Echo Owners Are Proving to Be Amazon's Most Valuable Customers

If you own an Amazon (NASDAQ: AMZN) Echo device, there's a strong chance you spend more on the e-commerce site than the average consumer. Echo owners spent around $1,700 last year, 70% more than the average Amazon shopper, according to Consumer Intelligence Research Partners (CIRP). That $1,700 mark is also meaningfully higher than the average $1,300 spent by all Amazon Prime members.

Amazon has been aggressively pushing its Echo devices, lowering the price of the Echo Dot to just $30 over the holidays. The company also expanded the core technology behind the Echo speakers -- the Alexa digital assistant -- to nearly all of its devices, including Kindle tablets and Fire TVs. The CIRP data indicate the strategy is paying off quite handsomely for the e-commerce giant.

Amazon's best-selling products

In a press release earlier this month, Amazon revealed the Echo Dot was one of the two "best-selling products purchased by U.S. Prime members from any manufacturer in any category across all of Amazon" (the other was the Fire TV Stick). With a discounted price of $30, that led fellow Fool Rich Smith to conclude Amazon lost millions of dollars from Echo Dot sales alone last quarter. Of course, the company will happily sell millions of devices at a loss if they'll help spur additional sales down the road.

Analysts at Nomura estimate Amazon sold 20 million Echo Dots in the fourth quarter and many more of its higher-end smart speakers. While Nomura says that estimate is conservative, other analysts may disagree. Canalys, for example, estimates Amazon sold just over 20 million smart speakers for all of 2017.

Regardless of exactly how many devices consumers purchased, there's no doubt Amazon is doing an excellent job of getting its speakers into people's homes. The company is facing increased competition as it enters 2018, and bringing more users into its ecosystem now will ensure it can maintain its dominance going forward.

Is this just an echo of existing behavior?

Many will point out that consumers that buy an Echo device are likely big fans of Amazon already. They're probably wealthier than average. They're probably Prime members, and they may have even spent more than average on Amazon before they got a smart speaker. CIRP's survey merely points out a correlation without proving any causation that Echo devices actually encourage consumers to spend more on the site.

That all may very well be true, but consider CIRP has long published survey results showing the discrepancy in spending between Prime members and non-members. Even as Prime subscriptions soared, the spending gap remained consistent. There's clearly some additional value provided by Alexa-powered devices that encourages shoppers to spend more.

Remember that the Echo, for example, makes it extremely easy to reorder consumables and other items. It's the closest thing to having a salesman in your customer's home, and with that in mind, it should come as no surprise that Echo owners spend more than anyone on Amazon.

A win-win for the company

Even if the extra spending from Echo owners only indicates that frequent Amazon shoppers are more likely to buy an Echo, that still presents a valuable opportunity for the company. Regular shoppers are naturally more valuable to advertisers, and Amazon is reportedly in talks with big brands to "suggest" items for purchase. With tons of data on consumer shopping behavior at its disposal, Amazon has valuable targeting capabilities. Its ad business is already growing rapidly, and the popularity of Echo devices presents just one more platform for Amazon to expand its offerings.

So as the number of Echo-powered households rapidly increases, not only do the devices make it even easier to shop with Amazon but they also present an opportunity for the company to further monetize the ecosystem with ads as well. That's a win-win for the king of e-commerce.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.