According to Gartner, the number of businesses adopting artificial intelligence grew by 270% in the last four years. Yet there are a lot of misconceptions regarding all things related to AI. For instance, many believe that artificial intelligence is a relatively new field of study when in fact it’s almost 70 years old (the term artificial intelligence first came into use in 1956). Of course, a lot has changed since 1956. For one, artificial intelligence is no longer reserved for the biggest corporations and scientific institutions. The low cost (comparable to many legacy technologies) has allowed small-medium-enterprises to integrate AI into their business. As a result, the technology has proliferated to nearly every major industry on the planet with hundreds of unique implementations and use cases.
The terms themselves have changed as well. Artificial intelligence is now an umbrella term covering various new sub-fields of artificial intelligence. A recent Gartner report identified around 30 such sub-fields of AI that will very likely become part of everyday operations. Technologies such as Chatbots, Virtual Assistants, Computer Vision, Speech Recognition, Machine Learning, Conversational User interface, Natural Language, Processing Processing (NLP), and Image Recognition, in particular, are expected to add significant business value and impressive Return on Investment (ROI) within this decade.
As a result, this decade (and especially 2021) will be very important for artificial intelligence and its subfields as a massive shift towards AI and smart automation is expected as a result of three main factors:
- to save time and increase productivity
- to reduce personnel costs and dependence on human capital
- the availability and low-cost of AI-based processes
With this in mind, we think it’s the best time to look at the state of Artificial Intelligence in eCommerce in 2021, what has changed recently, and where the industry is headed, both from a quantitative and qualitative perspective.
Artificial Intelligence (AI) in eCommerce: Statistics and Facts
Partly due to its portrayal in popular media and partly due to the buzz around it, artificial intelligence has almost always been under the spotlight. This also means that there is a vast pool of studies and reports documenting its performance and growth.
We’ve compiled this data under four main areas of AI performance to get a quantitative understanding of how AI is being incorporated into eCommerce businesses and the numbers businesses can use to make better-informed decisions in 2021.
AI Adoption in eCommerce Statistics
In 2021, eCommerce is one of the leading adopters of artificial intelligence, followed by FinTech and Online Media (platforms such as YouTube). Artificial intelligence in eCommerce has increased tremendously in the past 5 years and it’s only going to increase in the coming years as according to a recent study, 84% of eCommerce businesses are either actively working AI solutions into their business or have it as a top priority.
The following statistics give us a better insight into the adoption of AI solutions by eCommerce businesses:
- 86% of decision-makers state that in 2021, artificial intelligence is a “mainstream technology” (PwC)
- The use of voice recognition is important as 22% of users prefer talking to an AI voice assistant instead of typing. (Pew Research)
- Another 26% of respondents state that AI voice assistants give them an easier way to use other features. (Pew Research)
- in a 2021 survey, global consulting firm PwC found that more than half (52%) of decision-makers have found that integration of AI tools has boosted employee productivity. (PwC)
- In another report, 75% of IT leaders stated that usage of AI technology will help enhance security. (Statista)
- 23% of companies interviewed have already implemented AI chatbots and another 31% of companies plan to deploy AI chatbots in 2021. (Salesforce)
- The global conversational AI market size is expected to grow to $13.9 billion by 2025. (Business Wire)
- Facebook Messenger hosts over 300,000 active chatbots. Chatbots are also one of the most popular methods of implementing AI in eCommerce. (Hootsuite)
- Gartner predicts that by the end of this year, artificial intelligence will handle 15% of all customer service interactions in the world, without any interference from their human counterpart. (Gartner)
The increasing rate of adoption is driven by many factors such as the new customer demand, cost-effective and personalized customer service, and the need for more accurate insights into customer trends. However, on a more fundamental level, AI adoption in the eCommerce industry is driven by its compatibility.
The eCommerce business model is ripe for the use of artificial intelligence and effective leverage of AI can make eCommerce far more efficient at moving products than brick-and-mortar shops. For instance, one of the advantages of AI in eCommerce is the potential to track the entire consumer journey including which products consumers are interested in. On the other hand, brick-and-mortar shops are limited to only tracking what the consumer checks out. We’ll dive deeper into the eCommerce use cases of artificial intelligence in the next section.
Statistics on AI Contribution to eCommerce Sales
Online sales have been on a steady rise for a long period, growing at a 1% YoY increase and making up 18% of all sales. At the end of the day, these sales and every business’s bottom line, in general, is the biggest factor in deciding whether or not integrating AI solutions is worth it. In fact, AI deployment has a positive impact on sales in nearly every industry including eCommerce. For instance, in the most recent State of AI report published by McKinsey, 79% of respondents stated that integrating AI into marketing and sales has increased business revenue. The increase in revenue varies but enterprises were able to generate at least 20% additional revenue thanks to AI-based business strategies.
There are numerous ways eCommerce businesses can leverage artificial intelligence to improve sales figures. For instance, integrating artificial intelligence into a business messaging and switching from traditional communication channels such as email can quadruple open rates and increase click-through-rates by 13 times.
Additionally, eCommerce companies are investing in artificial intelligence to improve logistics, last-mile delivery optimization, and recommendations. For instance, Amazon uses its AI-powered recommendations engine to make personalized suggestions that drive 35% of the company’s annual sales. At the same, big data analytics (also powered by artificial intelligence) has increased Amazon’s profits by an annual average 143% between 2016 and 2019 by optimizing prices as often as every 10 minutes on the basis of numerous external factors including average online price, product availability, and demand history.
However, total sales aren’t the only factor affecting the bottom line. By using AI to reduce the cost of operations, eCommerce companies are increasing profit margins and thus operating more efficiently. Alibaba, one of the biggest eCommerce platforms, for example, has been investing in its smart logistics program and has managed to reduce delivery errors by 40% hundreds of millions in return logistics. Another great example of AI-driven cost-savings is Netflix which saved $1 billion in lost revenue through a personalized recommendations engine that leveraged machine learning to improve its accuracy over time.
Amazon isn’t far behind when it comes to supply chain optimization either. Amazon’s usage of AI and big data analytics has allowed them to optimize delivery schedules and routes, cutting down shipping costs by more than half.
Artificial Intelligence (AI) in Customer Service Statistics
Artificial intelligence’s presence has been the most dominant in customer service and considering current market trends and customer expectations, it will continue to hold that title. Specifically, the growing demand for personalization, instant gratification, and ease of usage will make artificial intelligence a driving force in shaping customer experience in this decade.
In fact, this shift towards greater automation has already begun as companies aim to let AI virtual agents handle more and more customer service duties. IBM predicts that it’s realistic for AI virtual agents (conversational AI) to answer 4 out of 5 customer service inquiries. More importantly, this shift isn’t only adopted to reduce personnel costs but it’s a result of changing customer expectations. Customers want answers to their customer inquiries in less than 10 minutes (often instantly). As a result, eCommerce businesses are turning to artificial intelligence to provide objectively faster than human customer service. For instance, conversational AI-powered chatbots are capable of answering thousands of customer queries on their own, reducing resolution time from the average 38 hours to a lightning 5.4 minutes. Furthermore, not only are AI chatbots more powerful and always available, but they also cost far less than human customer service agents, reducing customer service costs by 30%.
Furthermore, artificial intelligence isn’t just limited to solving customer grievances – it also plays an important role in improving the shopping experience. eCommerce businesses are deploying AI in various forms including:
- more powerful search engines that can use contextual AI
- more accurate recommendations engine
- digital shopping assistants website and feature apps in one place.
For instance, one overlooked customer demand is voice and visual search even though the former is the fastest growing mobile search type. On top of this, a recent estimate by Gartner suggests the integration of voice and visual search options on websites and mobiles will increase eCommerce revenue by 30%.
Artificial Intelligence (AI) in Marketing Statistics
In 2021, eCommerce businesses are adopting artificial intelligence to improve their marketing efforts in two ways: big data analytics and business messaging. Let’s take a look at big data analytics first.
Nearly every online retailer has access to valuable customer information that can be used to improve targeted marketing. However, most businesses are unable to make use of the terabytes upon terabytes of data they have access to. This is where big data analytics helps by automating the processing of large data sets using artificial intelligence. Many major retailers are going one step further and using machine learning to continuously improve their results. An example of AI being used for more effective marketing is the Luxury Escapes AI chatbot which increased the company’s response rate on retargeting efforts by 89%. Numerous other brands including Lego, Subway, Esso, H&M, Sephora, etc have undertaken similar ventures with equally impressive results.
Additionally, the advancements artificial intelligence is bringing to business messaging are immense and as a result, this particular business function is undergoing an industry-wide transformation. For one, artificial intelligence is making personalization at scale possible for not just major retailers but even small-medium eCommerce businesses.
Artificial Intelligence (AI) Use Cases in eCommerce
The statistics on artificial intelligence deployment in eCommerce help put its widespread usage in perspective. But the numbers only provide a 30,000 ft overview of what is a complex area of business with numerous different implementations that are driven by different objectives. In other words, to fully understand the state of artificial intelligence in eCommerce, we need to look at the actual AI use cases of the technology.
Based on numerous studies and reports, we’ve compiled a list of the top 5 most promising use cases of artificial intelligence (AI) in 2021.
Big Data Analytics
Big data analytics is a field concerned with processing extremely large datasets efficiently. eCommerce businesses have access to mind-boggling levels of data consisting of important metrics that can be used to create more effective sales, marketing, and production plans and make more data-driven decisions in general.
Although big data analytics is a growing industry on its own, it still uses artificial intelligence (and machine learning) to produce the results that it does. eCommerce businesses are using big data analytics alongside data visualization and business intelligence (BI) tools to automatically monitor sales, demand, marketing strategies, inventory, supply chain components, and more in real-time.
Furthermore, eCommerce businesses are using AI along with big data analytics to regularly scan their website to flag fake reviews as well as scour the internet for trigger phrases in social media posts, blogs, and even tweets (users often post about their experience or request support on such platforms instead of using the dedicated support channels).
Lead Engagement and Retargeting
A lot of the data that eCommerce businesses collect belongs to potential customers or leads. Artificial intelligence can be used to both reach out to cold leads (who may not be aware of the brand) and warm leads (who have shown interest in the brand or product). In addition to this, AI has also been proven to be a very effective tool for retargeting customers.
Retargeting is a form of marketing that’s targeted towards customers who are in the sales funnel but haven’t pulled the trigger on the purchase. There are numerous ways AI retargeting is done but most include personalized business messaging. And of the most personalized form of business messaging available today is conversational AI.
Conversational AI Chatbots
Conversational AI chatbots are a new breed of virtual agents that leverage the latest in natural-language-processing (NLP) and natural-language-understanding (NLU). These chatbots are capable of lifelike conversations by:
- identifying the context of the conversation
- determining customer intention
- and even using a large knowledge base to form new answers
More importantly, all of this can be achieved at very affordable costs and it’s part of the reason why AI chatbots have taken the market by storm. eCommerce businesses are deploying chatbots on popular messaging platforms such as Facebook Messenger, WhatsApp, and Kik to:
- improve customer engagement
- provide additional services and digital assistance
- provide 24/7 customer service
- create Points of Sale (PoS) on additional platforms, giving customers the ability to make purchases through their favorite messaging apps.
Contextual Search and AI Recommendations Engine
Contextual search is a powerful AI feature that can be implemented on websites and mobile apps to provide more accurate search results. Сontextual search uses an AI engine that scans external data such as day of the week, season, trending topics, and more to make search results more accurate. Contextual search can also make related search suggestions and auto-fill search phrases that are more likely to lead to a purchase.
Similarly, an AI recommendations engine is, in many ways, an extension to the contextual search engine and uses external data including browser history, cookie data that may include previous searches, purchase history, etc to make personalized recommendations of products most relevant to the individual buyer.
Voice and Visual Search
We’ve briefly mentioned voice and visual search before and their growing importance which has increased its adoption across the eCommerce industry. Handsfree and even screen-free searches are becoming increasingly popular and implementing these technologies into your website or mobile app will very likely help as smart assistants (Alexa and Google Home, for instance) and home automation continues.
Benefits of Artificial Intelligence in eCommerce
One of the main reasons behind this reluctance to integrate AI solutions was the cost involved. Even though the technology itself is half a century old, most of the advancements and proliferation that made it economically viable for small-to-medium enterprises (SMEs) happened in the last 5-10 years. As a result, the advantages of AI adoption are now more accessible than ever.
Integrating artificial intelligence into your eCommerce business model has two kinds of benefits. The first kind includes the functionality added by AI itself. For instance, by integrating AI-powered voice search, customers will have an easier time navigating your website and potentially increasing revenue. We’ve already mentioned quite a few benefits of additional functionality in the previous two sections but there is a broader positive influence of AI on your company. Let’s take a look at these company-wide benefits of AI in eCommerce.
Reduced operating expenditure
One of the many advantages of artificial intelligence is that it makes automation much more comprehensive and flexible. As a result, businesses can automate more tasks and reduce operating costs. Most of the popular AI implementations today already do this by replacing a capital-intensive and inefficient business process.
Additionally, even AI implementations that aren’t directly designed to reduce costs, can do so by simply being more economical to operate than their traditional counterpart. One of the most common examples of this is the usage of artificial intelligence to process consumer data for marketing. Using non-AI tools or employees for such tasks would take longer, be more expensive, and potentially have more errors.
Reduced personnel costs and dependence on human capital
Communicating well with consumers is critical in any B2C industry but online shopping has different challenges than compared to offline shopping. For instance, shopping assistance is still required but it’s not nearly as useful to online shoppers as it is to offline shoppers. This means that many eCommerce have high personnel costs but with relatively low ROI. At the same time, dependence on humans means they cannot reduce personnel.
This where consumer-facing AI solutions is tremendously advantageous. They offer a viable alternative to human personnel while reducing the fixed costs associated with them. One of the most common examples of this is the use of conversational AI chatbots to reliably provide 24/7 customer service, which is less expensive than human agents.
The benefits of AI automation extend beyond customer service and into daily operations within the company. Once again, automation plays a central role in reducing employee burden by taking over numerous business tasks including document management, business intelligence, communication, fraud detection, and prevention, etc. This helps save valuable work hours and enable employees to work more efficiently.
An increase in productivity will be even more apparent in legacy businesses where the majority of the tools and technologies are outdated.
Creating a competitive edge and early-mover advantage
In addition to the cost, productivity, and added functionality, there is another advantage of AI and that is creating a competitive edge as well as an early mover advantage. The numerous studies and research we’ve explored in this article make it clear that there is an ongoing shift in the market.
Consumer behavior and expectations have changed massively in the last three years and continue to change. This means that there is new and untapped potential to capitalize on these changing consumer trends. For instance, younger generations make up the majority of online shoppers today are far less critical of conversational AI chatbots and even prefer using virtual agents over their human counterparts in many areas to save time. These younger generations also produce a lot more data that can be analyzed by AI to serve them better. On the other hand, older generations value personalized business messaging a lot more and are slowly becoming more appreciative of digital assistance, even if it’s provided by AI.
And while AI adoption is increasing rapidly, not all of its implementations are mainstream yet, meaning there is a possibility for not only a competitive edge but also an early-mover advantage which will further strengthen your position in the market.
Where Artificial Intelligence in eCommerce is Headed
Traditionally, many eCommerce, as well as non-eCommerce businesses, have been hesitant with the viability of artificial intelligence.
In addition to the cost, businesses simply didn’t use to find enough value in AI solutions. However, like cost, this too has changed. Consumer behavior and expectations have changed massively in the last three years. For instance, the younger generation that makes up the majority of online shoppers today are far less critical of conversational AI chatbots and even prefer using virtual agents over their human counterparts in many areas to save time. These younger generations also produce a lot more data that can be analyzed by AI to serve them better. On the other hand, older generations value personalized business messaging a lot more and are slowly becoming more appreciative of digital assistance, even if it’s provided by AI.
In other words, these trends are powerful indicators of the long-term viability of artificial intelligence as a major eCommerce technology in this decade. We predict that some implementations of AI such as conversational tech and big data analytics in particular will play a huge role in changing the eCommerce landscape for the new era.
Traditionally, many eCommerce, as well as non-eCommerce businesses, have been hesitant about integrating artificial intelligence but changing market conditions and consumer trends are powerful indicators of the long-term viability of artificial intelligence as a major eCommerce technology in this decade. Furthermore, the benefits of AI are too significant to ignore anymore and the cost to implement these solutions has never been lower.
If you’d like to learn more about how your eCommerce business can prepare itself for the future with artificial intelligence and conversational tech, consult an expert today.