Amazon’s voice-controlled speaker Echo and the Alexa software that powers the device could be on the brink of opening up another huge business opportunity.
According to a note by investment firm Mizuho, the revenue generated by the two services could exceed $11 billion by 2020. The firm reckons that $4 billion of that would come from the sales of the Echo device itself (including the Tap and Dot), while the other $7 billion would come from all the commerce transactions derived from those devices to Amazon.com.
The Echo is Amazon’s voice-controlled device that lets you play music, read audio books, or even order things on Amazon.com by simply talking to it. The secret sauce behind the device is the Alexa virtual assistant, which has the potential to be incorporated into a broad variety of other products as well, such as cars or refrigerators.
“These estimates are very early, but we believe that the Alexa-enabled Echo and its family of product, coupled with transactions and apps, could provide a large revenue opportunity, and make Amazon a pivotal part of peoples’ everyday lives,” Mizuho’s analyst Neil Doshi writes.
Doshi estimates there will be about 8.6 million total Echo devices sold this year, but that would jump to 41.3 million units sold in 2020 alone, bringing in roughly $4 billion in device revenue that year. In aggregate, Amazon would be selling roughly 113 million total Echo devices over the next 4 years, and assuming half of those devices are actually used to buy products on Amazon, and they buy $25 worth of products 5 times a year on average, the transaction revenue comes in at roughly $7 billion, according to the note.
Mizuho isn’t the only bullish investment firm on the Echo and Alexa. RBC Capital wrote in a note last week that it sees Alexa as a potential “fourth pillar” for Amazon, alongside its e-commerce retail, 3rd party marketplace, and AWS cloud computing service.
One big reason RBC believes so is Alexa’s power to stimulate more spending on Amazon.com. According to its own survey, 26% of Alexa-powered device owners said they made purchases “very” or “somewhat” often through voice shopping, an impressive number given Alexa just rose to prominence over the past 12 to 18 months.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.
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