My wager is that the devices are sold as a loss leader.

Then on top the software development is fairly novel - so they're probably spending quite a bit on development efforts related to the devices.

They're eating the costs for running the backend processing for all of these devices (they're sold as a one time fee, despite requiring services provided by Amazon servers).

Finally - they were promoting the ever loving shit out of the development tooling to app developers for a long time with a lot of seminars, development guides, free services on aws, etc.

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My strong guess is they wanted them work out the same way Kindles have - loss leaders that more than make up for it by securing digital goods purchases. But personally - I spend lots of money on amazon for books for my Kindle, and I spend basically nothing related to Alexa (there's literally just nothing I want to buy through it).

Lately my Alexa has started inserting promotional content into the standard voice responses (bs like "Alexa what time is it" returns the time, and then a "and it's a good time to watch the new Rings of Power tv show? should I tell you about it?").

They're going to go into the trash shortly at this rate. I'll switch to a self hosted replacement like mycroft or something.

They’re also not like mobile phones where you buy a new one every year.

I still have my Gen1 Echo and it works as well as the new ones. I mean, it’s just a speaker and a microphone connected to WiFi. There are no “features” they added worth spending $100 for.

My intuition is that it's a) very high R&D costs coupled with b) being partly a hardware play, where unlike software, marginal cost of distribution does not tend to zero and where it's therefore much easier to lose money per unit sold.

In addition to the other replies, I'll add that they have a new frontier for Alexa in the works and while I don't think the hardware has to be all that exotic, the development effort will be. I know they're at least a year into development on that, and those costs will be high with nothing public to show for it (yet).

They’re probably selling every unit at a loss. A big part of the Amazon smart home stuff also has to be the data it collects and the way it integrates with ordering off the retail site which might not have been counted here.

They likely sell them at a loss.

Long-term, the hope is probably that the halo effect - "oh, I have Alexa, so I'll buy a Ring security system" and "Alexa, buy cat litter" sort of stuff - balances it out nicely.

Definitely. They have bundles with their Blink security cameras, which can be viewed on the Alex Show models.