BofA: Possible Alexa consumer fee indicates ongoing focus on profitability

Reuters reported last week that Amazon (NASDAQ:) plans to introduce a two-tiered, AI-powered “Remarkable Alexa” by August, replacing its current voice assistant.

The premium tier will use advanced AI for complex queries, with a subscription fee of $5 to $10 per month, separate from the $139 annual Prime membership. The paid version will offer personalized services and advanced tasks, such as writing emails and ordering from Uber Eats with a single prompt.

Commenting on the news, Bank of America analysts said Alexa’s capabilities “will need to improve to stay competitive with AI advances from competitors.”

Amazon has been aiming to improve Alexa’s profitability for several years, with the division reportedly losing $5 billion annually in 2022. The Alexa division experienced layoffs in late 2022 and again in November 2023, when the Associated Press reported that Amazon cut “several hundred” employees from the unit.

“While Reuters reports the division is still unprofitable, we believe an added consumer fee indicates that Amazon is committed to improving Alexa’s economics, or at least covering the cost of expanding the service offering with AI,” analysts at Bank of America said.

“If Amazon does not see adoption of a paid tier, we think Amazon could cut Alexa investment further to reduce losses,” they continued.

BofA estimates that there are currently around 100 million active Alexa users and if 10% subscribe to an AI-enhanced Alexa at $5 per month, it could generate an additional $600 million in revenue for AMZN.

“This revenue would translate to 1.3pts of growth to our 2025 Subscription sales estimate at $49bn, and 2.6pts assuming 10% adoption of a $10/mo fee,” the bank noted.