Over the last decade, we’ve seen the rapid rise (and partial fall) of new platforms for apps and games monetizing via various freemium models.
Starting in 2007 was Facebook, which offered unprecedented distribution opportunities, followed by powerful monetization functionality, but which struggled in the long run to align incentives between itself, developers, and users. Then came iOS and Android, which, while somewhat limited in terms of viral distribution channels, have managed to build stable ecosystems over time on which mobile game and app developers have built sustainable businesses.
Where do Amazon Alexa, Google Home, Microsoft Cortana, and other voice app platforms fit into the picture? Where do the biggest opportunities lie for developers who want to build businesses on Alexa monetizing through freemium models? We’ve been searching for evidence of a large, healthy independent skill developer market. But at the end of the day, we believe the market just isn’t quite there yet. Here’s what we’re seeing.
Platform Dynamics: Alexa Skill Discovery, Customer Acquisition, and User Retention
Probably the largest hurdle for developers who want to build a business monetizing Alexa Skills is the cost of customer acquisition. Because the predominant method of skill “installation” is user-initiated voice invocation, discovery is a massive challenge.
For the most part, this “marketing” work must somehow be done previous to the user’s Alexa session (and outside of Amazon platforms altogether). We have yet to find evidence that Amazon is driving substantial traffic to the Alexa Skill Store. Amazon’s official “Tips on Promoting Your Alexa Skill” advice includes such tactics as: “Send an Email to Your Network,” “Feature Your Skill on Your Website,” and “Promote Your Skill on Social Media.” In other words: figure it out yourself, somewhere else!
Following a pattern used by app developers of recent platforms past, Alpine.ai (formerly VoiceLabs) created an innovative third party ad network for Alexa Skills to cross promote each other. However, Amazon shut it down last year with a policy change that prohibited Skills containing “any advertising for third-party products or services” (more on Alpine.ai later). Other early Alexa ad networks have also shut down. Amazon does allow in-skill advertising in limited circumstances, but essentially prohibits advertising with voice interaction. However, paying your way to widespread adoption is seemingly not very feasible right now.
Amazon earlier this year did launch a new discovery channel called CanFulfillIntent. Essentially, when a skill supports this capability, it is eligible to be selected by Alexa to fulfill requests made by users that do not invoke a specific Skill. For example, if a user asks, “What are the best hikes near Denver?” Alexa may choose a skill it believes can fulfill that request without the user knowing the name of that skill or how to invoke it. This is an interesting and potentially significant new distribution channel, but it is still in beta and we have yet to find developers talking about it making a big difference. (If you have success stories to tell, please let us know.)
Amazon is also experimenting with Alexa-initiated game recommendations after users conclude skill sessions. (Developers are also promoting their own skills, but it’s hard to track the effectiveness of this approach.) We are curious to see what other experiments Amazon tries along the lines of in-session platform-instigated promotions.
Perhaps the most glaring absence from all this is the lack of any user-initiated viral distribution channels for skills. On Facebook, users could invite their friends to play games together using Facebook’s native invitation and notification channels. On mobile, users could at least jump through some hoops to invite their friends via email or SMS. Alexa does not offer any built-in “viral” channels like this, severely limiting organic user acquisition opportunities for developers.
When it comes to user retention, the same challenges essentially apply. Users must invoke skills themselves, and Amazon does not currently provide for developer-to-user notifications in any generally available way. However, Amazon is testing Notifications for Alexa Skills in “Developer Preview,” but it has been nearly a year since the initial announcement was made. Notifications have not yet launched to general availability, though an Amazon staffer said as recently as a few weeks ago that, “The Notifications Team is hard at work on this feature, and is no longer onboarding new developers to this developer preview.”
However, it should be noted that if and when this feature launches generally, skill notifications will still be opt-in on a per-skill basis (i.e. default off) and must be turned on by users in Alexa settings:
Customers opt in to notifications per skill using the Amazon Alexa app. After opting in to notifications on a given skill, the customer is alerted when there is new information to retrieve—with both a sound and an on-device indicator (LED or on-screen equivalent) on their Amazon Echo, Echo Dot, Echo Show, or their Alexa-enabled third party device. The customer can simply ask, “Alexa, what did I miss?”, or “Alexa, read my notifications,” and Alexa will read the new notifications. Users must opt in before a skill can send them notifications, and can disable or suppress notifications using the Alexa app or by putting devices in Do Not Disturb mode.
Some Skills that are participating in the Alexa notifications test include AccuWeather (severe weather updates), Kayak (flight status), Twitch (when streamers you follow are live), Domino’s, and the Washington Post.
We are also curious to see if and how Amazon experiments with the UX/UI around Alexa notifications. This is a crucial challenge for building a sustainable communication channel. It is non-trivial to balance the pros and cons for the various parties involved (users, developers, and Amazon) in the short and long term.
The bottom line? Alexa offers very limited built-in distribution opportunities for independent skill developers. Unless developers have other channels to cross-promote their Alexa Skills, or users are inspired to promote Skills to their friends and followers, growth on Alexa is challenging.
Platform Dynamics: Alexa Skill Monetization
Distribution aside, what are the dynamics like for developers who want to monetize their skills? Thankfully, opportunities supported by the platform for the monetization of Alexa Skills are more robust that those for customer acquisition. Here’s a look at the strategies Amazon currently supports.
1. Alexa Developer Rewards – This was the first and is still the most obfuscated method of monetizing apps. Essentially, Amazon sends checks to developers of skills in certain categories “that drive some of the highest customer engagement.” Amazon does not disclose how it calculates these amounts, how much it sends out altogether, or how many recipients it selects. Sometimes, Amazon Developer Rewards take the form of AWS credits instead of money. Anecdotal evidence illustrates that some developers have received a few thousand dollars per month, while others receive on the order of $100 per month. However, because the reward calculation algorithm is undisclosed and the track record of this program so variable and spotty, it’s not sufficient to base a business strategy on.
2. In-Skill Purchasing – While not available when Alexa Skills first launched, Amazon has fleshed out its In-Skill Purchasing functionality over the last year and a half to enable skill developers to monetize their most engaged users through the purchase of content, digital items, and experiences. In our view, ISP offers the most incentive-aligned way for developers to build sustainable skill monetization models over time. Currently, there are 3 main ISP options developers can choose from: subscriptions, one-time purchases, and consumables.
- Subscriptions – subscriptions offer developers the opportunity to monetize through charging for access to premium content or features. Users pay on a recurring basis until they cancel. This functionality became generally available in May 2018.
- One-Time Purchases – also called “entitlements”, one-time purchases offer developers the opportunity to monetize through charging user to unlock certain features or content, such as expansion packs. Users pay once and the purchases never expire. This functionality also became generally available in May 2018.
- Consumables – fundamental to the monetization of games through the freemium model, Amazon launched consumable virtual goods in September 2018. These are items that can be purchased, depleted, and then purchased again. For example, tools, premium items, or virtual currency. It’s only been a few weeks since this went live for all developers, but it’s a major milestone in the maturation of the platform.
3. Amazon Pay for Merchandise – The third and perhaps least-known skill monetization strategy for Alexa Skills is using Amazon Pay to sell merchandise (available to US-based developers). Developers who register for Amazon Pay and integrate it into their skill. Typically, this involves selling your own items and users linking to their account with your service elsewhere. It’s also a capability Amazon made generally available in May 2018.
The bottom line? Amazon has fleshed out its monetization APIs substantially since the Alexa Skill platform launched. If skill developers are able to attract users – which is no simple task – Amazon now provides the core functionality needed to convert users into paying customers. It’s still early, and Amazon is still likely to update the rules and policies governing appropriate user experiences around monetization, but developers now have somewhere to start.
Where Are the Big Developers and Top Grossing Games?
The market for independent developers hoping to build a big business through Alexa skills and games appears to still be relatively nascent. Amazon has rolled out more monetization features and functionality recently, but discovery channels are still extremely limited. It is likely still hard for most game developers to justify the customer acquisition costs needed to drive substantial traffic to Alexa games compared to the opportunities developers have on other types of platforms, despite the relatively low saturation of the voice app market.
Nevertheless, there have been sporadic breakouts. For example, Volley currently owns two of the most voluminously-reviewed Alexa games (Song Quiz and Yes Sire) and acquired the apps of solo developer David Markey that had gained popularity. Founded in 2013 by Harvard roommates Max Child and James Wilsterman, Volley used to build bot games for Facebook Messenger, is a member of Y Combinator’s Winter 2018 class, and raised a seed round earlier this year.
Amazon lists The Magic Door game as one of its Top Alexa Skills. Labworks out of the UK has made some games that gained some traction, as has Voice Games. Sensible Object’s Alexa-integrated board game has gained some favorable reviews, but not a ton. However, many of these developers and others are also still building non-game skills, such as ambient sound apps, and it’s unclear how well their skills have ultimately monetized.
Large game developers like Ubisoft have published skills like Assassin’s Creed Odyssey Spartan to accompany their popular games. Bungie’s Destiny 2 Ghost is a companion skill to the game as well. Bethesda published Skyrim Very Special Edition earlier this year, making it into a real game after it started out as a joke.
Amazon does not make available top grossing or fastest growing charts, and it does not publicly publish MAU or DAU numbers. Were Amazon to make more skill-specific performance data public a la recent platform predecessors, it would lead to faster iteration of ecosystem evolution (for both best and worst practices). To date, Amazon has chosen not to go this route.
Organizational efforts amongst the Alexa developer community is still largely Amazon-driven. Amazon is running Alexa Dev Days around the world, but monetizing voice apps has seemingly not garnered a ton of attention at game or developer conferences. The Alexa Conference, which is sponsored by Amazon and organized by VoiceFirst.fm, is scheduled to be held in January in Chattanooga, Tennessee. The agenda for the upcoming AWS re:Invent conference shows one session on Alexa Skill monetization.
The analytics ecosystem around voice app monetization is also awaiting breakout leaders. The product, team, and technology behind Alpine.ai, which had its Alexa app ad network shut down last year, were acquired last month by meditation app Headspace. Dashbot has built a powerful solution, PullString and BotAnalytics have built products for optimizing automated agents, and Adobe has a voice analytics service for brands.
Many Skill developers, even those Amazon has featured on its developer blogs, have gone the agency route. For example, Stoked Skills has developed two dozen skills and is available for hire. XAPPmedia says it’s built over 1,000 voice apps for brands. 169Labs in Germany was an early skill developer and is now building skills for others as well. VoiceApps makes tools for developers to roll out templated skills, as do Storyline and Smartly.ai. Consulting firms like VUI.agency help brands make skills, along with other VUX/VUI consulting shops. Blutag helps stores sell more through voice apps.
At the end of the day, the Alexa Skill ecosystem overall is currently more easily accessible to developers who want to make Alexa Skills that extend their (or their clients’) existing products or services, rather than function as standalone apps. For example, within games, the Jeopardy Alexa skill by Sony Pictures Television leverages the brand’s existing IP and promotional channels. Outside of games, there are whole swaths of smart home skills, news briefing skills, “lifestyle” skills, and more. Nevertheless, there are still opportunities for innovative developers to discover uncharted country and to put themselves in position as experienced early adopters as the ecosystem matures.
Amazon now says that over 50,000 skills have been developed worldwide, and that there are over 20,000 Alexa-compatible smart home devices. Earlier this year, Amazon brought Alexa to PCs as well as to Alexa mobile apps themselves (previously the mobile apps just performed administrative functions), increasing the number of access points. The number of Amazon Echos and Google Homes and their variants going into homes, buildings, and cars only continues to grow. Hardware form factors and strategies are continuing to evolve, opening up new use cases for developers.
But for now, the independent Alexa game developer market is still quite nascent. We’ll continue tracking its development.