How AI Will Change Amazon’s Strategy: A Thought Experiment

by MR Magazine Staff

How will AI change strategy? That’s the single most common question the three of us are asked from corporate executives, and it’s not trivial to answer. AI is fundamentally a prediction technology. As advances in AI make prediction cheaper, economic theory dictates that we’ll use prediction more frequently and widely, and the value of complements to prediction – like human judgment – will rise. But what does all this mean for strategy? Here’s a thought experiment we’ve been using to answer that question. Most people are familiar with shopping at Amazon. Like with most online retailers, you visit their website, shop for items, place them in your “basket,” pay for them, and then Amazon ships them to you. Right now, Amazon’s business model is shopping-then-shipping. Most shoppers have noticed Amazon’s recommendation engine while they shop — it offers suggestions of items that their AI predicts you will want to buy. At present, Amazon’s AI does a reasonable job, considering the millions of items on offer. However, they are far from perfect. In our case, the AI accurately predicts what we want to buy about 5% of the time. In other words, we actually purchase about one out of every 20 items it recommends. Not bad! Now for the thought experiment. Imagine the Amazon AI collects more information about us: in addition to our searching and purchasing behavior on their website, it also collects other data it finds online, including social media, as well as offline, such as our shopping behavior at Whole Foods. It knows not only what we buy, but also what time we go to the store, which location we shop at, how we pay, and more. Read more at Harvard Business Review.