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Is Amazon’s Alexa a threat to rival retailers?
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
About a month ago, a six-year old managed to order a dollhouse and six pounds of cookies by interacting with Alexa. The kids were playing with Alexa by asking and telling knock-knock jokes, and the mother soon saw an e-mail order confirmation for a $170 order. A lesson on setting Alexa’s PIN to prevent unwanted purchases was learned.
But what fascinates me the most about Amazon’s voice ordering system is how my own kids have taken to it. After asking if Alexa would play dollhouse with her and hearing her order confirmed, the girl told Alexa “I love you!” While much older, my children (ages 12 and 15) likewise seem to have a certain amount of affection for “her” — and they call it “her” — already.
According to them, we don’t own an Echo, we own an Alexa. And they constantly ask her to tell them the weather or a joke or to play a song.
I don’t think I realized how much this AI tool has wormed its way into our life until I caught an episode of Star Trek: Voyager. One of the main characters is an AI – a holographic doctor. A new assistant was appalled at how the crew treat the doctor, “like he’s a piece of furniture or something.” The writers assumed that even though someone may look, sound and feel real to the touch, people would still know deep down it’s not a real person. And thus treat it more like a piece of furniture.
After hearing about the girl who loves Alexa and watching my own kids, I have a feeling the human tendency is going to be to relate to anything that is moderately human as human — even when they know it’s not. I’m also certain that retailers struggling to compete against Amazon need to think a lot more about what kind of personality and trust people are projecting on to services like Alexa. Increasingly, they may find they are not competing against some wacky bald guy and an internet behemoth. They are competing against Alexa, my kids’ favorite disembodied voice.
Discussion Questions
DISCUSSION QUESTIONS: In what ways are voice assistants a threat to retailers? Should retailers be looking to partner early on with Echo or one of its rivals (Google, Microsoft, Apple, etc.)? How else can they respond?
Poll
BrainTrust
Lee Kent
Principal, Your Retail Authority, LLC
Ken Cassar
Principal, Cassarco Strategy & Analytic Consultants
Anything that makes the Amazon shopping experience even more seamless is a market share opportunity. As the panel discussed recently, it’s no wonder that several national retailers are aligning with Google’s voice assistant instead.
Retailers probably have their own opportunities to apply voice recognition technology to their own mobile apps. (Maybe this has already happened.) Voice activation seems to be the next “smart” thing, so it’s a win for whoever gets there fastest.
Alexa’s contribution seems to be no more than buttons but in a device. And while there’s been big fanfare about buttons, there’s little evidence they matter financially or to many consumers. So I think we already have proof that it’s a minor corner of the market.
We also need to take care. Other experience shows us the vast majority of consumers don’t tent to trust automated spending very much because they want to keep control of their spending. For 30 years TV companies (including home shopping) have tried to build push button ordering of things consumers see featured on TV. Yet it doesn’t work in the market. Not for technical reasons — but because consumers make more considered choices before spending their money.
Absolutely! Retailers and brands would be wise to partner with Echo and any of the AI rivals, as voice-activated commerce is the future. Digital natives, and especially our children’s generation, will eventually find this method their preferred way of shopping online. Alexa and its competition will eventually be involved with so many of aspects of our lives, it will be omnipresent.
What are the pain points that we all experience with the legacy online shopping experience? Alexa, along with Echo remove any of the below common online friction points:
They literally turn a transaction into a seamless experience for the digital native generation.
With that said, there will need to be controls, preferences set and other regulations to ensure that our kids don’t go overboard and buy the latest six-foot doll house and 100 piece lego set :-). Also, as is the case with any of our latest technological innovations, too much exposure is never a good thing.
Brandon — your enthusiasm for voice/AI is impressive, but you have oversimplified many of the factors affecting using voice as a purchase mechanism. Of course, voice/NLU interfaces are not new, it’s just that in the last few years they have consistently reached better than 95 percent accuracy and with improved AI, they’ve become more feasible. Additionally, Alexa’s success has as much to do with the mechanisms of commerce Amazon created for itself before the advent of Alexa as with the technology making Echo/Alexa work. So I have to disagree in many ways with what you have laid out as solutions to pain points and somewhat dispute the pain points because the solutions are really quite complex and create new issues in and of themselves.
Ken thank you for your feedback, and for providing some additional insights regarding the advent of voice/AI as a potential commerce engine.
Certainly I may have slightly over simplified my points, however, I do agree with you that Amazon’s established commerce platform has laid the groundwork for Alexa to take the customer experience to the next level. My points were relative to the customer experience, rather than the supporting processes, and technological infrastructures that need to be in place to support this seamlessness on the front end.
I can also agree with your point regarding the new complexities that this introduces to both upstream and downstream systems.
I read an article after the holidays talking about the high volume of Alexa sales but a short splash when it came to its use as a buying tool. I get that. I believe Nikki Baird said, in one of her pieces, that she is not a fan of purchasing without sight. Apologies Nikki if I didn’t get that exactly right but I believe that was the gist. I agree. I am not so sure how Alexa will fair as a buying tool unless it is for reorders and staples however, AI is the big threat to retail. Maybe not so much a threat as a shout out to GET ON BOARD or get left behind.
Everyone enjoys talking to Alexa and even playing with her and the smarter she gets and maybe with a visual accessory, she will win our hearts and pocketbooks.
For my 2 cents.
I think there’s a bit bigger message here as well: retailers need to have their products online. Without having some kind of e-commerce capability, they won’t be able to make products available to Alexa, Google or any other AI. There is certainly some loss of power here in retailers giving up the direct customer interaction; however, AI capabilities will become all but a requirement in the future and it’ll be up to the retailer to partner, use a third-party solution or develop their own.
With Amazon already taking in nearly $2 billion in vendor advertising dollars for sponsored listings in site search, watch for innovations in this space with Echo. Sixteen years ago Seth Godin coined the term Permission Marketing, meaning, why don’t we let each individual simply provide their consent to marketing on products and services they are thinking about? I can see this concept coming to life with Echo whereby a user can instruct Alexa to let them know about new and upcoming offers fitting their individual future purchase interests from Amazon advertising vendors.
Voice interfaces threaten those resisting change, yet often delight them once they’ve experienced positive interactions. So there is no specific retailer vs. voice/AI issue.
Like any other method of interaction, human or otherwise, voice and/or artificial assistants are a mechanism that forward-thinking brands can add to their toolbox and reap benefits from. That is, if employed in a way that benefits users and is not technology for technology’s sake or to mimic competitors. It’s particularly true for mobile apps. One example, talking hands-free to an app that is intelligently empowered with things like beacons, can offer hands-free benefits to in-store shoppers that touch interfaces can’t. It will be coming to the web soon as well.
Regarding teaming up with Echo rivals, I believe that’s a failed approach that in their distress, retailers will try, but will ultimately resolve to be of little real benefit. Google is attempting such a consortium right now, but as I described in my recent article the challenges of multiple merchants on a shared voice platform are many, compared to the infrastructure/logistics that give Alexa and her users purchasing convenience and confidence.
Retailers need to be part of this evolution or they will be left out of that the piece of the retail pie. I would start aligning my partnerships and alliances with those AI portals so that some of that traffic comes to me.
This isn’t an issue of retailers and Alexa (or any voice ordering device). Bob Amster said it very well, “Retailers need to be part of this evolution or they will be left out of that the piece of the retail pie.” And that evolution isn’t about Alexa. It is about what comes after that — and after that. Technology will continue to provide greater ease and convenience for the consumer.
Retailers must start thinking about how to interact with a customer not in 2018, but in 2030. Historically, retailers have not only been behind reading trends in consumer habits and behaviors, but have fought them to death. Death for the retailer that is!
In today’s fast-moving technology world, retailers must keep up with the new ways their customers choose to interact with them and order their products. Ten years ago there were primitive cell phones which had no impact on the retailers as they were very difficult to use to order items. Yet today, mobile is one of the most frequently used ways to order online, especially by Millennials. Many retail stores now support Wi-Fi so their mobile customers can access their smartphones in the store, do research about the product in which they are interested and possibly order online. The trend toward supporting customers in whatever manner they wish to connect with the retailer will continue. Those retailers who do not support technologies like Echo will do so at their own peril.
As voice is the new access point to commerce, is there really any question of if retailers and brands will have to engage with consumers on that basis? But the booms in websites and social media in the past offer an important lesson about when to engage in voice interactivity. Blowing billions on something new and shiny that providers call a “must have” can take time, money and attention from areas that deliver higher ROI. Timing is everything.
Retailers don’t have a lot of options, so they will have to play with the leaders in voice-activated speakers. Consumers will only have one AI system in their home and it isn’t realistic for retailers to introduce their own branded AI speaker, as it will be extremely difficult to compete with the first movers (Amazon, Google and Microsoft).
The big three will certainly offer retailers ways to play, like keyword advertising similar to online search advertising. While it is a bitter pill for retailers to swallow, it will probably be better to pay to play than be excluded from the AI in-home revolution.
Alexa does not stand a chance against a real human. It is a cute little toy that will fade faster than you think. Consumers love the front-end of new trends but they jump off the trend game fast. Treat this Amazon trend like a video game. Some game consoles are a must-have then are a “find them in the closet fast.” Like Nintendo Wii and many more.
Real life is not like the TV commercials, but some people have to experience it to learn this. Retailers have enough to focus on other than this trendy toy.
The need for consumers to see, touch, smell and feel is not going to be Googled away with simple voice command. In fact without visual and price comparisons the little squawk boxes may be the next permanent resident moving into the land of buggy whips and beepers. Software security and authentication is the grease that will certainly get this device type into obsolesce sooner than later. But that is another discussion that just may be a tad overdue.
In the long-term, yes, retailers need to work with these voice-based AIs, there’s no question given that they have to be where customer go. Customers will use these more and more over time. But today I’d argue this is only useful for staple items where brand loyalty in the product category isn’t an issue. For every other product type the AI, Alexa or other, needs to be more active than it is now. Alexa is great for simple requests but still is too easily stumped with complex interactions that require multiple steps.
Google, Microsoft and anyone else trying to do this (yes, even Apple) have additional back-end complexities to resolve to support multiple retailers. They have an opportunity to create a back end that presents a simple interface via voice to the consumer so you can choose which retailer you buy from for a given product, but it remains to be seen if they can execute this successfully.
That’s an easy question. Answer: a big “hell yeah!” Having a personal assistant help you do whatever it is you need (including buy whatever it is you need) in five million homes — are you kidding? If that doesn’t put a cold shiver down your spine as a retailer, I don’t know what will. That’s like being 20 yards behind Usain Bolt; hard enough to beat him straight up!
This proves again that Amazon is just so far ahead of the rest of the retail pack. We’re about to see massive store closings and major corporate restructurings because of it. Oh yeah, and potentially the first trillion-dollar retailer in history.
If I am a retailer that competes with Amazon, I would be very worried about the growing base of Alexa owners. 59% of Alexa devices sold thus far were sold in November and December of 2016, so there is tremendous momentum. Research from Slice last month showed double digit increases in Amazon purchasing after people bought their first Alexa device (with seasonal adjustments).
Takeaways are pretty clear to me. 1) If you’re a retailer, you need to get in bed with Google ASAP to help Google Home develop commerce platform to counter Amazon’s power. 2) If you’re a brand, you need to think about Alexa as you think about Google. You need to figure out what you can do to get your brand to the top of Alexa voice request results. I ordered AA batteries from Alexa yesterday, without specifying the brand that I wanted. Guess what brand came up? Amazon Basics. $7 for 20 AA batteries. The price was good enough that I didn’t stick around to hear the second suggestion.
Voice assistants are becoming increasingly popular, from Google’s Assistant, Amazon’s Alexa, and Apple’s Siri to Microsoft’s Cortana. Retailers should be looking to get in ahead of the trend and partner with one of the established voice assistants. Google or Amazon currently are the leaders in the field, showing the widest range of capabilities. Alexa seems to have found a special spot in consumers’ lives, similar to an AI straight out of science fiction. Google’s Assistant in its own right has the advantage of crossing platforms from Google Home to Android smartphones. I foresee a system similar to Amazon’s marketplace taking place in the future to bid for who gets the “buy box” of voice orders. Either way, this is something that retailers should jump in on early so they don’t get left behind.
We’re so early into AI there is a big learning curve. Now we know how to handle the child who orders a dollhouse and $170 worth of cookies. What’s our next lesson? Can’t wait to find out. It’s only going to make AI better.