hiddenJul 06, 2017 18:25:40 IST
By Beerud Sheth
Bots and AI are transforming virtually every industry vertical. One of the heaviest hit will be ecommerce. The current ecommerce industry is built on a few critical assumptions that will no longer hold. There are also inefficiencies that will disappear. Ecommerce involves information asymmetry between merchants and the consumer – bots will now level the playing field. Bots, powered by ample compute cycles and memory as well as the rapid advances in AI, will put substantial capabilities in the hand of the consumer.
Bots make brands and advertising irrelevant. Brands and advertising are artifacts of the limitations of the human mind. The human mind can barely remember a handful of brands at purchase time. Therefore brands spend heavily to buy mindshare. Once shopping decisions are influenced by or delegated to bots, the current dynamic goes away. Shopping bots can visit hundreds of merchant bots to find the best product or price. Instead of spending money on human mindshare, brands will be better off investing in improving product or price. Bots will discover even the smallest or newest ecommerce merchant, if they offer better value.
Bots make subscriptions irrelevant. Many ecommerce business models are built around offering subscription services for recurring-use products (e.g. diapers or razors or groceries). They offer consumers the convenience of not having to remember periodically. However, bots can manage subscriptions themselves. Bots don’t forget. Bots can “keep the refrigerator stocked” while purchasing items from different merchants. That means merchants will have to continue providing better value in every transaction to keep the shopping bot coming back.
Bots eliminate the benefit of accumulating credit cards. Today, consumers are expected to share credit card with every merchant they want to transact with. This causes security concerns, which is why consumers tend to share their cards with a few merchants that they trust. Therefore, merchants with a large number of credit cards have an advantage in growing wallet share. However, shopping bots will be able to transact with merchant bots without sharing credit cards. Bots can even help the user be anonymous by spawning a transient bot for each transaction. More secure transactions increases the customers ability to buy from more merchants than before. This will diminish the value of the lock-in created by accumulating credit cards.
Bots eliminate the need for aggregators and intermediaries. Many ecommerce models are built around aggregation and intermediation (e.g. flight aggregators or hotel aggregators). Shopping bots can do the aggregation by themselves without relying on a 3rd party aggregator. Shopping bots will clearly get better value by cutting out the intermediary. Just as travel agents disappeared when online booking emerged, aggregators will disappear when bots help shoppers.
Bots will diminish the value of customer loyalty. Once loyal customers form a habit, it leads to repeat purchases and higher margins for the merchant. Once bots start assisting shoppers, bots will insist on better value from the merchant in exchange for loyalty – inverting the economic value of loyalty. Merchants will no longer be able to automatically assume loyal customers making a repeat purchase out of habit – they will have to continuously deliver value in every transaction.
Bots will upend popular shopping traditions. Promotions such as Black Friday or Spring Sales attract customers into the store; once they’re in the store they tend to stay longer and buy more stuff. What if every purchase decision gets made independently based on value. What if the promotion on one item does not translate into additional purchases? Bots can work 24x7 and will not need to wait for the long weekend to shop.
Bots eliminate many supposed “barriers to entry”. Ecommerce companies built many barriers to entry by engineering their service to arbitrage human psychology. The mantra was to offer convenience, selection and price. Now,
the very customer model is about to change: the new customer is a super shopper, an economically rational actor with practically infinite information, memory and compute capabilities. They will not care about convenience or selection – they can take care of it themselves. The only way to appease them will be to deliver better quality or price.
Of course, there will still be economies of scale on the manufacturing and fulfillment side, but many of the current models built around human shopping habits will be disrupted, creating opportunities and threats for all players.
The author is the CEO of Gupshup
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