Things I Can’t Figure Out Dept.

     There are plenty of things I can’t figure out. Many pertain to differences in tastes; others to people’s varying perceptions of risk and reward. And I’m sure that they make sense, for some values of that word, to those intimately concerned with them. But that doesn’t keep them from baffling me.

     Take breakfast foods. I know, from direct if incredulous observation, that Kraft is now marketing macaroni and cheese for breakfast. I can’t see it. Maybe I just refuse to see it. After all, tastes do vary. I know a woman who wouldn’t eat an egg if eggs were the only food on Earth. But packaged macaroni and cheese? When we’re all fully aware of the “quality” of that cheese?

     Or take lottery tickets. They’ve been called “a tax on people who are bad at math.” They certainly are that. But people fling money at them routinely. The more candid will admit that it’s just a pastime of sorts: a form of entertainment, if you like. Others genuinely hope for a return on their “investment.” And still others base their retirement plans on them. As for the canard popularized by state governments that the revenue goes to “education,” I shall pass in silence.

     Those choices baffle others as well as myself. You don’t need a Certified Galactic Intellect for such decisions to leave you shaking your head. But there are others that even very bright people might nod over… choices just as bizarre as “investing” in lottery tickets. This one has just come my way:

     Amazon.com’s Echo speakers are the type of business success companies don’t want: a widely purchased product that is also a giant money loser.
     Chief Executive Andy Jassy is trying to plug that hole—and move away from the Amazon accounting tactic that helped create it.
     When Amazon launched the Echo smart home devices with its Alexa voice assistant in 2014, it pulled a page from shaving giant Gillette’s classic playbook: sell the razors for a pittance in the hope of making heaps of money on purchases of the refill blades.
     A decade later, the payoff for Echo hasn’t arrived. While hundreds of millions of customers have Alexa-enabled devices, the idea that people would spend meaningful amounts of money to buy goods on Amazon by talking to the iconic voice assistant on the underpriced speakers didn’t take off.
     Customers actually used Echo mostly for free apps such as setting alarms and checking the weather. “We worried we’ve hired 10,000 people and we’ve built a smart timer,” said a former senior employee.
     As a result, Amazon has lost tens of billions of dollars on its devices business, which includes Echos and other products such as Kindles, Fire TV Sticks and video doorbells, according to internal documents and people familiar with the business.
     Between 2017 and 2021, Amazon had more than $25 billion in losses from its devices business, according to the documents. The losses for the years before and after that period couldn’t be determined.
     It is a high-stakes miscalculation the tech giant made under founder Jeff Bezos that current CEO Jassy, who took the helm in 2021, is now trying to change. As part of a plan to reverse losses, Amazon is launching a paid tier of Alexa as soon as this month, a move even some engineers working on the project worry won’t work, according to people familiar with those efforts.

     The Alexa and Echo products were based on the expectation that they would facilitate spending on other Amazon products… but that spending has not materialized. Amazon’s similar bet with its Kindle product line may have returned profits; I don’t have access to those figures. The article does mention Kindles, Fire TV sticks, and Ring video doorbells, but without dividing their profit-and-loss balances from Echo and Alexa.

     The central conundrum here is Amazon’s bizarre choice of a “value proposition.” Successful firms in commerce usually choose among three quite distinct positions in approaching the market:

1. The leading edge: “We make the best of the best.”
2. The price-performer: “We give you more for less than anyone else.”
3. The total post-sale service: “We’ll take care of you and all your problems.”

     It’s difficult, if not impossible, to blend those propositions. They appeal to distinct segments of the customer space. The Alexa / Echo proposition seems to be “Buy this so we can sell you lots of other stuff.” To be maximally gentle about it, that doesn’t appear to be the application to which those devices are being put. After several years of losses, a product sold under that rationale is a bad bet to become a revenue generator if it hasn’t become one already.

     Apparently, CEO Andy Jassy isn’t quite willing to end Amazon’s bet on those products. In his position, I’d terminate the loss-generating product lines at once, but as the article states, he’s hoping to flog some life into them. I could be wrong and he could be right; it’s happened before. Time will tell.

     One thing is certain: corporate executives’ reluctance to admit to a giant mistake will play a part. Few execs are willing to admit to an error and make the necessary corrections without a protracted period of resistance and resentment. But the laws of economics are indifferent to anyone’s preferences, be he the CEO of a megacorp or a guy standing on a street corner, selling pencils from a tin cup. Not even Amazon, as large and healthy as it appears, can sell a product at a loss per unit, then make it up on volume.