Tech: Amazon shies away from Alexa ads (AMZN)

Alexa, Amazon's voice assistant powering Echo smart speakers, will no longer play ads on third-party skills.

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Alexa, Amazon's voice assistant powering Echo smart speakers, will no longer play ads on third-party skills.

The change comes after an update in the developer contract from VoiceLabs, the company Amazon partnered with to allow developers to create their own skills for the popular voice assistant.

VoiceLabs introduced ads on third-party skills last month, and the reversal impacts Sponsored Messages, or six-to-ten-second ads that appear at the start or finish of a user's interaction with a skill. VoiceLabs says a May 21 change in Amazon's policy made it very hard to serve ads that react to user's preferences, which was the company's aim with Sponsored Messages. The introduction of the ads was a means of monetization, which could impact developer revenue programs.

But though it's not ideal for developers, limiting ads will likely benefit Amazon overall. That's because it could improve the user experience, ultimately cementing the Echo's lead in the space:

• Competing smart home voice assistants have Alexa in their sights, so it needs a competitive advantage to stay ahead. Introduced to power the Echo smart speaker back in 2014, Alexa quickly became the most popular choice for consumers who wanted control their smart home gadgets via voice commands. BI Intelligence estimates that the Echo is in about 9 million US households — a total much higher than that of competing players. But recently, Google and Amazon have introduced hardware that houses competing voice assistants to control smart home devices, which could eat into the large number of Alexa users.
• An ad-free experience will differentiate Alexa from those competitors. It's likely that Google will incorporate ads into its Assistant, because they comprised roughly 87% of the company's revenue in Q1. Apple could do the same for its HomePod, as a means of bolstering its Services segment. But users might find ads annoying and could see them as a turn-off, so for Amazon, presenting an ad-free alternative could be a means of capturing new users and retaining existing players thinking of switching. That in turn would help it cement its lead.

Jessica Smith, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on the voice assistant landscape that:

• Identifies the major changes in technology and user behavior that have created the voice assistant market that exists today.
• Presents the major players in today's market and discusses their major weaknesses and strengths.
• Explores the impact this nascent market poses to other key digital industries.
• Identifies the major hurdles that need to be overcome before intelligent voice assistants will see mass adoption.

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