Amazon can attribute much of its e-commerce success to its targeted marketing. Shoppers' browsing behavior informs a lot of what they see on Amazon's website (or off-site ads) and the company has had significant success in building its Alexa assistant into a new and proprietary channel.

But the access Alexa gets by being built into users' home speakers and tablets is a delicate trust; if Amazon oversteps its boundaries, it might find Alexa gets muted or locked down. Recent reports that Amazon is planning to invite advertisers onto its Echo devices — reports that Amazon has denied — make clear the challenges Amazon will have as it develops voice shopping into a mature channel.

And it's clear that Amazon does have ambitions for Alexa and Echo beyond controlling music and light switches. So if Amazon can't start broadcasting spoken ads into shoppers' homes, what options does it have?

Amazon Echo Spot devices
Amazon's Echo Spot adds a small touchscreen and camera to the company's Alexa voice assistant. Bloomberg News

Amazon still lacks ubiquity
Compared to the likes of Google and Apple, it may seem strange to think Amazon's digital assistant hasn't already won the market for voice assistants. Google's Home speakers were late to the game, and Apple's homepod has yet to come to market. But how much is Amazon's head start really worth?

No one buys Amazon's devices just to get voice-only discounts on future purchases. Each Echo device and Fire tablet serves a specific use case, and Amazon is well aware that there are many more use cases that its product lineup holds no appeal to.

The high-end Echo speaker may appeal to audiophiles while the low-end Echo Dot appeals to the price-sensitive — discounted to just $29, the Echo Dot was the top-selling Amazon device during the 2017 holiday season, as well as the top-selling product available from any manufacturer across all categories on Amazon.com, with millions sold. This claim would appear to be validated by downloads of the Alexa app — which is used to set up new Echo hardware — taking the top position on the Apple store for the first time on Christmas Day.

Amazon has a 73% market share of the home voice assistant market, equating to 20 million units of Echo devices in the U.S. in November, according to Consumer Intelligence Research Partners. It's a big chunk of the market today, but the market could get a lot bigger — and it's the expanded market that holds the real potential for Alexa-powered marketing.

Chart: Amazon's head start

Feature creep
Amazon has already made consumers comfortable with the idea of an always-listening speaker being plugged into every room of the house. It's inching toward the idea of adding cameras and screens, but Amazon is well aware that this requires a much bigger amount of trust.

The Echo Show and Echo Spot both have touchscreens and cameras, and seem designed for Jetsons-like video conferencing similar to what consumers can already do on their smartphones. Oddly, these gadgets were preceded by the screenless Echo Look, which uses a camera to photograph consumers as they plan their outfits for the day. The market for such a product may be small, but it's clearly a fresh audience for Amazon's digital assistant.

The addition of a screen adds a clear path for display advertising, as Amazon already does on the lock screens of its Kindle lineup, but the expansion of screenless Echo devices demonstrates that Amazon envisions multiple paths for this market to develop.

In 2011, Amazon split the market for its Kindle e-readers based on customers' willingness to view ads (in exchange for a discount on the hardware itself). Given that this strategy persists with Kindle e-readers and tablets, it can be assumed that this has worked relatively well for Amazon over the years. However, transposing this model to Echo devices comes with a few significant problems.

  • The first is that the entry-level Echo Dot device, at $29 when discounted for the holidays, is already affordable enough that consumers may not yearn for a further discount.
  • Second, consumers already have limited exposure to advertising on Echo devices, such as through the ad-supported Pandora radio app. Piling on ads from Amazon may impair the appeal of the channel not only to consumers but to third parties as well.
  • Finally, the addition of ads to Kindle tablets came with other new features to justify an upgrade. Amazon's Echo speakers get upgrades too, but it's hard to justify buying new hardware when so many of the Echo's features reside in the cloud.

As for the screen-based Echo devices, on-screen advertising is a precarious strategy — badly executed marketing and advertising can become as taboo as web pop-up windows or email spam almost overnight. Once this threshold is crossed, there is no going back.

Amazon inside
Amazon is bringing Alexa to devices outside its Echo and Fire lineup. The company recently announced plans to expand Alexa capabilities to headphones and smartwatches.

Amazon is undoubtedly in the lead in its reach into all aspects of our daily lives via its Echo devices. But unlike other OEMs active in the voice assistant space, their agenda is less hidden — Amazon is first and foremost a retailer and however altruistic its intentions may seem, the underlying motive is almost certainly to sell. Amazon's challenge is how to make these devices indispensable for consumers but also revenue-generating for Amazon and its universe of sellers.

“We do voice shopping deals often — you can ask, 'Alexa, what are your deals' and she will tell you what they are,” said Angie Newman, PR Manager of Shopping Innovations at Amazon. “That was the case on Prime Day as well. We also promoted our Prime Day deals in press releases and with marketing on our owned channels.”

With a small amount of tweaking, third-party brands could be inserted into the dialog as examples of a type of product, such as suggesting a specific brand when the customer asks to order a generic product such as toothpaste or paper towels, according to Zil Bareisis, senior analyst at Celent.

"These 'product placements' could certainly be paid by the brands," Bareisis said.

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