Amazon has a master plan to turn Alexa into a full-fledged economy all on its own (AMZN, AAPL, GOOG, GOOGL)

The Amazon Echo smart speaker.AP/Elaine Thompson

• There are 30,000 skills, or apps, now available for Alexa, the voice assistant at the heart of the Amazon Echo.
• Those skills are a powerful tool for keeping Amazon customers loyal to Alexa, amid growing competition from Google and soon Apple.
• Amazon is focusing on helping developers build sustainable businesses creating Alexa skills.
• Via its Developer Rewards program, Amazon paid the top Alexa skills developer of 2017 $100,000.

Amazon has built an early lead in voice-based computing, thanks to Alexa, the smart assistant that’s built into its popular Echo smart speakers and other devices.

To help build and maintain that lead, Amazon is hoping to nurture a thriving community of developers creating skills, or apps, for Alexa. Its goal is to help Alexa skills developers create solid, sustainable businesses.

“What’s good for developers is ultimately good for consumers,” said Rob Pulciani, Amazon’s general manager of Alexa skills. “Every new skill makes Alexa a little smarter, a little more fun, a little more entertaining.”

We’re likely to hear a lot of announcements related to voice-based computing at next week’s Consumer Electronics Show. Amazon and Google, which offers a rival voice-based computing technology called Google Assistant that’s built into its Home smart speakers, are going to show off the latest developments for their respective systems. Meanwhile, numerous gadget-makers will likely announce that they’ve built one or both of the voice agents into their TVs, phones, thermostats, and other gadgets.

Right now, Alexa has a leg up on Google Assistant and Apple’s Siri, the voice technology that’s built into the iPhone and will be at the center of the company’s upcoming HomePod speaker. Amazon’s Echo smart speakers have far outsold rivals, most notably Google’s Home devices. And thus far, Amazon’s done a better job than Google or Apple of encouraging developers to create apps for its assistant.

Developers, which include Lyft and Capital One, have built about 30,000 Alexa skills. Each of those skills allows Alexa to do something different and, collectively, can be a powerful tool for Amazon to retain customers.

“Google Home is nowhere near [the number of skills], and the others, notably [Siri], aren’t anywhere in sight,” said Werner Goertz, an analyst at research firm Gartner. “The Amazon customer has a comprehensive set of use cases and value propositions that keeps the customer grounded in the Alexa ecosystem – no reason to switch!”

Alexa skills are popular, but many users haven’t enabled any at all.BII

The state of the Amazon Alexa business

The key challenge for Amazon in trying to encourage the growth of the Alexa developer community is helping developers make money off their skills.

Amazon started allowing programmers to create apps for Alexa in 2015, but it initially insisted they offer them to customers for free. That pleased Alexa users, but it discouraged developers from putting much serious effort into creating or building Alexa apps, since they couldn’t get paid for them.

But Amazon has been taking halting steps towards allowing programmers to build businesses creating Alexa skills. In the first half of last year, the company launched a program called Developer Rewards that paid developers of the most-popular Alexa skills for their time.

Pulciani said that initial effort was successful. Amazon paid last year’s top Alexa skill developer $100,000 and gave many others $10,000 or more. That was enough for some Alexa developers to help pay for college, he said.

“Our rewards are making a lot of developers very happy,” Pulciani said.

The Amazon Echo Dot was the best-selling item on Amazon.com over the 2017 holiday shopping season.YouTube/f0t0b0y

But not all developers were pleased with the rewards program, CNET recently reported. To some, the rewards payouts seemed random. Others complained that Amazon wasn’t clearly explaining how it was determining the amounts it was paying developers.

Amazon took another stab at helping skills developers make money last month, when it unveiled two potentially game-changing new features they’ll be able to build into their apps. Developers will soon be able to charge money for premium services and features from within their skills, and they’ll be able to accept payments for those services via the Amazon Pay service.

The two new payment features are currently being tested within a small portion of the top Alexa skills, including Sony’s popular “Jeopardy” game. But Amazon plans to open them up to all developers sooner rather than later, Pulciani said.

With tools like these, developers can “own the relationship with the customer,” he said, and can bring in predictable, recurring revenue.

Amazon plans to continue working on new ways for developers to “create a business on Alexa,” Pulciani said. But it also plans to maintain its Developer Rewards program, he said.

The state of the skills marketplace

Amazon’s endeavor to build a healthy marketplace for Alexa skills is akin to Apple’s effort to do the same for iPhone apps starting with the launch of its App Store in 2008. With the App Store, the iPhone became the center of a thriving economy. The skills marketplace could do the same for Alexa.

But Pulciani is cautious about the comparison, mainly because smartphone apps are very different from voice skills and the businesses built around them are likely to be distinct also. Very few Alexa skills have become widely popular — none of them have enjoyed anything close to the success of a phenomenon like “Candy Crush Saga.” Instead, Alexa users each install a different mix of Alexa skills, based on the restaurants they order from, the stores they like, and the music services they use.

Because of that, Pulciani sees a lot of potential for what he calls “hyperlocal” Alexa skills. For example, some ski resorts have begun experimenting with skills that allow Alexa users to find out how much snow is on the slopes. The skills have very narrow appeal, but among the local skiers, they’ve become a popular and quick way to find out ski conditions.

It’s still hard to find new Alexa skills.BI Intelligence

Pulciani also sees a lot of potential for Alexa skills for kids as well as for the workplace.

But he thinks apps for the voice assistant need to offer more capabilities and do more to engage users. He himself as been surprised at what users are already doing with Alexa. He didn’t think the assistant would be ready for banking applications for a while yet, for example. But the success Capitol One has had on Alexa has shown that there’s room for skills that offer more than just basic features.

One major challenge Amazon faces is making it easier for users to find and discover skills. Apple’s App Store and Google’s Play store prominently showcase the newest and hottest apps. But you can’t exactly do that on a voice-based computing system. And it’s hard to search for and sift through new skills by just talking to your smart speaker. Right now, the way Amazon is handling to problem is by having Alexa recommend skills when you ask it to do something out of its ken.

Amazon also has work to do when it comes to helping developers build better apps. The company needs to figure out a way of sharing with developers what it’s learned about building Alexa skills in-house, Pulciani said. It’s a brave new world, and Amazon needs to work together with developers to figure it out, he said.

“We can’t be successful if developers aren’t successful,” Pulciani said.