming a two year-replacement cycle, and $85 average selling price.
RBC found 17 percent use it for ordering items from the e-commerce service in an RBC survey of 228 Amazon customers. RBC said that this will "continue tilting toward more Amazon purchases on Alexa-enabled devices.” By the end of 2017, totally retail revenue per active Amazon customer will be around $350, the investment bank said it estimates. Therefore the revenue per customer will be $400 by 2020 if this grows 5 percent annually.
Spending between 5 percent and 15 percent or $40 per customer could be increased by Alexa devices. This implies incremental revenue of $5 billion via shopping on the basis of a 128 million Alexa devices installed, RBC believes, by 2020.
RBC said that it could tap into "platform revenue", if Amazon reaches over 100 million installed Alexa devices. Apps like Uber or even Spotify that can be controlled via voice are skills that are available to Amazon. Amazon will create a marketplace that will allow them to charge companies to appear more prominently in its app store as the number of skills rises.
33 percent of respondents said they had heard of Alexa, Echo and related products, in a survey of 1,748 Amazon customers carried out in Septemebr 2016 by RBC. This had increased to 77 percent, a similar survey in March 2017. Meanwhile, in the same period ownership has jumped from 13 percent to 87 percent.
"Our take is that Amazon has a potential mega-hit on its hands with Alexa – a product/service that has the potential to materially increase the frequency and intensity of Amazon's relationship with its customers," RBC said in a note.
Amazon announced integrations with LG refrigerators and even Ford's cars and the firm has been trying to get Alexa installed on several devices and at the Consumer Electronics Show (CES) in January.
Google Assistant, the U.S. search giant's own voice assistant which is built into Android smartphones and its own smart speaker called Google Home, is providing stiff competition to Amazon. Since it was only launched in October 2016 in the U.S., RBC was surprised by the popularity of Google Home.

Christopher J. Mitchell

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