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Ecommerce: Impact of Amazon and Artificial Intelligence
Technology - February 1, 2021
Economies rise and fall based on consumers who purchase goods and services. Commerce, which is driven by purchasing power, is a key factor that determines the health and reliability of an economy. These transactions were primarily limited to physical stores or interpersonal exchanges for almost all of history- then something amazing happened! The Internet came into prominence in the early 1990s and it revolutionized every aspect of modern human civilization, including consumer behavior.
The Internet connects a multitude of things. It did not just connect people to other people, but also connected everything that everyone had (ideas as well as goods) with the rest of the world. The definition of ‘consumer’ suddenly expanded and the entire world became a marketplace, all connected by the internet.
Part I: Amazon and E-commerce
Let us look to Amazon, the e-commerce giant, and analyze its significance and impact in the e-commerce arena. Amazon is the world’s biggest store where millions of people purchase and sell goods every day. The annual revenue in 2018 was approximately 233 Million USD . Compare this to 2006 when the company posted revenue of approximately 8 Million USD8 Million USD. Amazon, which started an online bookstore in 1994, has now expanded into other areas like cloud computing, digital streaming, and even artificial intelligence. Jeff Bezos, the founder of Amazon is currently the world’s wealthiest man, is worth an estimated 112 Billion USD.
The massive success of Amazon is due to its eCommerce platform which has steadily caught the imagination of world consumers and brought every user within a mouse click from one another. This has not only influenced the commerce landscape but created an entirely new industry so powerful and impactful that economies now depend on it. In 2018, the global retail e-commerce sales amounted to approximately 2.8 Trillion USD and are expected to touch almost 5 Trillion by the end of 2021. We can credit Amazon for much of these numbers.
Amazon has gradually expanded its platform to include almost every commodity- if there is a seller to sell and a buyer to buy Amazon can most likely accommodate the request. It has its foothold in almost every country of the world and has dominated its competitors in terms of price and ease of doing business. The simple yet futuristic visual interface, along with features like add to cart, wish-list, and promotions have ensured that Amazon stays two steps ahead of its competitors. Last year, Amazon took 50% of the US eCommerce market and is now the dominant eCommerce player in many other countries too.
The Amazon Effect
The term was coined to acknowledge and analyze the impact of Amazon in the overall retail spectrum, online and physical stores. The consumer shift towards online shopping has forced even the biggest retailers to offer their products online. This has also prompted smaller retailers to capture a sizeable chunk of the market by offering their portfolio through Amazon like websites. The ‘Amazon effect’ can also be seen in few high-end physical stores where there is a visual platform that helps consumers to search the available item and then purchase the selected items right away. The objective is to give the consumers an online experience even in physical stores.
Amazon should also be credited for putting consumers over products. With its system of ratings and reviews and subsequent effects on product listing and overall sale value, the power has gone back into the hands of consumers. The engine of the entire industry now runs to ensure customer satisfaction which is driven by the quality of products and ease of associated services.
Good or bad?
When Amazon entered the retail industry they created new paradigms that every retailer is now trying to emulate. However, this transformation has also seen some unwanted consequences. It is very easy to post fake reviews or target your competitors through biased online campaigns. ECommerce also opens the possibility of a preferred listing garnering more consumer traffic. These preferred listings are created through special packages bought from the eCommerce platform and do not mean that the quality of goods is superior. This practices often pushes quality sellers who might not have sufficient funds for marketing into irrelevance. That said, the Amazon model has many positives and few negatives. The biggest impact is in the shift in the power dynamic from producer to consumer.
It is the responsibility of consumers to be aware of the negatives while they utilize these new convenient platforms. Consumers must analyze the platforms they use in order to ensure reputable companies are behind them. Other retailers who wish to emulate the Amazon model can take inspiration from the merits described in this article. Companies moving to this platform must understand that their eCommerce platform has to be agile, suited to the rapidly changing technological landscape and above all, consumer-centric.
Part II: eCommerce and AI
Amazon’s success story is driven by one technology: AI. We all are familiar with product recommendations and this one feature has spurred Amazon’s reach and profits. The use of artificial intelligence in e-commerce is transforming the shopping experience for customers by giving them recommendations based on their shopping patterns and recent trends. The recommendation model changes with time and with changes in customer behavior. In addition, AI-powered digital assistants such as the Google Duplex tool are creating features like grocery lists (based the shopper’s previous behavior) and also placing direct orders on a customer’s behalf.
In the passage below, we will look at major applications of AI in the eCommerce field.
a. Chatbots and Virtual assistants
eCommerce retailers are leveraging chatbots or digital assistants to provide round-the-clock support to their shoppers. Chatbots are built using AI technologies and provide a better customer experience. Some feature areas include Natural Language Processing (NLP) that can access and translate voice interactions with customers, self-learning capabilities that enhances usage and time.
b. Product recommendations
It is estimated that product recommendations increase conversion rates by almost 915%. This is a great tool and a differentiator for Amazon sellers. This feature is driven primarily by AI and as AI becomes more intuitive, it can churn out even more personalized recommendations that can be a great boon for the e-commerce industry.
c. Inventory management
Inventory management is concerned with retaining the right level of inventory to meet market demand without adding to unused stockpiles. While the conventional form of inventory management was restricted to current stock levels, AI-enabled inventory management is a data-driven stock management approach that has several components such as previous year’s sales, expected change in product demands, supply chain issues, sales trends over previous years, projected changes in product demands, supply-related concerns and more.
d. Smart solutions
AI-based technologies are bringing about a new range of products and services. These include Sentient Technologies, a company that is creating virtual digital shoppers whose purpose is to recommend new products to human shoppers based on their buying patterns and other market data insights. Amazon on the other hand is building innovative products as well such as Alexa voice shopping that will help you shop with your voice. In the Fashion e-commerce industry, companies are deploying AI to predict correct apparel size and fitting. The aim is to reduce product returns and improve customer satisfaction.
AI-powered data analytic tools can provide a wealth of benefits to companies including customer profiles, online sales analytics, and Business Intelligence. In addition, companies are also using AI to send out personalized communication to customers. This is intended to boost revenue and build better customer relationships.
eCommerce has been immensely impacted by Amazon and AI. Both are playing a leading role in driving innovative solutions and customer experiences. Thanks to AI, we are looking at an ecommerce future that is more personalized and offers greater value to both customers and producers. Amazon has completely revolutionized the industry by bringing the entire marketplace (customers and producers) to one platform. This platform allows the world to act as a global marketplace and influenced buying and selling behaviors world wide. To quote Jeff Bezos, the founder of Amazon, “We see our customers as guests to a party, and we are the hosts. It’s our job every day to make every-important aspect of the customer experiences a little better.”