Amazon Brings in $1.4 Million in 2019 of Alexa Skill Revenue So Far — Well Short of the $5.5 Million Target According to The Information

The Information published (N.B. paywall) an article this morning saying that Amazon earned $1.4 million Alexa skill revenue through the first 10 months of 2019 which was well short of its $5.5 million target. This refers to the revenue that Amazon earns from in-skill purchases (ISP) where consumers pay for added features of Alexa skills from third-party developers. The article also says that 2018 revenue was “in the low hundreds of thousands of dollars” though the target was $5 million.

Amazon did not confirm these figures, but a spokesperson did respond by email today regarding The Information’s article saying that, “Alexa is a long-term bet for Amazon, and we’re as optimistic as ever about its future. We’ve just scratched the surface of what’s possible with Alexa.”

Alexa skill revenue referred to here is a similar approach to Apple’s fees for purchases through the iOS app store. Amazon takes a 30% fee and the developer gets the remaining 70%. Voicebot has been told by Alexa skill developers participating in the ISP program that they receive 70% of the purchase price even if there is a discount offered for Amazon Prime members. That discount comes from Amazon’s 30% cut.

What is Behind the $13 Million Revenue Shortfall?

This arrangement suggests that Amazon expected total Alexa skill ISP revenue to exceed $18 million in the first 10 months of 2019 but the actual revenue was closer to $4.7 million. Amazon significantly increased its marketing of ISP to Alexa skill developers in 2019. It is not clear if the shortfall was the result of too few developers participating in the program, lack of consumer interest in the offers, or some combination of both.

However, Amazon also began curtailing its developer rewards program (first published in Voice Insider #53) earlier this year which currently provides a pool of funds for developers with popular Alexa skills that pays out monthly. Some developers were receiving over $10,000 per month from this program and many have seen payouts drop by more than 50% since the beginning of 2019.

The reduction of Alexa developer rewards would seem to be a reasonable strategy to motivate developers to introduce ISP so they could offset falling rewards payouts. Tom Hewitson, CEO of Labworks.io, commented in a recent episode of Voicebot Podcast (Episode 124) that consumer confusion may also be contributing to the shortfalls:

“The incentive structure may be changing…One of the things that we’ve definitely observed is when we ask people to purchase…in-skill purchases, to buy content, it’s common for them to say, ‘Oh, but I already bought the Alexa device.’ They don’t understand. The content is provided by a third party that didn’t receive a share of them purchasing the device.”

Amazon Claims Much Larger Alexa Skill Ecosystem Revenue

Of course, ISP is only one element of how Alexa can make money for Amazon and for third-party developers and device makers. “There are now billions of dollars flowing through the Alexa flywheel every year,” said Dave Limp, SVP of devices and services at Amazon at a media event in September 2019. This figure, he said, did not include revenue from Amazon’s own device sales or services but was explicitly earned by third-parties using Alexa to conduct transactions or make Alexa-enabled devices.

ISP is largely a tool for game and productivity Alexa skill makers to employ a freemium monetization model with consumers. Other developers that are actually using Alexa to sell products and employing Amazon Pay or direct account linking for the transactions are likely generating the bulk of the revenue volume that Limp was referencing. For these transactions, Amazon would earn nothing or a small processing fee from Amazon Pay of about 3%.

Freemium models and games have been a big revenue driver for the Google Play Store and Apple App Store bringing in 87% and 71% of revenue respectively in 2018 according to CultofMac. Granted, these purchases that totaled over $71 billion worldwide for Google and Apple in 2018 are likely dwarfed by total sales through the Amazon mobile apps alone which wouldn’t be counted in these figures. In other words, there are many ways that revenue can flow through digital platforms beyond app purchases.

The Information story also claims that Amazon is shifting its focus more to revenue generation through Alexa, but its sources don’t seem to go as deep in this regard. Yes, Amazon is now charging for the new Samuel L. Jackson celebrity voice, but that is hardly going to move the needle for Amazon. The bigger play is for the company to be a platform that enables transactions for the sale of goods and services from Amazon.com or of Alexa third-party partners. This is a market in the billions where a $13 million shortfall would be rounding error.

This article was updated at 3:00 pm EDT on December 16th to include a response by Amazon and clarify the source of the “billions of dollars flowing through the Alexa flywheel” mentioned by Dave Limp.

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