AI & eCommerce: Part 2 - Why does it matter?

Introduction

In our previous exploration into the world of AI and e-commerce, we addressed/debunked some of the myths that shroud this powerful union.

We understood - I hope - the discrepancy between the Hollywood-esque version of AI and the grounded, real-world application of Machine Learning.

So now that we have a clearer view, onward to the next question:

Why should you - decision makers - even care?

Understanding the implications is no longer optional; it’s a requirement.

1. From Ivory Towers to Online Stores

For years, AI's groundbreaking advancements were confined to academic journals, far removed from commercial sectors.

I know it; I was part of it at 美国斯坦福大学 .

It was housed within the walls of mega tech corporations, premier research institutions, and government think tanks.

On a university level, it was labs sponsored by those corporations.

The algorithms, the data, and the hardware required to run these advanced models were exclusive to those with deep pockets and an elite circle of knowledge.

But as with many technologies, the tides of time brought democratization.

Platforms like Shopify , Magento Developer , and Woo began integrating AI capabilities into their offerings.

Customer Data Platforms (CDP) like Segment or mParticle started to emerge. Cloud computing and GPUs became more and more accessible with Google Cloud , Microsoft Azure , and Amazon Web Services (AWS) .

This shift made it possible for small-scale businesses to access tools that were previously exclusive to tech juggernauts.

The impact? Regardless of their size, E-commerce companies could be part of the game.

Any E-Commerce store can now own their data (catalog, customers or sales) to THEN harness AI’s power.

Simple application, of course, at first, but now ranging from customer service (chatbots) to product recommendation engines and price optimization.

A remarkable example is Warby Parker 's journey.

This eyewear brand, which started first with forecasting sales and optimizing the manufacturing pipeline, to now grown with a unique proposition of allowing customers to try frames at home and furthered its innovation by adopting AI.

Their virtual try-on feature, powered by augmented reality and AI, transformed the online shopping experience. Customers could now see how frames fit their face shapes in real time via their devices.

The result was twofold: Warby Parker saw a spike in conversions and decreased returns, but more importantly, it set a new standard. The company effectively showcased that AI isn’t just a fancy addition but a game-changer in enhancing customer experience and operational efficiency.

The takeaway for today’s e-commerce leaders is clear: AI is no longer the future; it’s the present - and it doesn't have to be flashy since it’s just a matter of focusing on what matters the most for your business.

2. Evolved Customer Expectations

Now, you're right; it is not because you can do something that you should.

However, your customers are no longer comparing you just to your direct competitors.

They're comparing you to their last best digital experience.

They're tech-savvy, informed, and, most importantly, they crave personalization.

AI drives personalization in sectors from entertainment (think Spotify , TikTok , or Netflix recommendations) to online shopping; consumers now expect—no, demand—a tailored experience.

For instance, 亚马逊 's recommendation engine has been a game-changer. It's estimated that their recommendation system drives 35% of their revenue. They've set the benchmark, and now, it's not just a 'good-to-have' but an expected norm.

For ecommerce leaders, it's a two-fold challenge: Not only do you need to keep up, but you must also differentiate.

AI is not just a solution; it's an opportunity, a must, to redefine your customer experiences.

Not living up to this expectation? They'll find someone else who does.

The numbers paint a vivid picture of the AI impact:

• The AI-enabled eCommerce market size is projected to reach $16.8 billion by 2030 , up from $3.71 billion in 2021.
• AI-powered customer service automation is anticipated to grow at a compound annual growth rate of 58.5% and be valued at $1 billion. Moreover, 71% of customers now expect personalized interactions from companies, and 76% get upset when this expectation is not met.
• About 51% of ecommerce businesses are employing AI for a smoother customer experience, with organizations using AI expected to see a 25% increase in consumer satisfaction by 2023.
• 69% of customers said they think AI will make it easier to discover new brands and products , a belief shared even more widely among people earning higher salaries.?
• 74% think AI will also help them find deals and special offers , and 67% think it’ll make it easier to get recommendations based on previous purchases.

These statistics point to a significant shift in customer expectations, emphasizing the necessity for ecommerce leaders not merely to adapt to these changes but to employ AI to meet and exceed these evolving expectations strategically.

3. The ROI of AI: Beyond Numbers

But as a thoughtful e-commerce leader, the quintessential question orbits around the practical value: What’s the real return on the investments made in these technologies, and how much would this cost my team and me?

In short, what's my ROI?

Regarding AI, the initial imagery is often of high upfront costs, a notion that might stir a pause.

However, the narrative shifts dramatically when you glance at the real-world applications and the subsequent ROI.

For instance, early adopters in the digital commerce realm have managed to cut down logistics costs by a remarkable 15%, reduce inventory levels by 35%, and boost service levels by 65% compared to their slower-moving counterparts (McKinsey Study) .

Now, these aren’t mere figures on a chart; they’re quite a testament to operational efficiency and cost management, a direct consequence of AI application.

So let's look at "Investment" here first before mentioning any "Return".

How costly is it today to inject AI processes within your ecommerce realm?

3.1 An investment consistently decreasing

Let's look at this point-by-point

• Cloud Platforms, aka data and storage. The rapid adoption of cloud platforms has made AI more accessible to e-commerce businesses. Cloud computing services like Google Cloud , Microsoft Azure , and Amazon Web Services (AWS) have democratized access to the necessary computational resources, making AI a more cost-effective solution .
• Cost Efficiency: cheaper. Significant savings from implementing AI-driven programs were observed in supply chain management, where more than 50% of cost-saving was reported in 2023 . In-house data collection is a cost-efficient venture. The data collected internally is free and highly tailored to a company's specific offerings.
• Time Efficiency: The time to implement AI solutions has been considerably reduced. For instance, a Think with Google report highlighted a case where insights were derived in 28 minutes using AI , showcasing the rapid analysis capability. Another facet is the reduction in AI training time. A technique developed by researchers at North Carolina State University cut down training time for deep learning networks by more than 60% already in 2019 , showcasing a significant time efficiency. And I am not even mentioning the insanely reduced training consideration introduced by companies like Hugging Face or OpenAI .
• Ease of Access to Data: The convergence of AI and data has unlocked new possibilities in e-commerce. AI has eased the process of collecting and analyzing vast amounts of data, which is crucial for personalizing recommendations, fraud detection, and logistics optimization. E-commerce businesses now have access to large datasets that can be efficiently processed to create more effective sales, marketing, and production plans, thereby making more data-driven decisions. Open source is also booming; take a simple look at Hugging Face .

These facets illustrate a trend where the hurdles of time, cost, and data accessibility in implementing AI in e-commerce gradually diminish, making it a more viable option for businesses of various sizes.

3.2 Returns that Genuinely Pay Off

Now, on the outcome side of things, the revenue narrative also sings a similar tune.

Consider the simple act of on-site search optimization. Data shows that around 30% of eCommerce consumers use on-site search.

And it is not just about making money, but about saving it - fraud protection is a simple example.

Take the case of eBay as an online marketplace, reporting a 40% detection rate of online credit card fraud , all thanks to the eagle-eyed vigilance of AI algorithms.

Same ROI for inventory management and dynamic pricing strategy, both offsprings of low-effort AI implementation. Adjusting prices in real-time based on a myriad of factors like demand and competitor prices ensures your pricing strategy remains competitive and revenue-optimized.

The average payback period on AI investments oscillated between 1.2 to 1.6 years in 2021 , with a promising upswing of up to 30% ROI in the near future. Though the current average ROI stands at 4.3% for market leaders and a modest 0.2% for newcomers, the trajectory is upward, and the potential is enormous.

At the heart of it, AI serves as a formidable ally in decision-making. From forecasting future sales to measuring marketing efforts' effectiveness, it’s about having a sharper lens to view and interpret the commercial tableau.

AI isn’t merely a technological upgrade; it’s a strategic enabler, a catalyst in refining operational processes, boosting revenue, and carving a sustainable growth path in the bustling digital commerce arena.

Your investment in AI isn’t just a monetary allocation; it’s a step towards fortifying your market position, fostering a deeper understanding of your customer base, and navigating the eCommerce odyssey with a compass of data-driven insights.

In essence, AI's ROI extends beyond just the numbers; it's about building a stronger, more reliable, and more customer-centric business framework.

4. A need to adapt and automate

The less time and resources spent on repetitive tasks, the more can be allocated to strategic, revenue-generating activities. This is where AI shines brightly. It's not about replacing the human touch but about augmenting it to achieve higher operational efficiency and improved customer satisfaction.

As e-commerce leaders grapple with the dynamism of consumer expectations and market trends, the segue into automation, piloted by AI, isn't merely a tech-savvy move; it's a strategic imperative.

The automation wave propelled by AI doesn't just stop at chatbots handling customer queries or algorithms tweaking your marketing strategies. It extends to a more sophisticated level, easing the burden of inventory management, fraud detection, and even real-time pricing adjustments based on market dynamics.

Automating these crucial yet time-consuming tasks can lead to significant cost savings, better customer experiences, and, ultimately, higher profits.

The agility that AI-powered automation brings to your operations can be a substantial competitive advantage in the fast-evolving e-commerce landscape. It provides a framework to swiftly respond to market changes, customer feedback, and operational hitches in real-time, ensuring that your e-commerce platform remains resilient, responsive, and relevant in meeting the evolving demands.

So, circling back to the quintessential question: why should you, as an e-commerce leader, care about AI? It's not just about the tangible ROI, which, as discussed earlier, is substantial.

It's about embracing the automation era to foster a more efficient, customer-centric, and agile operational framework.

It's about staying ahead in the game by leveraging AI to navigate through the complexities and dynamics of e-commerce, ensuring that your business is not just surviving but thriving in the digital commerce domain.

The world will move forward on AI; the earlier you understand and embrace it, the more you will make of it.

We're not merely adopting a technology; we're aligning our e-commerce venture with the trajectory of digital evolution, ensuring a robust foundation for sustainable growth and competitiveness in the foreseeable future.

TL;DR - why should you care?

• Accessibility: AI is now within reach for every e-commerce platform, big or small.
• User Expectation: Your customers are already experiencing AI benefits elsewhere; they now expect, if not demand, the same level of personalization and efficiency from your e-commerce platform too.
• Low Cost of Entry: The dropping costs and increased accessibility of AI tools now allow even small players to step into the AI game affordably.
• Worthwhile Returns: It's not just a tech upgrade; AI brings a promising return on your investment.
• Enhanced Efficiency: Streamline operations from inventory to customer service, making your business run smoother.
• Early-ish Adoption Advantages: The world is steadily advancing with AI at its core. Getting on board earlier not only places you at the forefront of technological innovation but also significantly reduces the chances of falling behind in a fast-evolving digital landscape.

E-Commerce, AI, and ML, with all their complexities and nuances, are ushering in a new era. The question isn't about joining the bandwagon; it's about when and how. In our next article, for those intrigued and ready, we'll delve into the practical steps: "What can I concretely do as an e-commerce leader?"

But for now, remember, while the tech landscape might always have its jargon and buzzwords, the essence lies in discerning the transformative from the transient.

AI in e-commerce is not just another trend; it's the future.

As an e-commerce leader, your perspective on it will shape your business's trajectory in the coming decade.

Now I also understand that beside confirming or infirming some beleif as "how much" you should be invested in this topic, this article doesn't bring anything too concrete as "what to do" or "how to do it".

Do not worry, this will be exactly the theme of our 3rd Part - what can you concretely, today at the end of 2023. Stay tuned!