The 3 ways Amazon’s Alexa could snag $10 billion in revenue by 2020 (AMZN)

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People love Amazon’s Echo speaker, and the digital assistant Alexa who lives inside it — especially Amazon CEO Jeff Bezos.

In February, Bezos said that not only does he have an Echo in every room of his house, but that he will “dance into work if I have Echo and Alexa meetings on my schedule that day.” And what’s not to love for Bezos? Alexa is set to become a revenue-generating juggernaut, according to RBC’s Mark Mahaney.

In a note to clients, analysts led by Mahaney wrote that Alexa could be a $10 billion revenue proposition for Amazon by 2020. “It is in its very early days, so while we see significant opportunity from the proliferation of Alexa, the financial impact also carries significant uncertainty,” they wrote. “Nevertheless, we see the potential financial tailwind as at least three-fold.”

Here are the three prongs, according to RBC:

• Device sales: “~$5B in device sales, assuming 30% Amazon customer adoption” of the Echo and related products.
• More shopping: “$5B in incremental shopping revenue, assuming 10% incremental sales per customer.” Bezos has said that Alexa is “good for reordering consumables, where you don’t have to make a lot of choices, but most online shopping is going to be facilitated by having a display.” Still, RBC thinks Amazon could see a 10% bump.

• Taking advantage of the platform: “In terms of Platform revenues, nice things happen when you reach a 100M+ installed base, which we estimate for Alexa within 3-5 years. We see several areas of incremental monetization – Alexa Skills Search placement and Premium Content Skills revenue share.” Skills are the Alexa equivalent of apps on your phone and RBC sees an opportunity to pay Amazon for premium placement, and a cut of the revenue like Apple does with the App Store.