Will OpenAI kill Amazon's advertising business? Scot Wingo and Jason Del Rey discussed how Amazon's retail and ad dominance could be disrupted by AI companies in a very enlightening interview, which I'll share some highlights of below:
- Wingo says e-commerce market share in the U.S. has settled somewhere between 15% and 20% of overall retail sales, which is way lower than Europe and Asia, and it's “because our user experiences have really stalemated or gone stagnant.”
- Amazon in particular, he says, “totally stopped innovating on retail and have just started cash-cowing it.”
- He says to imagine a world where someone builds an AI experience on top of Amazon, and no-one's using the Amazon front end anymore (something Amazon is actively trying to prevent), “there goes $60 billion of profit margin basically.”
- What if OpenAI or Perplexity only charged a 5% take rate to sellers to list on their marketplaces. “So there’s a way you could really attack Amazon by getting rid of the ad business quickly, which would be pretty detrimental. And then I think you could chew away at a big chunk of the marketplace business.”
- In response to how Rufus AI will help Amazon in the AI battle… “They’re good efforts, but I believe ChatGPT is going to be better. Part of it is that Rufus can’t be so good that you don’t need [Amazon’s product search] advertising. For Rufus to improve dramatically, it almost has to replace the existing search experience on Amazon. And that‘s a chasm Amazon’s not going to cross, because that would kill $60 billion of advertising revenue that’s essentially pure profit margin.”
The phenomenon of “AI can only be so good” that Wingo points out is evident across various tech sectors.
- Google's AI answer engine can only be “so good” or it risks disrupting Google's ad platform disguised as a search engine.
- Amazon's AI shopping assistants surfacing the best products for customers can only be “so good” or it disrupts the ad-dominated product discovery experience that rakes Amazon in billions.
- Meta's AI content generation can only become “so good” before it risks alienating the users and creators that publish on its platforms.
- Adobe's AI editing tools becoming “too good” could result in fewer editors needed to do the same amount of work, which means less human subscribers to its creative suite.
- Apple's iOS getting “too good” with AI to accomplish daily user tasks could mean less apps needed to be purchased, which is a huge driver of revenue for the company.
Big Tech across the board is at risk of disrupting their own cash cow businesses in the pursuit of AI, which is still unproven in regards to how to monetize. (Subscriptions will eventually cap out.)
Imagine a world where your personal AI assistant only surfaces answers and product recommendations that it has a commercial interest in providing — because that's coming. The times they are a-changin'.
What are your thoughts? Join the conversation on LinkedIn.