EVERY SPOKEN WORD
50 min read · 10,235 words- 0:00 – 0:36
Introduction
- ARAlex Rampell
The World Wide Web is unhealthy right now. Most of the things on the internet are crap, and they're crap, and we know that they're crap, but they SEO optimize crap. So how do you decrapify that?
- JMJustine Moore
AI agents can direct people to things if people start their purchase activities there.
- ARAlex Rampell
Like Google, they kind of are a tax on GDP. Consumer spending is a huge part of GDP. They get a percentage of all that spend because they're charging per click. That tax might just shift elsewhere.
- JMJustine Moore
Why is this system so complex? What are the different types of purchases where AI can play a role, and what are we hoping to see as we think about the broader market?
- 0:36 – 1:59
Affiliate Marketing and the Evolution of Online Purchases
- SPSpeaker
So you guys have both been thinking about AI and commerce for, for a while. Al-Alex, why don't you talk about what, what inspired this piece, and how did this all ge-germinate for you?
- ARAlex Rampell
Well, so I had started a company called TrialPay a long time ago, and actually, I'd been selling stuff on the internet for a very, very long time, even before the internet. Um, and I was just trying to think, well, number one, like, what happens to Google? Because a lot of people, this is on their minds. So, like, is search volume going up or down? So I have my own personal experience of, like, well, my search volume's going down, but not for commerce, but clearly for everything that is not commerce. So that was one thing. But also, um, this company that I started, TrialPay, we were one of the biggest affiliates in the world. Um, and affiliate marketing is basically you send somebody... This is the oldest business model, uh, on the internet, if you will. It actually predates AdWords and AdSense by a bit, of you just get a share of the... You get a commission, basically, if you send something there. It was all... Th-this was started, apparently apocryphally, it came from pornography, um, because that was the world's oldest business model on the internet. Like, how do you track, how do you, how do you... So that eventually made its way to commerce, um, and it's all based on cookies and pixels. So you drop a cookie on the person's computer, and then on the confirmation page, you have a little, like, invisible one-by-one tracking pixel that reads the cookie, and that's how you know to say, "Eric sent me the customer." So what we did at TrialPay, we were one of the biggest ones there. Like, is that really gonna be what powers this new realm of commerce? And then is it even relevant for a lot of things because impulse buys are huge.
- 1:59 – 2:51
Impulse Buys vs. Considered Purchases
- ARAlex Rampell
And with impulse buys, like almost tautologically, you're not going to use AI to tell you to buy something. Like, you shouldn't buy anything that's an impulse buy. Like, you go to the supermarket, you shouldn't be buying, like, Coca-Cola, like, in the checkout line. They actually charge you more at the checkout line than they do if you just buy it in the Coca-Cola section. So, like, all of these things are designed to, like, tug at your emotions to get you to buy and spend money that you don't want to. That's not gonna be AI. On the other hand, it's like these very, very expensive items, you're researching the heck out of them with AI, but, like, there's no affiliate mo- Like, how, how do you then commerce and transact? So, like, number one was, like, the ontology of, of, like, commerce was very interesting. And then number two was this whole, like, affiliate thing. Is it still gonna be relevant? Because it seems like that's what ChatGPT and others are getting into. And then number three was just my own personal behavior of it's just like, I probably use ChatGPT, like, three orders of magnitude more than I use Google now, which is interesting.
- SPSpeaker
Justine, w-what excited you to
- 2:51 – 6:09
Observing Consumer Behavior and Viral Trends
- SPSpeaker
contribute to this piece, slash what did you find most remarkable or?
- JMJustine Moore
There's a couple really massive consumer markets, um, the biggest of which might be, like, online shopping. Um, but I think we've seen thus far relatively few startups, um, trying to take a crack at that market with AI, even though, like Alex said, there's a lot more opportunity because you now have these really smart LLMs and agents that can, um, help you make better decisions than you could have made on your own or even, um, make purchases on your behalf, which you would think would create an opportunity for more folks to package these into products that they then offer to consumers. Um, but we haven't seen a bunch of folks doing that yet. So I think part of this piece was to dive into, like, why is this system so complex? Um, what are the different types of purchases where AI can play a role? Um, and, and what are we hoping to see as we think about the broader market in hopes that, you know, folks who are also, who are working in this space would, would kind of give us a heads-up and, and let us know, and we could hear how people were approaching it.
- ARAlex Rampell
And you can observe... I, I always like to, like, observe first because, like, that's objective, and then predict second. Predicting is hard.
- SPSpeaker
Yeah.
- ARAlex Rampell
Um, I forgot the funny quote about predicting the future, but it's, it's very hard to predict the future. Um, and, like, there actually is a lot that can be observed, um, and, like, that's, that's where, like, I think CamelCamelCamel is, like, the greatest site in the world. Uh, we have no stake in CamelCamelCamel, so this is not self-promotional at all. But it's like, people use this thing, it's like Google News Alerts for pricing.
- SPSpeaker
Yeah.
- ARAlex Rampell
Um, and I, I gave a talk to the Amazon Prime team recently, and, like, they're very, very aware of it because I think it's actually Amazon's biggest affiliate. And people every day, they're like, "I would buy this product..." I mean, this is like Econ 101. "I would buy this product if it was priced here. It is currently priced here. Please let me know when it is priced here, because what will I do with that information? I'm not s- I'm not just gonna, like, l- I'm gonna buy it." So, like, the consumer is the agent, and this is, like, a very, very inefficient AI, right? And if you could actually complete the entire circle and say, like, no longer give information, but allow for automatic action on information, like, people will do that because we have observed that behavior today. This is, this is, like, the easiest form of predicting the future ever because you're really just, like, you're chronicling the present, and you're just saying there's gonna be one additional appendix to the present, which people would do anyway because they are doing it anyway. They just have an easier way to do it.
- JMJustine Moore
I think my version of observing was seeing there's a couple viral examples of this, some that were really good because the AI found the product perfectly, and some that were hilariously bad because AI couldn't find the product. But, um, teenage girls started using ChatGPT to upload photos of, like, Lana Del Rey at a concert or Taylor Swift, like, snapped in a street style photo or whatever, and asking, like, "What is this hair barrette she's wearing?" Or like, "What is this sweater?" Like, "I wanna find it and I wanna buy it." Um, and it, when it worked, it worked really well because it often found, like, hey, this sweater is, like, five thousand dollars. Like, you as a 19-year-old girl in Missouri are probably not gonna be buying this. Like, here are some alternative, maybe less expensive options that look the same that, that you can buy. Um, and that age demographic tends to be, like, a really early predictor of all sorts of consumer behavior, um, which is why it was kinda like, you know, this is probably gonna be happening more and more from the research side of things all the way to making purchases probably agentically when prices are right, like Alex was, was mentioning.
- 6:09 – 7:14
Dynamic Pricing and Consumer Surplus
- SPSpeaker
Alex, you imagine a world where there's sort of dynamic custom pricing sort of to the extreme, where it's like we're, we're looking at the same thing on Amazon, but y- it charges you more because maybe I'm cheaper than you or you have more money. Uh, yeah, do you imagine that world?
- ARAlex Rampell
Well, I mean, people have tried this a lot.
- SPSpeaker
[laughs]
- ARAlex Rampell
I mean, the problem... I think this probably... It's, it's a very smart world from an Econ 101 perspective-
- SPSpeaker
Yeah. [laughs]
- ARAlex Rampell
... for sure.
- SPSpeaker
Yeah.
- ARAlex Rampell
Like, how do you capture the consumer surplus? Consumer surplus is great for consumer-
- SPSpeaker
Yeah
- ARAlex Rampell
... it's bad for producer. Um, and apparently Delta is doing this a little bit, or they were trying to do this. [laughs]
- SPSpeaker
[laughs]
- ARAlex Rampell
Um, I mean, there, there, there are, like, the poor man's versions of this, which are like, if you have an iPhone, you should get charged more than if you have an Android phone, because, like, i- iPhones are more expensive. Like, you have basically communicated that your elasticity of demand is different than somebody who is, is-
- SPSpeaker
Yeah
- ARAlex Rampell
... you know, has less money. I think probably you're gonna run into regulatory challenges-
- SPSpeaker
[laughs]
- ARAlex Rampell
... with that. Um, or certainly you will run into, like, very, very high levels of unpopularity-
- SPSpeaker
[laughs]
- ARAlex Rampell
... with your customer base, but people have tried this.
- SPSpeaker
Yeah, yeah.
- ARAlex Rampell
Um, but generally it's, it's hard to get away with.
- SPSpeaker
Right. Let, let's reflect on, on previous platform sh- shifts before get- getting into this one.
- 7:14 – 10:20
E-commerce vs. In-Person Shopping
- SPSpeaker
Right now, e-commerce is 16% of, of total retail sales. If we w- were, you know, talking 20 years ago and predicting, you know, what percentage of, of, of commerce would, would be, uh, e-commerce, we would probably p- think it's much higher. W- why, why has- hasn't that been, been the case?
- ARAlex Rampell
It turns out the demand curve is different for immediacy versus non-immediacy. So even though, like, overnight shopping is pretty darn cool, like, instantaneous, like, one-second shopping is like, "I need toothpaste right now because I'm going to bed, and I wanna brush my teeth, and I just ran out. Oh, there's a Walgreens over there. I'm gonna go there and buy toothpaste." And, like, Amazon's awesome, but getting the toothpaste at 7:00 a.m., it's like I don't have demand for that. Like, that's not part of the demand curve. There's demand curve for, like, real-time toothpaste. That's part. The other part is just like, "I'm bored." Like, "What do I do today? I know. I will go to the shopping mall." And, like, there's the experience of doing that, and it's like that, that's kind of a little bit more impulsy, but even it's like, ah, there are these, like, th- these, these long-term considered purchases, or we talked about in RP's aspirational purchases. Like, maybe I'm gonna gawk at that Rolex a little bit more, and, ooh, I, I just got my bonus, maybe I'll go buy it, but it's all part of the experience. So I think those are kind of broadly speaking the two. I mean, I've seen this. Uh, I'm on the board of a company called Wise, and the product is sending money. And it turns out that the market for sending money where it is received in real time is just much, much different than the market for sending money where it is received two days later, 'cause someday... sometimes it's just like the two-days-later send thing is just, like, less demand for that. Um, and again, A- Amazon has proven this as shipping has become... It's like, once upon a time, like, when you go back to the early days of e-commerce, you would get something in, like, two weeks. Um, so it's almost not surprising that the curve has just, like, continued to expand. It's almost surprising that it's only, you said, 16%.
- SPSpeaker
Yeah.
- ARAlex Rampell
That seems very low.
- JMJustine Moore
I think it's higher. So a- I'm not doubting your research-
- SPSpeaker
Sure
- JMJustine Moore
... on the numbers. Here's why I think it's higher. I think there's a lot of behaviors where people do research online-
- SPSpeaker
Right
- JMJustine Moore
... and then purchase in person, like, especially for big sorts of purchases or even, like, sometimes I'm like, "Hey, I need a new laptop." I'm gonna do, like, all of the research on, like, Reddit or on Instagram or on the Apple website, but then I'm gonna, like, go into the store and feel like, "Okay, what is actually the difference in, like, the Pro weight versus, like, the MacBook Air weight," right? And so I think there's a lot of those sorts of things where, like... Or buying clothes is another great example, where, like, I live in SF, so a lot of people will just order a ton of clothes, try it all on, and then send a ton of it back because there's not a lot of big stores near us. But I grew up in Oregon, and there, like, it doesn't make a ton of sense to o- order a ton of clothes online and send them back. It's just inefficient when there's so many clothing stores that are, like, a five- to 10-minute drive from you. But a lot of people will kind of do research about where to go or what specific items they're looking to find or, like, what style they're looking to buy online. Um, so I think, yeah, it might be, like, 16% are, like, fully transacted online, but I think there, even in, um, a lot of those other purchases, there is some sort of online research component.
- 10:20 – 12:28
The Challenge of Attribution in Online Sales
- ARAlex Rampell
Well, this is actually the hardest thing, um, that's related to this topic, is attribution.
- SPSpeaker
Yeah.
- ARAlex Rampell
Um, it's, it's the bane of everybody's existence, which is like, okay, how do I, how do I allocate attribution for Justine's MacBook sale? And, like, the most, um, the mo- the, the most kind of pervasively corrosive business model, I think, on the internet is this, like, last-click attribution. So you, you allocate 100%. And it's like, okay, part of it was, like, I read this post on Reddit that kind of inspired me. Part of it was I saw this really cool ad at the Super Bowl. Yeah, you could do this, like, kind of piecemeal, um, which is probably the more accurate way of doing it, but it's not exactly deterministic.
- SPSpeaker
Yeah.
- ARAlex Rampell
And the thing that feels deterministic, which is actually incorrect, is it's like, oh, whoever sent me the click last is the one that I should-
- SPSpeaker
Right
- ARAlex Rampell
... I should reward with the spoils. And, um, a lot of people that just don't understand correlation versus causation fall into this trap where, um, and this is the business model that I hate the most in, in the entire world, like, the things like Honey.
- SPSpeaker
Yeah.
- ARAlex Rampell
You know Honey, right?
- SPSpeaker
Yeah.
- ARAlex Rampell
So what is that doing? It's like you're already on the webpage about to purchase.
- JMJustine Moore
Yeah.
- ARAlex Rampell
And then it's like, "Do you want a coupon code?" Oh, why, yes, I do. Why would I not want a coupon code? 10% off, click here. You go click here. What does it do? It redirects you to an affiliate page. It puts a cookie on your machine. Um, it redirects you back to the page that you were just on, and then it actually steals that attribution. And it... what's funny is if you talk to a lot of the, the marketing people at these larger e-commerce companies, and Amazon is very smart, they, they're not... That's why they're, they don't do any of this stuff. They're like, "Oh, our best channel by far is Honey. Like, they're growing so much."
- JMJustine Moore
[laughs]
- ARAlex Rampell
Um, or RetailMeNot, that was the original one. Uh, it went public, you know, big valuation, and it was just theft. But it's just because, again, like, how do I figure out how to do attribution? And this is only gonna get more complicated in the AI world, where, like, it might be the same thing, where it's like Justine might have researched on Reddit, saw the Super Bowl, like, did all of these things, asked a question on ChatGPT-
- JMJustine Moore
Yeah
- ARAlex Rampell
... and then clicked purchase, and it actually is incorrect for Apple to say, "Ooh, ChatGPT, we owe you the entire... That drove the purchase." No, it didn't.
- JMJustine Moore
Yeah.
- ARAlex Rampell
It's part of it.But it didn't drive the purchase, and figuring out and disentangling attribution is very, very hard.
- 12:28 – 15:36
Aggregators, Brands, and the Commodity Trap
- SPSpeaker
Let's reflect back on the, on the category as well. Um, it seems like the, the big winners have been the, at the aggregator level, whether that's sort of Shopify or obviously Amazon, and sort of the individual, you know, big brands like, um, I don't know, uh, Allbirds or C- or Casper. It seems like they were quick to, to get a lot of revenue but didn't become, you know, durable businesses in the same way, didn't get, you know, didn't get better as they, as they scaled. Um, w- why don't you reflect, Alex, a bit, a bit, a bit on the, on the category in general and why it's played out that way?
- ARAlex Rampell
Well, I mean, ultimately, if it's a one-and-done transaction, you don't really make the product.
- SPSpeaker
Yeah.
- ARAlex Rampell
Like, you know, Casper didn't make the mattress, right? Like, there's probably some OEM in China that made the mattress, and they put their little logo and they called it Casper on it. Um, well, then they're just buying, they're buying traffic on Google and Facebook, so actually Google and Facebook were-
- SPSpeaker
Yeah. [laughs]
- ARAlex Rampell
... the real victors there, uh, more so than anybody else.
- SPSpeaker
Yeah.
- ARAlex Rampell
And then people are like, "Wow, mattresses, that's a really good category. I should do that. Oh, I'm gonna go to Shenzhen or wherever."
- SPSpeaker
[laughs]
- ARAlex Rampell
"Like, I'm gonna go, like, find the-
- SPSpeaker
Yeah
- ARAlex Rampell
... I'm gonna slap my logo on it. I'm going to undercut them on price," and that's what always happens. And it's one thing of you can ameliorate this to a certain extent if at least you have recurring billing, where it's like, "I'm going to... I'm gonna have this problem." Like, you know, think about what Dropcam did, if you remember that.
- SPSpeaker
Yeah, of course.
- ARAlex Rampell
That was an e-commerce product, but at least it was attached to a subscription. So now there are, like, nine billion cameras that all do the exact same thing, so, like, that category has ar- has arguably gotten worse even as the, the category has expanded or, like, the demand has expanded. But at least, like, you know, Google owns Nest, which bought Dropcam. Like, they probably still make a lot of money on that category, whereas Casper, if I bought a Casper mattress five years ago, I'm still sleeping on it, and, like, they have to find new people to sell that mattress to. And meanwhile, the original factory that was making the mattresses is now selling the exact same mattress to, like, 5,000 other manufacturers, and it's just, like, not a good business model. So in general, just being a, a commodity reseller of products... And, like, I think this is the problem is, like, a lot of people will say, "Oh, well, like, Casper is its own mattress. Allbirds is its own shoe." But, like, like, they're not normally making these products. Like, there's somebody else that's making the product because it's almost obvious, like, what happened during internet 1.0, the long tail of commodity resellers went away because location no longer mattered 'cause a lot of what really drove retail for the longest time was that, like, in Justine's town in Oregon, like, there's this store, and, like, you could drive, like, somewhere else, but that's really far away, so of course you're gonna go to this store. Now, the internet, you can go to any store. So if there are, like, 5,000 stores that don't make their own products and they all send, they, they all sell the exact same shoe from Nike, that doesn't make sense. You should either go to Nike directly-
- SPSpeaker
Yeah
- ARAlex Rampell
... or you should go to, like, the one store that has the fast- fastest shipping, the best service, w- whatever. And, like, the long tail of commodity retailers basically started dying, and, like, we, we saw this play out. But the first-party commerce experience is not that much better either-
- SPSpeaker
Yeah
- ARAlex Rampell
... because it's like the actual des- Like, there's no barrier to entry, and if there's no barrier to entry, then that, that normally doesn't... It works out great for the consumer in capitalism.
- SPSpeaker
Right.
- ARAlex Rampell
It doesn't work out great for that, you know, one of N where N is quite large, uh, producers of-
- SPSpeaker
Yeah
- ARAlex Rampell
... of, or non-producers but just marketers of the product.
- JMJustine Moore
I think there's
- 15:36 – 17:46
Trends, Trust, and the Power of Aggregators
- JMJustine Moore
also, especially with, like, true consumer products, and I would consider a mattress maybe more of a utility product, but with, you know, shoes like Allbirds or makeup, it's very trend-based, especially with the internet. Like, nothing stays that hot for that long. [laughs] Like, you know, Allbirds is the big shoe one year, and then the next year it's the retro Adidas that everyone's going back t- to, and now it's, like, the On running shoes. Like, I was watching the, the Bama rush sorority TikToks this year, and, like, every single girl has the On running shoes, whereas last year they all had the, the New Balance, like, cool look from Japan. And if you're Allbirds, like, that's a problem, right? Because you can't capture all of the trends. Like, you have your kind of one SKU or, or multiple SKUs across one style, whereas, like, the Shopifys and the Amazons can kind of ride whatever the trend is and, and have demand come to those individual SKUs, which I think is gonna be an interesting challenge in the age of AI, too, because you could argue that AI agents can direct, direct people to things if people start their purchase activities there, which, which could be an opportunity or a challenge for, like, the single-SKU retailers. My guess is it'll still e- end up being more of a positive for, like, the aggregators.
- ARAlex Rampell
Well, so I think it's gonna be very hard for AI to, for, for lack of a better term, inculcate demand.
- JMJustine Moore
Yeah.
- ARAlex Rampell
Which is like, how, how do I know that, like, the On shoe is cool? It's like, well, I need to see that Bama video.
- JMJustine Moore
Yeah. [laughs]
- ARAlex Rampell
Like, it's just-
- JMJustine Moore
I'll send you some. [laughs]
- ARAlex Rampell
I, no, I've seen... I, I meant, like, I need to-
- JMJustine Moore
Yes. Yeah. [laughs]
- ARAlex Rampell
I, I mean as a metaphorical eye, right? It's like once I see, oh, wow-
- JMJustine Moore
Yes
- ARAlex Rampell
... I should have that, too.
- JMJustine Moore
Right.
- ARAlex Rampell
I'm in a sorority. I want that shoe. So-
- JMJustine Moore
Yeah
- ARAlex Rampell
... and it's very hard for AI to do that.
- JMJustine Moore
Yeah.
- ARAlex Rampell
So which is why, like, the utility part of it's like, "Well, I know what I want. Now buy this for me," like, that seems like a no-brainer, um, because that's a lot of what Google does. Like, Google, I mean, I respect the hell out of that company, but they kind of are a tax on GDP.
- SPSpeaker
Yeah.
- ARAlex Rampell
Right? It's like a lot of GDP happens-
- SPSpeaker
Mm-hmm
- ARAlex Rampell
... a lot of that is commerce, right?
- SPSpeaker
Yeah.
- ARAlex Rampell
A lot of consumer spending is a huge part of GDP. Where do you start that spending journey with that little, nice little search box, um, and then they get a percentage of all that spend because they're charging per click or per impression or per action. So, um, that, that is somewhat imperiled.
- SPSpeaker
Yeah.
- ARAlex Rampell
Like, that, that tax might just shift elsewhere.
- 17:46 – 21:17
Google’s Freemium Model and the Future of Search
- SPSpeaker
Yeah. L- let's flesh out the, the, the, the piece now. Let, let's get into w- w- you know, what are some of the things that are gonna be taken away from, from, from Google? What are some of the things that are gonna stay? I wanna also, also wanna get into the different kinds of, um, consumer spend as it relates to e-commerce. Um, maybe, Alex, do you, do you wanna start with you?
- ARAlex Rampell
Yeah, I mean, I... Well, I think, uh, Google has been the canonical freemium business model forever-
- SPSpeaker
Yeah
- ARAlex Rampell
... um, which is they built a better search engine. Um, everybody knows that. It started in 1998, and there were, it was, like, the 47th search engine or something. Ah, this isn't gonna work.
- SPSpeaker
Yeah.
- ARAlex Rampell
But it was just so much better because of the way that they linked it. It, it really kind of goes actually back to, like, research, which is like, it's kind of like the H index, but for, for, uh, for, for finding things. Oh, everybody... Like, when you search for-Bagel, um, everybody like hyperlinks to like this one site, like that must have a high PageRank, like let's go show that first. So but most of the searches when Google started, because commerce was actually quite nascent on the internet at the time, like it was all free. It was all kind of informa- I remember using Google when it first came out, and it was like, "Ah, this is so much better than HotBot and all the other things out there." It was all free, non-monetizing. They eventually basically copied the Overture business model, um, which this guy Bill Gross came up with. This was a, um, Idealab company that eventually became part of Yahoo! Um, this is why Yahoo ended up owning part of Google, if you know the whole history. And the entire thing that made Google this like, you know, giant $2 trillion company was AdWords. Like l- and actually the cool thing about it is that there are a lot of freemium business models where it's like, "Ah, I don't wanna pay for it." Here, it was freemium, but actually having relevant search results that are paid alongside search that is organic made the search better. Like if I'm searching for tennis racket and somebody hadn't figured out how to PageRank optimize and everything else, or SEO optimize, it was very useful for them to be able to show ads here, and then those ads wouldn't show up unless people clicked on them, because the relevance was never like preordained. It's like if people click on it, it's relevant. If people don't click on it, it's not relevant. So Google has always been freemium, um, and that's kind of bearing out right now, which is like, you know, it's still freemium. Like you search for lots and lots of things with no intent to buy, um, but every now and then, it's like this is your default behavior. It's like, "Hmm, I wonder about X," you go to Google. Um, or sometimes you don't even go to Google, you go to like, you know, Safari because like they've... Apple makes tens of billions of dollars a year by sending all of those searches to Google. So what, what is, is currently happening is they are starting to lose some of the free, but not any of the imium, right? Um, they're losing some of these informational queries, like who won the Oscar in 1977? Like that's not a monetizable query, but like that's what you're gonna wanna know. You're gonna just ask ChatGPT, and people are doing this right now, and ChatGPT has, you know, I think, what is it? 800 million weekly active users. A huge, huge number. That's what they're doing with it, because they're not buying in ChatGPT, we know that, because OpenAI's trying to build commerce, so like clearly they haven't built it yet, so like they're not buying directly in there. But for the imium, right, the, the, the premium part of the freemium, that is happening in Google still. And like how do I know that? Well, I can look at their financials. And like their financials, like the numbers are still going up, but we also know that search volume is actually going down. So what are they losing if they're not losing revenue? They're only, they're only starting to potentially lose some of the free searches, um, and maybe they're... I, I what I don't know is maybe they're directing some of those to, uh, to Gemini, um, but I, I think that's unlikely. Um, I, I think right now what's happening is it's like people are using paid for Google, no changes at all. They're just going elsewhere with AI for, for free.
- JMJustine Moore
I think part of probably why that's been happening is, um,
- 21:17 – 22:52
The Problem of Hallucination in AI Product Recommendations
- JMJustine Moore
a- like all LLMs, but I'll use ChatGPT as the example 'cause the most people use it, um, have this really unfortunate and annoying problem of hallucinating around product recommendations that basically everyone experienced if you tried to use it for that. Like I think you have this grand idea of like, "Okay, I wanna buy a pair of leggings, and I'm gonna go search in Google, or I'm gonna go search in Amazon, and then like I'm gonna get the highest ranked pages, but what I really wanna know is like I'm doing this specific type of hiking, and this is what the weather is gonna be like, and I wanna know specifically for my needs, like what is the best legging?" It might not be the best overall legging, right? And so a lot of people, I think especially I saw a lot of young women trying this, were like, "Great, I'll go to ChatGPT. It can take all my information in natural language. It can make a recommendation. It can spit out products." And then they would find that a lot of the products it recommended did not exist, or previously existed, but did not exist in a current form, or the amount, uh, that they were charging was way different than it said, which I think drove a lot of people who experimented with it sort of back to, you know, "I'm gonna return my searches to Google or Amazon and, and wait until ChatGPT figures out this commerce thing." Um, my take is people are pro- like as, as we know, OpenAI is working on commerce, and they're trying to integrate it more into the experience and have actually like real, relevant, up-to-date information on products. Um, Google will probably be at risk of losing some queries, but I totally agree with Alex that we have not really seen that behavior at any sort of scale today.
- 22:52 – 29:30
The Commercialization and Pollution of the Internet
- ARAlex Rampell
Well, the biggest problem right now for the internet writ large is I, I would say the, uh... and I remember I've talked to John Lilly, who was the original... He was the, the CEO of-
- JMJustine Moore
Uh-huh
- ARAlex Rampell
... Firefox back in the day, um, and kind of an, an early web stalwart. Uh, the internet is unhe- or the, the web, the World Wide Web is unhealthy right now, and the reason why it's unhealthy is because so many things that used to be the open internet, when it really was like, you know, DARPA Net, then ARPANET, then like this like internet thing, uh, that people started using, but only really researchers and stuff like that. Everything was just on the open web. There was no s- there was no concept of a walled garden. I mean, like search has already been fractured, by the way. It, it didn't happen with ChatGPT. It's like if you want real-time search, you go to Twitter or X.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
Right? You want search for your friends? Well, you go to Facebook. Like none of that is on, is... You can't search for Google in terms of like stuff that's happening amongst your friend group that's like walled off there. So you have all of these different walled gardens, so that's unhealthy part number one. Um, unhealth- unhealthy part number two is just the commercialization of the internet, which is not bad. I'm a capitalist. I like commercialization. But so much of... Like if you look for what is the best sneaker, right? Like who are the people that are writing content about, about, uh, great sneakers? Like in 1995, if you had a blog, well, number one, you just hosted it on your own site. You set up Apache on your own server that you racked yourself, and then you just did it for the love of the game. Um, and then affiliate links provided the monetization model, but they really polluted the internet that was still open because like so much is like, oh, top 10, like a lot of these top 10 sites are out there. It's like top 10 running shoes. You know what that is? That's top 10 affiliate revenue to me, and I pay somebody in India to go write gobbledygook, um, and then-SEO the heck out of that to make money. Contrast this with, like, pre-internet, where there is a, there is a publication still around today called Consumer Reports, and the really cool thing about Consumer Reports is they were the only publication that refused to take advertising.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
It was entirely subscription-based, and the idea was that you could trust the actual reviews. And they would do things, like, they were like the Ralph Nader of consumer products, where it's like, "You know, this thing is terrible. Don't buy this blender, or it'll chop off your finger." Like, "Do buy this thing." Like, they, they would really, really review everything. We kinda need that, and, like, that entire business model just went away, right? Like, you know, Craigslist killed almost all of, all, all of traditional media. I mean may- maybe they deserved to die, maybe they didn't, but, like, they made money from two things. They made money because they had a monopoly on information. Um, they charged for ads there, but, like, a big part of the monetization model was, like, the local classifieds. Like, all of that went away, which is why newspapers have been dying, and you could imagine, like, a newspaper would have, like, a do-gooder thing, where it's like, "Oh, let's review all the blenders," and, like, we're obviously not gonna, like, show blenders that cut off your fingers. Like, that's bad. Like, that whole thing went away. Like, so the summarization of the open internet is tough because there's less open internet than there used to be. Like, as a percentage of all the content being generated, a lot of it is, is walled off. And then the stuff that is not walled off is just, like, pervaded by, like, junk. And that's why, like, what we talk about in the piece is, like, you can't turn shill junk into honest analysis.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
So I don't know how we solve it. Like, no matter how good... Like, no more hallucination. Like, everything-
- JMJustine Moore
Yeah
- ARAlex Rampell
... is awesome, but, like, most of the things on the internet are crap, and they're crap, and we know that they're crap, but they SEO optimized crap in order to earn affiliate commissions, and, like, summarizing that crap is not helpful. So how do you de-crapify that? And that, that's, that's quite challenging.
- JMJustine Moore
I think honestly what I've seen in terms of the channels where you see the least crap are, is actually video because as a cre- like, if you're a creator, now it's, you know, due to the death [chuckles] of traditional media, there's now creators who go out and view, review 10 different shoes for running and will specifically make it very clear in the video either this is sponsored by this specific brand, or the better ones obviously are completely non-sponsored. But they get ad revenue from Google, from YouTube, from people watching the video. Um, and so honestly that, when I want an honest review of, like, someone has looked at five different blow-dryers for this sort of hair, I will go to an unsponsored YouTube video, which often have a lot of views because there's a lot of people having similar queries. But the sense I have is that Google is not g- like, because it's a video and it's not skimmable and they're not, like, automatically generating transcripts for every video, that information does not appear in traditional search.
- ARAlex Rampell
Right.
- JMJustine Moore
And I think w- now we're starting to see some companies say, like, "Hey, look, like, we should turn all of those high-quality videos into transcripts that an LM can then read and review and make recommendations." But, um, that doesn't seem to have hit, like, the traditional Google part of the internet yet.
- ARAlex Rampell
Yep. I agree with that.
- SPSpeaker
Yeah. New York Times recently bought, uh, Wirecutter-
- ARAlex Rampell
Yep
- SPSpeaker
... which may be a-
- JMJustine Moore
Mm-hmm
- SPSpeaker
... example of what you're talking about.
- ARAlex Rampell
Well, but it... I think-
- SPSpeaker
Yeah
- ARAlex Rampell
... yes and no.
- SPSpeaker
[laughs]
- ARAlex Rampell
I mean, it's like everything's affiliate linked.
- SPSpeaker
Right.
- ARAlex Rampell
Like, is it really true? Like, it's so-
- SPSpeaker
Right
- ARAlex Rampell
... suspicious that, like, almost every item that they recommend-
- SPSpeaker
[laughs]
- 29:30 – 33:20
The Costco Model: Trust and Value
- ARAlex Rampell
sea of crap. Like, my favorite business model for commerce by far is Costco. I think Costco is the greatest company in the world because Costco refuses to sell bad things. They refuse to take a high gross margin. Like, why would they refu- it doesn't make any sense. Why would they refuse to take a high gross margin? You know why? Do you know why?
- SPSpeaker
Uh, 'cause they want pass back to customers or, or-
- ARAlex Rampell
No. No. It's because it degrades the value of the membership.
- SPSpeaker
Mm-hmm.
- ARAlex Rampell
They make money from the membership, so they'll charge you, like, something like $100 a year to join Costco, and if you look at their net income, it's basically the number of memberships that, like, n- they have, like, 50-plus million members, it's some huge number, times the price of the membership. That's their net income, and then everything else just kind of is a wash.And if you are making a 50% gross margin on a shirt, they're like, "That's too much. You're fired." Like, "You can't make that much money. It devalues the membership."
- SPSpeaker
Hmm.
- ARAlex Rampell
So, um, I mean, they'll do crazy things like, you know, the hot dog is still $1.50. They-
- JMJustine Moore
Yeah
- ARAlex Rampell
... they started their own chicken farm because the rotisserie chicken, like, the costs were going too high. It's like that's how they run the business, and they refuse to sell anything that they are not proud of.
- SPSpeaker
Hmm.
- ARAlex Rampell
And the generic brand is just as good. Like, you know, Kirkland wine, Kirkland beer, Kirkland shirts. Uh, they're getting sued by Lululemon right now because they made pants that were better than Lulu's pants-
- JMJustine Moore
[laughs] Incredible
- ARAlex Rampell
... um, that are much, much cheaper, but they're actually much better.
- SPSpeaker
[laughs]
- ARAlex Rampell
So Costco is the greatest thing. And like, that's why Costco has been like the... Like, for everything we talked about in commerce like pre-internet, like-
- SPSpeaker
Yeah
- ARAlex Rampell
... internet, AI, like Costco's immune to all of this.
- SPSpeaker
[laughs]
- ARAlex Rampell
Because it's like they're like the consumer reports plus, like the... Like, it's just they treat customers incredibly well, and that's why this company's worth hundreds of billions of dollars today.
- JMJustine Moore
And people really trust them.
- ARAlex Rampell
Yeah.
- JMJustine Moore
Like, my mom has been a Costco member for forever, and now she gets her glasses at Costco. Every time I, like, wanna go get, uh, flights or something, she's like, "Log in and, like, use the Costco thing" and... 'Cause she always thinks that-
- ARAlex Rampell
You can trust them. Yeah
- JMJustine Moore
... Costco is gonna have the best option at the best price-
- ARAlex Rampell
Yeah
- JMJustine Moore
... and she's usually right.
- ARAlex Rampell
That is sacrosanct to them.
- JMJustine Moore
Yeah.
- ARAlex Rampell
They would refuse to violate that because they can make so much more money if they decided to.
- JMJustine Moore
Yes.
- 33:20 – 37:57
The Spectrum of Purchases and AI’s Role
- SPSpeaker
why don't we get into other ways in which AI will change commerce? You outline a few different types of purchases that, that might get AI'd.
- JMJustine Moore
Yeah. So we kinda looked at the, um, range of purchases from, like, the impulse buys, which I think used... I mean, still, [laughs] they still are, like, the Coke thing, the Coke bottle in the aisle, but o- often now for, like, a lot of people, they're like the TikTok shop thing where you're watching a video and it shows up and you're like, "That T-shirt looks cool. I'm gonna buy it," all the way to, like, really considered purchases, like a house or, like, a wedding venue or, like, a car where you're spending, like, a significant chunk of your income. It's, like, a one or a multi-time thing, and you're, like, doing a lot of research. And I think the... So both ends of the spectrum I think are harder for AI to disrupt. I think the impulse buy, because, like, there's no research in advance and you're not going anywhere specific to buy it. Like, by its nature, you are making the decision to buy it immediately when you see it. And so, you know, there's, you know, like, algorithms will get better and better to target you with the shirt that shows up on your TikTok feed that somehow has your dog's name, and, and you're gonna buy that more than the other thing, but that's sort of not the, like, generative AI that, that we're talking about. And then sort of the most consideration end of the purchase, um, I think it's hard to have that be fully AI end to end because while you may start doing your research online on, on ChatGPT or Gemini or s- any sort of new AI native property that, that shows up, the purchase is so significant that you're probably going to want to have some sort of in-person experience where you're seeing the thing, touching the thing, experiencing the thing, talking to another human expert about it, right? And so that means there's this whole range of products in the middle that I think we believe the purchasing behavior could be disrupted by AI, um, in a, in a couple different ways. So one is obviously, like, the research way of, like, you know, I'm trying to find the best... My handbag wore out [laughs] that I bring when I travel all the time. Like, I need the best one that fits a, fits a laptop, can fit a big water bottle, all this sort of stuff, can be fine in the overhead part of a plane. Um, and if you're busy, you don't have a ton of time to do that research yourself, and you might ask an AI agent that can watch all the TikToks for you, read all of the Reddit posts, and pull in the kind of real consumer feedback, and then make a recommendation. And you might wanna do some of your own sort of clicking through to look at options. But I would say in that case, it's, like, decently likely that if there's then a good integration to purchase, you might do it through an AI agent. There's also sort of just things you already know you want, like Alex has mentioned, where you want the best price. And so I think AI agents can do a lot around price optimization. Like, if you always buy a specific type of laundry detergent, it can find across the internet where is this laundry detergent best priced. And it can also probably know, hey, I should scan this daily, and if it's 30% less on this specific site than it usually is anywhere else and it's gonna arrive in a reasonable amount of time, I should probably just buy this, and they can store an extra box of laundry detergent because based on what I know about the consumer, that's worth it to them. As you move sort of up the consideration stack, there's a, a t-Another sort of purchase that I think will be sort of AI intermediated, but maybe have some, some human, um, impact, things like maybe bikes or couches, like a little bit of higher value purchases, laptops, where you want to feel like someone has taken the time to really understand all of your criteria and help you make the best decision about what you should buy. This is probably an item that you're going to be using for years, and it's important to you that it works and that it's the best option and doesn't kind of immediately become obsolete. And today, I think the only way that, that this has happened is, like, people will go super deep into these Reddit threads on the, like, Buy It for Life forum and, and all of these different places, or they have a brand they really trust, like Apple, and they're willing to pay the premium. Um, I think in the future, it's, it's fun to think about having an AI agent that really kind of deeply understands you, where you can have a more in-depth conversation about that sort of thing, like maybe even a phone call, where they're asking you a bunch of questions dynamically back and forth, and you're say... and, and providing them with the information they need to go back, do the research, and decide. Um, so th- that's kind of some of the things that we've considered about how AI could impact purchase behavior.
- ARAlex Rampell
Well, and, and there's another kind of lens. There are many different ways of cutting this, but, like, does the product that you're buying have a UPC or no? If you know what a U- UPC is, a Universal Product Code, and that's the little scannable thing. It's kind of the, the successor to the ISBN, which is for books. And if it doesn't have a UPC, actually, a lot of the commerce that has worked kind of post-internet
- 37:57 – 39:52
UPCs, SKUs, and Automation in Commerce
- ARAlex Rampell
1.0, like, you know, how did Wayfair work? Why did Wayfair work well? Well, like, they're selling things like bar stools, and you're like, "I want a bar stool," but there's no UPC on this. So it's like, well, here's a bar stool. It fits the right dimensions, but, like, there's no scannable code. If there is a UPC, you can run this little algorithm of, like, get me the lowest price. And pre-AI, you would just run this algorithm on your own, um, and you'd probably end up at Amazon.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
So, like, everybody who wasn't Amazon just got killed, and Amazon did well. Um, I'm oversimplifying a little bit. If it doesn't have a UPC, then that's a little bit of a different process than if it does, because if it, if it has a UPC, then, like, the algorithm that I was describing is, like, exponentially better with AI.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
Because, like, before you'd have this, like, some people value time more than money, and some people value money more than time. And if I value money more than time, I am the algorithm. I will spend so... I need to find the best coupon. I need to find the best cash back site. Like, all of these, like, cash back sites are out there on the internet, which lots of people, money more than time, like, they do this. Um, all of that will be automated away, uh, or automated for the benefit of the consumer, if and only if you have something where you have dis- you have determined the SKU or the UPC. You know, the SKU has a UPC, you feed it in there, good. If it doesn't have that, then that's another lens where it's like, okay, I'm probably... I can't feed whatever the, like, again, kind of impulse to highly considered. AI's gonna help you on the highly considered side, but not help you buy it.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
But if it, if it spits out something with a UPC or a SKU, then this part of the AI will just automate that.
- JMJustine Moore
Right.
- ARAlex Rampell
Right? So if it's, like, bike, sure, like, I don't know what bike to buy, but if it's a specialized bike and, like, here's the, here's the thing, it has a UPC on it, like, boom, why wouldn't you feed it to this part of the thing as this gets developed? Because that's just going to buy it for you with the best shipping, the best terms, the best whatever. Um, and right now, the reason why that doesn't happen or, well, it, it does happen, but it happens manually, and the people that have time valued more for them than money, they don't do any of that stuff.
- 39:52 – 44:53
Opportunities for New Winners in AI-Driven Commerce
- SPSpeaker
P- putting this all together, we were talking about how over the last decade, there hasn't been a ton of net new, you know, big winners i- in this space, and all the gains have g- gone to the aggregators. W- w- why, why do we believe that over the next decade there's some opportunities for, for net new, big, big and durable companies and, and, and maybe just share what, what types of companies those could exist that we're, we're excited about that, that, that could exist?
- ARAlex Rampell
I mean, obviously Ch- ChatGPT is, I mean, th- they, they are an upstart-
- SPSpeaker
Yeah
- ARAlex Rampell
... to a certain extent.
- SPSpeaker
Yes.
- ARAlex Rampell
But it's not Amazon, it's not Shopify.
- SPSpeaker
Right.
- ARAlex Rampell
It's a net new company that clearly will have a role in commerce.
- SPSpeaker
Right.
- ARAlex Rampell
Um, the question is, will there be specialized subsegments? And I, I do think that the, like, you know, the hyper-optimized, I know you very well, and, like, you know, CamelCamelCamel is an independent company that's probably very, very profitable. As far as I know, they've never raised venture capital. A lot of people use them, a lot of these cash back sites. Like, the, the- these things that have always been like you value money more than time, um, there was a site called Ebates that was bought by Rakuten a while ago. Um, there's a company in the UK called Quidco, which is very, very similar, like these kind of things. You can imagine them going much, much more mainstream and being very, very specialized shopping agents, particularly not on the heavy research side, but on this one little tiny vector that might actually be very big, going back to how, like, most companies can't really figure out attribution. It's like we are going to be the last click. Like, the last click of the 21st century post-AI is going to be AI companies that know how to do this, and it might not be ChatGPT, because they're, like, this horizontal everything. But it's like I'm gonna give you all of my credit cards. Um, you're actually gonna even figure out which credit card you use for this particular purchase because this one has higher cash back than that one for this type of good. Um, and you're gonna integrate, like, affiliate tracking where you give me cash back like Ebates does or, you know, Rakuten does. You're gonna do all the coupon stuff. Like, and not all of this will be good for merchants, by the way. But you can imagine, a- and again, it's, it's, it doesn't require a lot to imagine this because, like, there already are a lot of companies that do this, but they have been somewhat of a niche space because they only appeal to the, like, people, and there are plenty of people that, that are like this, by the way, that value money more than time, um, and are somewhat technical. So it's actually not just money more than time. It's like my mom might wanna use one of theseprobably would value money more than time, um, because she's retired, so why not? Um, but it's just too complicated to use, and if you make it so easy... I mean, that's the other thing. It's like we talked about, like, how if you make something show up right now, that's gonna have a bigger market than if something shows up five weeks from now. Like, that makes sense. If you make something so painfully easy to use that it's more of an IQ test, it's like, do you wanna pay less for something or more for something? And, like, everybody of course would say, "I wanna pay less for something," but it's like, oh, but you have to do these 18 things, download... Like, ah, that's too complicated. I can't figure out how to do that. But if it's so easy, I think that that's one area where you could... I mean, this is where startups have lived, because it's clearly not gonna be Amazon, because it's like Amazon wants you to shop at Amazon.
- JMJustine Moore
Mm-hmm.
- ARAlex Rampell
Um, Amazon, by the way, like the other thing that they're somewhat imperiled by, Amazon has a giant, uh, revenue and profit line item from advertising. It's like you go to the Amazon website, and then you click on an ad that takes you away from the Amazon website. That's 100% gross margin for Amazon. They'd rather sell you that than sell you a product where they have to deliver it, God forbid. So, like, the best SKU that they sell is the advertising SKU, and that's gonna be imperiled if they no longer control the presentation layer because, like, AI intermediates it. But I, I think it's, like, this kind of money more than time, expand that to the entire universe. There's, there's certainly a there there.
- JMJustine Moore
Yeah, I think there's sort of two s- So I think there's the consumer side, right, which is, um, if we go back to my conversation earlier about you wanna have a really in-depth conversation about what bike to get, you could imagine someone fine-tuning a model that is much better at ch- on tons of conversations between bike experts and people to actually know the right questions to ask to give you a much better buying experience and better, better outcome than ChatGPT could. So that, that's one way that, like, consumer distribution could be disrupted beyond the ChatGPT disruption that will happen. Then I think s- there's the merchant side of things, which is like, what are the implications if we suddenly have a ton of AI agents browsing your site and potentially even making decisions on behalf of consumers and hitting the purchase button instead of people? Like, how do websites... How should websites change to make themselves more browsable, more easy to interact with, more easy to find what the agent is looking for? Um, what sort of infrastructure do we need on, on the financial side for AI agents to actually be able to make it a, make a purchase on behalf of someone and use their credit card? Like, the entire infrastructure and merchant-facing side of it is probably going to change quite a bit. Um, and, and I think that will be just as big as, as the consumer side of the market.
- SPSpeaker
I think that's a good place to, to wrap. Alex, Justine, thanks so much for the great conversation.
- ARAlex Rampell
Thank you.
- JMJustine Moore
Thanks for having us. [outro music]
Episode duration: 45:04
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