For an AI startup that is
estimated to have $100 million in annualized revenue and is possibly burning cash due to all the GPUs it's buying or renting,
$AMZN has ways of benefiting from its influential stake in the business.
Let's consider the recent
news of Amazon saying it has sold more than 500 million Alexa-enabled devices. Using a conservative estimate, let's assume that there are 50 million active users that generate an average of 25 queries/month. That means there are 1.5 billion queries in total on a monthly basis. By adding Anthropic's Claude AI into Alexa, the accuracy and usefulness of Alexa's responses can grow by 15% and lead to a 10% increase in active Alexa usage per customer.
With Amazon monetizing Alexa
with ads, we can assume that each incremental query could drive $0.10 in incremental revenue. This implies an additional $27 million in monthly revenue, or $324 million annually. Applied over 5 years, the incremental revenue enabled by Anthropic's AI totals $1.62 billion.
In other words, for a $4 billion investment in Anthropic, Amazon Amazon would see a 5-year ROI of 40.5%.In summary, by acquiring and integrating Anthropic's AI technology, Amazon could potentially realize over $1.5 billion in incremental revenue and a 40%+ ROI on a $4 billion investment over a 5 year period. The drastically improved Alexa user experience powered by Anthropic's Claude AI makes the deal financially justifiable.
With over 500 million Alexa devices sold globally, if we assume on a more optimistic level that Alexa has 200 million active users, using the same assumptions on the improvements in accuracy and usefulness of Alexa devices, resulting increased usage, and incremental revenues per query,
$AMZN would generate $75 million more in monthly revenue and $900 million on an annual basis. Over five years, that's 4.5 billion in revenue,
leading to a 5-year ROI of 112.5%.
The ROI of a company's investment in another company may not look as obvious as we previously think. That's the lesson I hoped to convey in this memo.