The Hype Cycle and Maturity of AI Adoption in Retail and ecommerce

Jul 11th 2023 ai

Artificial Intelligence (AI) is transforming the retail and ecommerce industry, and we are currently in the early stages of the hype cycle. The concept of a hype cycle was first introduced by Gartner. It is a graphical representation of the maturity, adoption, and social application of specific technologies. It illustrates how a technology goes through a period of inflated expectations, a subsequent period of disillusionment (hello, blockchain!), and eventually reaches a plateau of productivity.

Many companies are experimenting with AI-powered chatbots, personalized recommendations, and other applications. More recently, ChatGPT and Open AI initiatives have opened up new possibilities of applications of LLM (Large Language Models) in a number of areas – for both internal purposes and customer facing applications. However, as this and other AI technologies become more widespread, we may see a period of disillusionment before the technology reaches its full potential.

AI Technologies for Retail and Ecommerce

There are several AI technologies that are currently being hyped for the retail and ecommerce industry. Some of the most popular ones include chatbots, personalized recommendations, visual search, and virtual assistants. Other AI technologies that are in early stages of adoption in ecommerce include robust personalization engines, image and voice recognition, predictive analytics, and supply chain optimization. These technologies can help businesses improve customer engagement, increase sales, as well as enhance the overall shopping experience. 

1. Chatbots and virtual assistants: These AI-powered tools can help customers find products, answer questions, and provide personalized recommendations.

1. Personalization engines: These AI algorithms analyze customer data to provide personalized product recommendations, search results, and real time marketing messages targeted at the individual level.

1. Image and voice recognition: These technologies can help customers search for products using images or voice commands, making the shopping experience more intuitive, engaging, and convenient.

1. Predictive analytics: These AI algorithms can analyze customer data to predict future behavior, such as which products a customer is likely to buy or when they are likely to make a purchase. These analytics can further connect to business goals and metrics for optimization purposes.

1. Supply chain optimization: AI can be used to optimize inventory management, shipping routes, and other aspects of the supply chain to improve efficiency and reduce costs.

The Promise… and the Caution

Businesses are trying to connect the shopper’s experience with inventory, pricing, shipping, and logistics data. By providing a holistic view of this operational data, AI holds the promise of a wide range of applications and more innovative uses of the technology in the future. However, it’s important to note that the effectiveness of these technologies may vary depending on the specific needs and goals of each business. Visual search, for example, has started with a lot of excitement to enable a more engaged and layered search and discovery experience for end-users. However, this area needs more clearly defined use cases and workflows before it can reach its full potential. While chatbots can do a very good job of understanding and mimicking human language, their replies, or answers, may actually be wrong at times and deeply biased. We need to ensure a verification loop is in place to score the results delivered by AI.

For AI to be effective, it needs to be connected to live business and customer data such as clicks, conversions, purchases, signups, etc. What works for one company may fail on another. Plugging an AI solution into your site may not work unless it’s trained on your data. You also need to monitor the results AI efforts are producing – whether clear revenue upsides or cost advantages. Do question the claims made by a number of vendor solutions promising to offer AI, but are simply using off-the-shelf machine learning solutions to augment results within a limited scope. 

The Future of AI for ecommerce Companies

As AI matures, these lingering concerns will be addressed. The future of AI for ecommerce companies is very promising. AI has the potential to transform the way ecommerce companies operate and interact with customers. AI algorithms will become even more sophisticated, allowing ecommerce companies to provide highly personalized product recommendations, search results, and individually tailored promotions and other marketing messages in real time. 

Here are five major ways AI is expected to impact ecommerce in the future:

1. Improved personalization: AI algorithms will become even more sophisticated, allowing ecommerce companies to provide highly personalized product recommendations and search results.

1. Enhanced customer service: Chatbots and virtual assistants will become more advanced, providing customers with more accurate and helpful responses to their questions and concerns.

1. Increased efficiency: AI will be used to optimize supply chain management, inventory management, and other aspects of ecommerce operations, reducing costs and improving efficiency.

1. More intuitive shopping experiences: AI-powered image and voice recognition will make it easier for customers to find products and make purchases, even without typing in search queries.

1. Better fraud detection: AI algorithms will be used to detect and prevent fraud, protecting both ecommerce companies and their customers.

To empower all of the future potential areas, vector based technologies and vector databases hold a great deal of promise to encapsulate shoppers’ true intent by allowing them to express in natural and free form languages how those shoppers would like to explore and discover products and information. However, ecommerce companies will have to work with the right technology solution to put in place since vectors can consume a lot of storage and processing requirements, especially while dealing with very large catalogs of product categories and collections.  

A Word About Conversational Commerce

 One specific area that we must address separately is the potential of conversational commerce to transform the online shopping experience as we know it. Conversational commerce is the use of messaging apps, chatbots, and other conversational interfaces to facilitate ecommerce transactions. Do you remember the movie ‘Minority Report’? Whether in mass media or technology vision setting, we have been promised one version or the other. But so far, true conversational commerce has remained a possibility and not a reality.

This time around, it does feel different though. Advancement in LLM model development, initial adoption for various use cases, and dramatic reduction of cost to access, store, and process massive amounts of data all are contributing to this optimism. Over the coming years, we can expect to see conversational commerce become an increasingly important part of the ecommerce landscape. As AI-powered chatbots and virtual assistants become more sophisticated, they will be able to provide more personalized recommendations and product suggestions based on a customer’s preferences and purchase history, even before those products are being searched for. 

Ecommerce companies will integrate with voice assistants like Amazon’s Alexa and Google Assistant to enable voice-based shopping. Chatbots and virtual assistants will provide 24/7 customer service, answer questions and resolve issues in real-time. Conversational commerce can help automate many aspects of the ecommerce process, from order tracking to returns and exchanges, making the shoppers journey delightful.

While many of these developments are at various stages of maturity, the overarching trend is that conversational commerce looks set to transform how consumers will interact with and experience online shopping. Companies who want to thrive in this new AI-led tech landscape must understand what’s possible and know how to capitalize on these new developments to meet business and customer goals. At Algolia, we have already started to build out a true “end-to-end” AI search solution that combines the best of keyword and vector search to help our customers reshape their online experience for this new business reality.

Reach out to our team to find out how you can leverage the power of AI to improve your overall user experience and take your online store to new heights of performance and ROI.

Learn more about our newly launched Algolia NeuralSearch.