When Amazon's new AI tool answers shoppers' queries, who benefits? (updated)

iRobot

05/02/2024 22:39

(Adds Amazon comment in paragraph 4 and attribution to the FTC
lawsuit in paragraphs 2-3 and reference to a 2019 Digiday story
in paragraph 10)
    By Arriana McLymore and Greg Bensinger
       Feb 5 (Reuters) - Amazon.com  AMZN.O  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, according to the Federal Trade Commission's pending
2023 antitrust lawsuit against Amazon. 
        The FTC accused Amazon of "biasing Amazon’s search
results to preference Amazon’s own products over ones that
Amazon knows are of better quality." Further, the FTC 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. The company has denied the claims and said it
will contest the suit in court. 
        Amazon's general counsel said in 2023 that the FTC "is
wrong on the facts and the law," and that its practices "have
helped to spur competition and innovation across the retail
industry."
  
    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
once granted that badge to marketers who were willing to pay for
it, according to a 2019 Digiday story citing an Amazon internal
deck from 2017. 
        Amazon says the label today relies primarily on criteria
such as reviews, shipping speed and price. 
  
        Europe’s top antitrust enforcer Margrethe Vestager said
Amazon’s ability to limit access to the “Amazon’s Choice” badge
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.”
    Amazon in a blog post showed how the software might respond
to a query about a particular pickleball paddle’s worthiness for
beginners. “This paddle is a great option for beginners,” the
software replied, according to a screenshot. “The large sweet
spot helps beginner players get the ball over the net
consistently.” In another example it displayed Tyrannosaurus Rex
toys for a query about best toys for a “dinosaur obsessed 5-year
old.”
    The company said Rufus is trained using Amazon’s product
catalog, reviews, information from the web, and question and
answer sections.
    However Rufus evolves, Luria said Amazon has an edge over
Google  GOOGL.O  and Microsoft's  MSFT.O  AI applications
because it has a rich trove of purchasing and personalized data
that’s quite an advantage at the checkout counter. 

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 (Reporting by Arriana McLymore in New York and Greg Bensinger
in San Francisco, Editing by Nick Zieminski)
 ((arriana.mclymore@thomsonreuters.com; 917-667-8733; Reuters
Messaging: Twitter: @Arriana
greg.bensinger@thomsonreuters.com; Reuters Messaging:
@gregbensinger))