Alexa, Should I Pay for Alexa+? Or Get a New Echo?
CIRP has shown that ownership of Amazon Echo smart speakers has plateaued. Now, Amazon has announced an AI-powered version of Alexa, the interactive voice assistant that defined Echo devices. Alexa+ intends to make Echo smart speakers more useful and conversational, and help Amazon catch up in the AI sector.
When rumors first started that Amazon would launch AI-powered Alexa, we asserted existing Echo owners would not likely embrace this enhancement, at least based on current usage patterns and use cases. Now we know the terms: Amazon will charge $19.99 per month for Alexa+ for use on Echo devices and through a web browser. Amazon Prime membership will include Alexa+.
We suspect Alexa+ will be seen as another benefit of a Prime membership and as a software upgrade for most Echo owners, rather than a material source of additional subscription revenue. It may boost sales of Echo devices a little.
As it turns out, most Echo owners already have a Prime membership. In 2024, 88% of Echo owners were also Prime members, compared to 70% of Amazon customers without an Echo device (Chart 1). The most likely Alexa+ users, Echo owners with multiple devices, are even more likely (92%) to already have a Prime membership.
Chart 1: Prime Membership by Echo Ownership (twelve months ending December 2024)
We do think Alexa+ might stimulate some Echo purchases. Among Prime members, 30% own one or more Echo devices, compared to only 12% for customers without a Prime membership (Chart 2), so there is room for increased Echo penetration for both cohorts.
Chart 2: Echo Ownership of Prime Members and non-Prime Customers (12 months ending December 2024)
Prime members with their new Alexa+ access might be tempted to try the new service on an Echo device. Amazon will likely pair the Alexa+ rollout with a new round of aggressive price promotion on Echo devices, to appeal to the 70% of Prime members who have not tried an Echo yet.
In addition, some current Echo owners might find use for an additional Alexa+ powered Echo. The oldest Echoes will not support the new AI-enhanced Alexa+, so some of the installed base may be motivated to upgrade just to try the new platform. Amazon has a somewhat cumbersome trade-in and trade-up program, but it does make moving to a new model somewhat affordable.
Alexa+ may be the catalyst for some non-Prime member Echo owners to make the leap and sign up for Amazon Prime.
We expect very few Echo owners will opt for the $19.99 monthly Alexa+ subscription, when Prime membership with Alexa+ included costs $14.99 monthly or $139 for a year. You have to really not want to shop at Amazon to spend an extra $5.00 a month to avoid free shipping and streaming video.