When Amazon's new AI tool answers shoppers' queries, who benefits?
Technology
When Amazon's new AI tool answers shoppers' queries, who benefits?
(Reuters) - Amazon.com (AMZN.O), opens new tab has begun rolling out a new artificial intelligence assistant that is meant to address shoppers’ product questions, but the feature raises as many questions as it answers.
Rufus, as the software is known, will help users, according to Amazon, by guiding them to the toaster ovens or dinosaur toys that best fit their needs. Yet Amazon has a history of steering customers towards products that most benefit Amazon, either because they are more profitable or are backed by advertising dollars.
Amazon is combating an antitrust lawsuit by the Federal Trade Commission which alleges the Seattle firm operates a “pay-to-play” system, giving top billing for the products on which marketers were willing to spend the most. And the agency noted that Amazon frequently pushes its private-label brands to the top of search results, even when other goods may be higher quality or at a better price. The company has denied the claims and said it will contest the suit in court.
Like for other generative AI services, the algorithm behind Rufus is a closely-held secret and Amazon declined to discuss how it operates. It offered some clues, including a press release, that said it is trained using Amazon’s product catalog, reviews, information from the web and question and answer sections.
But Michael Pachter, a Wedbush Securities analyst, said Amazon would be turning money away if it didn’t ostensibly open Rufus’ results up to advertisers. “You’ll most likely get sponsored results,” he said. “Advertising drives retail and Amazon is no different – why do you think they are generating tens of billions of dollars in advertising a year?”
The company on Thursday reported a 27% jump in ad sales in last year’s fourth quarter to $14.7 billion.
At least initially, Rufus doesn’t appear to be influenced by advertising. Gil Luria, a D.A. Davidson senior software analyst, said that was likely necessary to build trust with consumers. “If they lose your faith in how they answer, you're not going to ask them anymore," Luria said.
ADVERTISING AND CONSUMER CHOICES
Yet the company has time and again allowed advertising to creep into its recommendations. Consumers may have once believed that an “Amazon’s Choice” designation indicated a review or testing process, but Amazon used to grant that badge to marketers who were willing to pay for it. Europe’s top antitrust enforcer Margrethe Vestager said Amazon’s ability to limit access to the “Amazon’s Choice” label was one reason for her objection to the company’s planned takeover of Roomba-maker iRobot. Amazon walked away from the deal last month.
And Amazon previously allowed marketers to place products in customers’ online baby registries without their knowledge, a Wall Street Journal investigation found. It has since ended the practice.
Amazon.com search results included nine sponsored listings on average, a study by Profitero from 2020 to 2021 found, twice the amount as Walmart and four times that of Target.
Jim Tierney, Chief Investment Officer of Concentrated US Growth Equities at AllianceBernstein, said he saw real promise in Rufus "if you actually have some kind of an AI conversational shopper.”
“That just means more engagement and more conversion, which means more revenues and more units (sold)," Tierney said.
But Amazon offered few clues in rolling out Rufus to select customers. In a call with investors, CEO Andy Jassy said Rufus “lets customers discover items in a very different way than they have been able to on e-commerce websites.”
