For a minute there, it looked like Amazon.com (NASDAQ:AMZN) was going to kill the goose that was laying golden eggs, but the e-commerce giant has apparently come to its senses. There will be no overt advertising on Alexa.
Sony (NYSE:SNE) reportedly approached Amazon about running ads on the premium Jeopardy! "skill" it developed, but Amazon, according to a report from The Information (via Android Police), rejected the idea, saying it would alienate users. Amazon says users want a "delightful experience" when using the voice assistant; injecting advertising would make it the opposite of that.
In May 2017, Amazon clarified its advertising rules for Alexa, telling developers that "Your skill will be rejected if it includes or otherwise surfaces advertising or promotional messaging." [There were some exceptions.] The company also noted that "We will continue to explore ways for developers to monetize in the future while maintaining the best possible experience for our customers."
Listen to the sound of my voice
Although artificial intelligence platforms like Alexa are still in their infancy, Amazon has captured 70% of the smart-speaker market by flooding its devices onto the market and building out the ecosystem.
Amazon says customers can control more than 4,000 smart-home devices from 1,200 unique brands with the AI, and it's launched a new Alexa for Business service to help increase productivity through using Echo devices. It gave examples of employees using Alexa to find an open conference room, check a calendar, make a phone call, and more.
The ability of Alexa to perform tasks like these is based on "skills" that users install. Amazon's just-released full-year earnings report says these skills have grown to more than 30,000 in number. For example, telling Alexa to "enable Lyft" means you're now able to order a car with the ride-sharing service.
Despite the growing ubiquity, skill developers have limited means for making money from their skills, which is why Sony was looking to add advertising to its skill, but Amazon is keeping tight control over the environment. It reminds Alexa skill developers that the "delightful experience" must be kept in mind when creating a skill and warns that skills will be deleted if a skill "includes or otherwise surfaces advertising or promotional messaging."
There are, however, "premium skills" that users can buy, such as Sony's Jeopardy!, which costs $1.99 per month, and Amazon does make exceptions for when users order a product through a skill, such as ordering a pizza. Developers are then allowed to promote around the products.
Still, while developers are kept on a short leash, Amazon itself is apparently further exploring ways to monetize Alexa.
Paying for the privilege
CNBC reported in early January that Amazon.com had "big plans" for its voice assistant, with the e-tailer reportedly in talks with several companies about letting them promote their products on the artificial intelligence platform, in part by targeting consumers based on their shopping habits. It reportedly has been in discussion with companies such as Procter & Gamble and Clorox to perhaps let them pay for higher placement in search results.
Amazon already provides some companies with sponsorship opportunities, regardless of browsing history, such as when you're looking for toothpaste and Alexa responds, "OK, I can look for a brand, like Colgate. What would you like?" But being able to pay up for placement on Alexa would be potentially be a much more attractive option for companies.
Unlike on a search engine, where it's easy to scroll past the paid ads, it's much more difficult to give users a mix of paid and unpaid products via voice that isn't confusing. As a result, consumers would be more likely to purchase the top, paid result. The risk, however, is that consumers might wonder why they should trust the results they're getting from Alexa, since they've paid Amazon to be put there.
The stage is set for Amazon to become a major force in advertising as voice shopping becomes more commonplace.
The one to watch
According to eMarketer, Google and Facebook accounted for almost two-thirds of all U.S. digital advertising in 2017, but Amazon's digital ad business is zooming along and it was expected to earn about $1.65 billion in net digital ad revenue last year. Amazon is forecast to grow ad revenue 40% this year, faster than Facebook's 25% rate, and more than double Google's 15%.
The Echo Dot was the No. 1-selling product on the e-commerce site this Christmas, with all Alexa-enabled devices selling tens of millions of units worldwide.
It would indeed be a dreadful experience (for users) if Alexa simply became a platform for advertising. It's good to know that Amazon.com still retains plenty of good sense to take a more thoughtful approach to how best to monetize its asset.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.