Prime Time for AI? Checking out the Future of US E-Commerce

The beauty of e-commerce marketplaces is that they present consumers with a tremendous amount of choice. But when platforms have billions of listings, it becomes incredibly important that search results are accurate, effective, and personalized—and that algorithms understand more natural search prompts. That’s where AI comes in.  

Bring on the AI Chatbots

It is not a stretch to imagine generative AI chatbots transforming search across marketplaces, offering personalized and well-curated recommendations. What’s the dream? A 24/7 personal assistant chatbot that can help you sift through the limitless online shelf and serve results that are increasingly personalized to your needs and preferences. And, of course, these chatbots could also help with customer service if something goes wrong with the order.

Naturally, in instances where you know what you need or want, you’re probably just better off typing that straight into the search bar. It seems both quicker and easier. Let’s not forget that search has been getting optimized for decades now and is quite effective. There is a reason that 63% of US consumers<sup>1</sup> start their product searches on Amazon and that a very low percentage (estimated 8%<sup>2</sup>) of online shoppers regularly use more cutting-edge technology such as visual search. The latter allows customers to take photos of products in their surroundings, then find similar listings on a given platform.

But what if you’re clueless in the kitchen? You could aimlessly browse for some lunch recipes, find your way to a cooking blog and get inundated with terrible pop-up ads. Or you could ask the ChatGPT plug-in within the Instacart app for some healthy and affordable lunch options under US$10, generate a recipe, build a shopping cart and order the basket within a few clicks.

Hope or Hype?

The extent to which consumers engage with generative AI assistants/chatbots when shopping online remains to be seen. Consumer behavior can be hard to change—and doesn’t happen overnight. 85% of retail still happens in-store, and we’ve been at e-commerce for over 25 years now. Alexa never lived up to its promise of being that easy-to-use, voice-controlled assistant. However, this feels like a true paradigm shift in technological power with the potential for chatbots to live up to the hype of being that dynamic and effective digital assistant. If rolled out effectively, it should help drive better conversion rates and accelerate the adoption of e-commerce, even in categories that are hard to crack today.

Disintermediation Risk

Of course, we are looking at the technology from the lens of consumer experiences and platforms we live with today. We have assumed so far that consumers still seek out marketplaces and use generative AI apps to help them discover products. However, we could see entirely new platforms and applications built entirely around AI in ways that are hard to conceive now, but could fundamentally shift how we engage with the online world. There is a disintermediation risk for e-commerce marketplaces if consumers gravitate toward these tools as the jumping off point for their product search journey.

In other words, if generative AI chatbots were to become consumer apps themselves or foundational to the operating systems of the future, to what extent do consumers need to seek out online marketplaces to search for products anymore? Presumably that search process would start one-step removed. Marketplaces could still facilitate the underlying sale, but in losing direct traffic they would risk losing customer loyalty, access to data, and the ability to sell through additional services such as advertising.

This scenario would be a bigger challenge for marketplaces that: (i) struggle with direct traffic; and/or (ii) have commoditized or overlapping merchandise because it could increase the risk of price and feature comparisons across marketplaces. A sample of several large online shopping destinations in the US suggests that in the breakdown of web traffic data (mobile and desktop) on average, only 42% of e-commerce traffic to the top sites is direct, 33% comes from organic search, and 13% from paid search (Display).

For Some Top Online Shopping Destinations, Only ~40% of Traffic is Direct

A similar threat already exists today with Google Shopping, which has not really materialized into a structural headwind for the sector. However, the core Google Search product naturally shares in the profit pool of e-commerce, thanks to its leading position in the product search journey (commanding 46% of web traffic between organic and paid search).<sup>3</sup> Any potential outcome that could disintermediate traffic and the economics of a marketplace bears watching. Perhaps we will even see tech companies resist integration with chatbot apps to maintain the status quo.

Productivity Uplift

Regardless of how consumers interact with AI chatbots or change their behavior around search, the ability of generative AI to automate content creation is perhaps the most tangible benefit. Knowledge workers across these companies should see a productivity uplift, which will either free up time to focus on higher ROI efforts or allow these companies to run leaner.

What’s more, research and development (R&D), overhead (G&A), and marketing dollars should go further in the new world. It is not yet clear how much AI could help companies save. In 2022, the median company in a sample group spent 39% of revenue on marketing, overhead, and R&D (Display). If we assume these companies can cut these expenses by 5% to 10% on the back of AI developments, it would generate 200 basis points to 400 basis points of margin expansion, all else being equal.<sup>4</sup>

An offset to this math would be if the platforms must assume an incremental cost burden for utilizing AI in their day-to-day operations. Also, if it is easier for companies to do more with less, then presumably the barriers to increased competition will also be lower under the new paradigm—another risk to keep an eye on for incumbents.

E-Commerce Companies Spend ~40% of Their Revenue on Sales & Marketing, R&D, and Overhead (Median)

AI-Empowering Your Cart

As always with disruptive technology, we run the risk of thinking through the lens of today’s constructs. But it is likely that use cases and applications emerge that are hard for us to envision today, that may end up feeling intuitive in hindsight. With AI already enhancing the shopping experience and transforming the industry, it’s clear that the future of US e-commerce is not just bright, but also intelligent.

Investment Strategy Group
Nikhil Devnani
Research Analyst—Bernstein Research Services
Eva Zhang
Research Associate—Bernstein Research Services

1 Jungle Scout Consumer Trends Report: Q1 2023.

2 The Insider Intelligence Ecommerce Survey conducted in February 2023 by Bizrate Insights.

3 As of June 2023. Source: Bernstein Research

4 Bernstein Research analysis

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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