--:-- Host: 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? AI agents can direct people to things if people start their purchase activities there. 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. 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? Today, we're talking about the future of commerce and the age of AI.
--:-- Host: The web is flooded with SEO junk. But what happens when AI agents start directing how we search, shop, and buy? Joining me are Alex Rampell, general partner at A16Z, and Justine Moore, partner at A16Z. We discuss how AI could disrupt e-commerce from impulse buys to big ticket purchases and what it means for Google, merchants, and startups. Let's get into it.
--:-- Host: So you guys have both been thinking about e-commerce for a while. Alex, why don't you talk about what inspired this piece and how did this all germinate for you?
--:-- Alex Rampell: Well, 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. I was just trying to think, number one, what happens to Google? Because a lot of people, this is on their minds. So is search volume going up or down? I have my own personal experience of, well, my search volume is going down, but not for commerce. Clearly for everything that is not commerce. So that was one thing.
--:-- Alex Rampell: But also, this company that I started, TrialPay, we were one of the biggest affiliates in the world. Affiliate marketing is basically you send somebody... this is the oldest business model on the internet, if you will. It actually predates AdWords and AdSense by a bit. You just get a share of the, you get a commission, basically, if you send something there. It was all... this was started apparently apocryphally, it came from pornography because that was the world's oldest business model on the internet. How do you track? So that eventually made its way to commerce and it's all based on cookies and pixels. You drop a cookie on the person's computer and then on the confirmation page you have a little invisible one by one tracking pixel that reads the cookie and that's how you know to say "Eric sent me the customer."
--:-- Alex Rampell: So what we did at TrialPay, we were one of the biggest ones there. Is that really going to be what powers this new realm of commerce? And then is it even relevant for a lot of things? Because impulse buys are huge. With impulse buys, almost tautologically, you're not going to use AI to tell you to buy something. You shouldn't buy anything that's an impulse buy. You go to the supermarket, you shouldn't be buying Coca-Cola in the checkout line. They actually charge you more at the checkout line than they do if you just buy in the Coca-Cola section. All of these things are designed to tug at your emotions to get you to buy and spend money that you don't want to. That's not going to be AI.
--:-- Alex Rampell: On the other hand, it's these very, very expensive items. You're researching the heck out of them with AI, but there's no affiliate model. How do you then commerce and transact? So number one was the ontology of commerce was very interesting. And then number two was this whole affiliate thing. Is it still going to 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. I probably use ChatGPT like three orders of magnitude more than I use Google now, which is interesting.
--:-- Host: Justine, what excited you to contribute to this piece? What did you find most remarkable?
--:-- Justine Moore: There are a couple really massive consumer markets, the biggest of which might be online shopping. But I think we've seen thus far relatively few startups 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 help you make better decisions than you could have made on your own, or even make purchases on your behalf. You would think that would create an opportunity for more folks to package these into products that they then offer to consumers. But we haven't seen a bunch of folks doing that yet.
--:-- Justine Moore: So I think part of this piece was to dive into what you think about the broader market in hopes that folks who were also working in this space would give us a heads up and let us know, and we could hear how people were approaching it.
--:-- Alex Rampell: And you can observe. I always like to observe first, because that's objective, and then predict second. Predicting is hard. I forgot the funny quote about predicting the future, but it's very hard to predict the future. And there actually is a lot that can be observed. That's where I think Camel, Camel, Camel is the greatest sign in the world. We have no stake in Camel, Camel, Camel, so this is not self-promotional at all. But people use this thing. It's like Google news alerts for pricing. I gave a talk to the Amazon Prime team recently, and they're very, very aware of it, because I think it's actually Amazon's biggest affiliate.
--:-- Alex Rampell: People every day... 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 going to buy it. So the consumer is the agent, and this is a very, very inefficient AI. If you could actually complete the entire circle and say no longer give information, but allow for automatic action on information, people will do that because we have observed that behavior today. This is the easiest form of predicting the future ever, because you're really just chronicling the present. You're just saying there's going to 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.
--:-- Justine Moore: I think my version of observing was seeing there are 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 teenage girls started using ChatGPT to upload photos of Lana Del Rey at a concert, or Taylor Swift snapped in a street-style photo, and asking, "What is this hair Brett she's wearing?" or "What is this sweater? I want to find it and I want to buy it." And it worked really well because it often found, "Hey, this sweater is like $5,000. You as a 19-year-old girl in Missouri are probably not going to be buying this. Here are some alternative, maybe less expensive options that look the same that you can buy."
--:-- Justine Moore: That age demographic tends to be a really early predictor of all sorts of consumer behavior, which is why I was... this is probably going to 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 mentioning.
--:-- Host: Alex, do you imagine a world where there's sort of dynamic custom pricing to the extreme where it's like, we're looking at the same thing on Amazon, but it charges you more because maybe I'm cheaper than you or you have more money? Do you imagine that world?
--:-- Alex Rampell: Well, people have tried this a lot. The problem... this probably is a very smart world from an econ 101 perspective, for sure. How do you capture the consumer surplus? Consumer surplus is great for consumer, it's bad for producer. Apparently Delta is doing this a little bit, or they were trying to do this. The poor man's versions of this are like, if you have an iPhone, you should get charged more than if you have an Android phone, because iPhones are more expensive. You have basically communicated that your elasticity of demand is different than somebody who has less money. I think you're going to run into regulatory challenges with that, or certainly you will run into very, very high levels of unpopularity with your customer base. But people have tried this. Generally, it's hard to get away with.
--:-- Host: Right. Let's reflect on previous platform shifts before getting into this one. Right now, e-commerce is 16% of total retail sales. If we were talking 20 years ago and predicting what percentage of e-commerce would be e-commerce, we would probably think it's much higher. Why hasn't that been the case?
--:-- Alex Rampell: It turns out the demand curve is different for immediacy versus non-immediacy. Even though overnight shopping is pretty darn cool, instantaneous one-second shopping is like, "I need toothpaste right now because I'm going to bed and I want to brush my teeth and I just ran out. Oh, there's a Walgreens over there. I'm going to go there and buy toothpaste." Amazon's awesome, but getting the toothpaste at 7 a.m., I don't have demand for that. That's not part of the demand curve. There's a demand curve for real-time toothpaste. That's part.
--:-- Alex Rampell: The other part is just, "I'm bored. What do I do today? I know I will go to the shopping mall." And there's the experience of doing that. That's a little bit more impulsive. But even it's like, there are these long-term considered purchases, or we talked about aspirational purchases. Maybe I'm going to gawk at that Rolex a little bit more, and ooh, I just got my bonus, maybe I'll go buy it. But it's all part of the experience. So those are broadly speaking the two.
--:-- Alex Rampell: I've seen this. I'm on the board of a company called Wise, and the product is sending money. 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. Because sometimes the two days later send thing is just less demand for that. Amazon has proven this as shipping has become... once upon a time, in the early days of e-commerce, you would get something in like two weeks. So it's almost not surprising that the curve has just continued to expand. It's almost surprising that it's only 16%. That seems very low.
--:-- Justine Moore: I'm not doubting your research on the numbers. Here's why I think it's higher. I think there's a lot of behaviors where people do research online and then purchase in person, especially for big sorts of purchases. Sometimes I'm like, "Hey, I need a new laptop. I'm going to do all of the research on Reddit or on Instagram or on the Apple website. But then I'm going to go into the store and feel, okay, what is actually the difference in the Pro weight versus the MacBook Air weight?"
--:-- Justine Moore: Buying clothes is another great example. 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 aren't a lot of big stores near us. But I grew up in Oregon, and there, it doesn't make a ton of sense to order a ton of clothes online and send them back. It's just inefficient when there are so many clothing stores that are a five to ten minute drive from you. But a lot of people will do research about where to go or what specific items they're looking to find or what style they're looking to buy online. So it might be 16% are fully transacted online, but I think even in a lot of those other purchases, there is some sort of online research component.
--:-- Alex Rampell: This is actually the hardest thing that's related to this topic, is attribution. It's the bane of everybody's existence. How do I allocate attribution for Justine's MacBook sale? The most pervasively corrosive business model on the internet is this last-click attribution. You allocate 100%. It's like, part of it was 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. You could do this kind of piecemeal, which is probably the more accurate way of doing it, but it's not exactly deterministic. The thing that feels deterministic, which is actually incorrect, is, "Oh, whoever sent me the click last is the one that I should reward with the spoils."
--:-- Alex Rampell: A lot of people that just don't understand correlation versus causation fall into this trap. This is the business model that I hate the most in the entire world, like the things like Honey. You know Honey, right? What is that doing? You're already on the webpage about to purchase. And then it's like, "Do you want a coupon code?" 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. It redirects you back to the page that you were just on. And then it actually steals that attribution.
--:-- Alex Rampell: What's funny is if you talk to a lot of the marketing people at these larger e-commerce companies, and Amazon is very smart, that's why they don't do any of this stuff. They're like, "Oh, our best channel by far is Honey. They're growing so much." Or RetailMeNot, that was the original one. It went public, big valuation. And it was just theft. But it's just because, again, how do I figure out how to do attribution? This is only going to get more complicated in the AI world where it might be the same thing. Justine might have researched on Reddit, saw the Super Bowl, did all of these things, asked a question on ChatGPT and then clicked purchase. It actually is incorrect for Apple to say, "Oh, ChatGPT, we owe you the entire purchase." No, it didn't. It's part of it, but it didn't drive the purchase. Figuring out and disentangling attribution is very, very hard.
--:-- Host: Let's reflect back on the category as well. It seems like the big winners have been the aggregator level, Shopify or obviously Amazon, and sort of the individual big brands like Allbirds or Casper. It seems like they were quick to get a lot of revenue but didn't become durable businesses in the same way, didn't get better as they scaled. Why don't you reflect, Alex, a bit on the category in general and why it's played out that way?
--:-- Alex Rampell: Well, ultimately, if it's a one-and-done transaction, you don't really make the product. Casper didn't make the mattress. There's probably some OEM in China that made the mattress, and they put their little logo and called it Casper on it. Then they're just buying traffic on Google and Facebook. So actually, Google and Facebook were the real victors there, more so than anybody else. Then people are like, "Wow, mattresses, that's a really good category. I should do that. Oh, I'm going to go to Shenzhen or wherever. I'm going to slap my logo on it. I'm going to undercut them on price." And that's what always happens.
--:-- Alex Rampell: You can ameliorate this to a certain extent if at least you have recurring billing. Think about what Dropcam did, if you remember that. That was an e-commerce product, but at least it was attached to a subscription. Now there are like 9 billion cameras that all do the exact same thing. So that category has arguably gotten worse even as the category has expanded, or the demand has expanded. But at least Google owns Nest, which bought Dropcam. 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. They have to find new people to sell that mattress to. Meanwhile, the original factory that was making the mattresses is now selling the exact same mattress to like 5,000 other manufacturers. It's just not a good business model.
--:-- Alex Rampell: In general, just being a commodity reseller of products... I think this is the problem. A lot of people will say, "Oh, Casper is its own mattress. Allbirds is its own shoe." But they're not normally making these products. There's somebody else that's making the product. It's almost obvious what happened during Internet 1.0. The long tail of commodity resellers went away because location no longer mattered. A lot of what really drove retail for the longest time was that in Justine's town in Oregon, there's this store, and you could drive somewhere else, but that's really far away. So of course you're going to go to this store. Now on 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 sell the exact same shoe from Nike, that doesn't make sense. You should either go to Nike directly or you should go to the one store that has the fastest shipping, the best service, whatever. The long tail of commodity retailers basically started dying. And we saw this play out.
--:-- Alex Rampell: The first party commerce experience is not that much better either. There's no barrier to entry, and if there's no barrier to entry, that normally doesn't... It works out great for the consumer in capitalism. It doesn't work out great for that one of N, where N is quite large, producers of... or non-producers, but just marketers of the product.
--:-- Justine Moore: I think there's also, especially with true consumer products, and I would consider a mattress maybe more of a utility product, but with shoes, like Allbirds or makeup, it's very trend-based, especially with the internet. Nothing stays that hot for that long. Allbirds is the big shoe one year, and then the next year it's the retro Adidas that everyone's going back to, and now it's the On-running shoes. I was watching the Bama Rush sorority TikToks this year, and every single girl has the On-running shoes, whereas last year they all had the New Balance cool look from Japan. If you're Allbirds, that's a problem. You can't capture all of the trends. You have your one SKU or multiple SKUs across one style, whereas the Shopify's and the Amazon's can ride whatever the trend is and have demand come to those individual SKUs.
--:-- Justine Moore: Which I think is going to be an interesting challenge in the age of AI too, because you could argue that AI agents can direct people to things if people start their purchase activities there, which could be an opportunity or a challenge for the single SKU retailers. My guess is it'll still end up being more of a positive for the aggregators.
--:-- Alex Rampell: Also, I think it's going to be very hard for AI to, for lack of a better term, inculcate demand.
--:-- Justine Moore: Yeah.
--:-- Alex Rampell: Which is like, how do I know that the On shoe is cool? It's like, well, I need to see that Bama...
--:-- Justine Moore: I'll send you some.
--:-- Alex Rampell: I meant like, I need you... it's a metaphorical I. Once I see, "Oh, wow, I should have that too. I'm in a sorority. I want that shoe." It's very hard for AI to do that. Which is why the utility part of it is like, "I know what I want, now buy this for me." That seems like a no-brainer because that's a lot of what Google does. I respect the hell out of that company, but they kind of are a tax on GDP. A lot of GDP happens, a lot of that is commerce. A lot of consumer spending is a huge part of GDP. Where do you start that spending journey with that nice little search box? And then they get a percentage of all that spend because they're charging per click, or per impression, or per action. So that is somewhat imperiled. That tax might just shift elsewhere.
--:-- Host: Yeah. Let's flesh out the piece now. Let's get into what are some of the things that are going to be taken away from Google? What are some of the things that are going to stay? I also want to get into the different kinds of consumer spend as it relates to e-commerce. Maybe, Alex, do you want to start with you?
--:-- Alex Rampell: Yeah. Well, I think Google has been the canonical freemium business model forever. They built a better search engine. Everybody knows that. It started in 1998, and there were like the 47th search engine or something, "Oh, this isn't going to work." But it was just so much better because of the way that they linked it. It really goes back to research, which is kind of like the H index, but for finding things. "Oh, everybody, when you search for bagel, everybody hyperlinks to this one site. That must have a high page rank. Let's go show that first."
--:-- Alex Rampell: But most of the searches when Google started, because commerce was actually quite nascent on the internet at the time, it was all free. It was all kind of information. I remember using Google when it first came out, and it was like, "Oh, 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, which this guy Bill Gross came up with. This was an Idea Lab company that eventually became part of Yahoo. This is why Yahoo ended up owning part of Google, if you know the whole history. The entire thing that made Google this giant $2 trillion company was AdWords.
--:-- Alex Rampell: The cool thing about it is that there are a lot of freemium business models where it's like, "Ah, I don't want to 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. If I'm searching for "tennis racket" and somebody hadn't figured out how to page rank optimize 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 preordained. 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. And that's kind of bearing out right now. It's still freemium. You search for lots and lots of things with no intent to buy. But every now and then, it's your default behavior. "Hmm, I wonder about X. You go to Google." Or sometimes you don't even go to Google. You go to Safari because Apple makes tens of billions of dollars a year by sending all of those searches to Google.
--:-- Alex Rampell: So what is currently happening is they are starting to lose some of the free, but not any of the "mium." They're losing some of these informational queries, like "Who won the Oscar in 1977?" That's not a monetizable query, but that's what you're going to want to know. You're going to just ask ChatGPT, and people are doing this right now. ChatGPT has, 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 is trying to build commerce. So clearly they haven't built it yet, so they're not buying directly in there. But for the premium part of the freemium, that is happening in Google still. How do I know that? I can look at their financials. Their financials, 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 starting to potentially lose some of the free searches. Maybe they're directing some of those to Gemini. But I think that's unlikely. I think right now what's happening is people are using paid for Google, no changes at all. They're just going elsewhere with AI for free.
--:-- Justine Moore: I think part of why that's been happening is all LLMs, but I'll use ChatGPT as the example because the most people use it, had this really unfortunate and annoying problem of hallucinating around product recommendations that basically everyone experienced if you tried to use it for that. I think you have this grand idea of, "Okay, I want to buy a pair of leggings and I'm going to go search in Google or I'm going to go search in Amazon and then I'm going to get the highest ranked pages. But what I really want to know is, I'm doing this specific type of hiking and this is what the weather is going to be like and I want to know specifically for my needs, what is the best legging? It might not be the best overall legging."
--:-- Justine Moore: A lot of people, 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 that they were charging was way different than it said. I think that drove a lot of people who experimented with it sort of back to, "I'm going to return my searches to Google or Amazon and wait until ChatGPT figures out this commerce thing."
--:-- Justine Moore: My take is people are... as we know, OpenAI is working on commerce and they're trying to integrate it more into the experience and have actually real, relevant, up-to-date information on products. 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.
--:-- Alex Rampell: The biggest problem right now for the internet writ large... I remember I talked to John Lilly, who was the original CEO of Firefox back in the day and kind of an early web stalwart. The internet, or the web, the worldwide web is unhealthy right now. The reason why it's unhealthy is because so many things that used to be the open internet, when it really was DARPAnet, then ARPANET, then this intranet thing that people started using, but only really researchers and stuff like that. Everything was just on the open web. There was no concept of a walled garden.
--:-- Alex Rampell: Search has already been fractured, by the way. It didn't happen with ChatGPT. If you want real-time search, you go to Twitter or X. You want search for your friends, you go to Facebook. None of that is on... you can't search Google for stuff that's happening amongst your friend group that's walled off there. So you have all of these different walled gardens. That's unhealthy part number one.
--:-- Alex Rampell: 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... if you look for "what is the best sneaker," who are the people that are writing content about great sneakers? In 1995, if you had a blog, 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. And then affiliate links provided the monetization model, but they really polluted the internet that was still open because so much is like, "Top 10..." 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 and then SEO the heck out of that to make money.
--:-- Alex Rampell: Contrast this with pre-internet, where there's a publication, it's still around today, called Consumer Reports. The really cool thing about Consumer Reports is they were the only publication that refused to take advertising. It was entirely subscription-based. The idea was that you could trust the actual reviews. They would do things like... they were like the Ralph Nader of consumer products. "You know, this thing is terrible. Don't buy this blender or it'll chop off your finger. Do buy this thing." They would really, really review everything. We kind of need that. And that entire business model just went away.
--:-- Alex Rampell: Like, you know, Craigslist killed almost all of traditional media. Maybe they deserved to die, maybe they didn't, but they made money from two things. They made money because they had a monopoly on information. They charged for ads there, but a big part of the monetization model was the local classifieds. All of that went away, which is why newspapers have been dying. And you could imagine a newspaper would have a do-gooder thing where it's like, "Let's review all the blenders," and we're obviously not going to show blenders that cut off your fingers. That's bad. That whole thing went away.
--:-- Alex Rampell: So the summarization of the open internet is tough because there's less open internet than there used to be, as a percentage of all the content being generated. A lot of it is walled off. And then the stuff that is not walled off is just pervaded by junk. That's why, as we talk about in the piece, you can't turn shill junk into honest analysis. So I don't know how we solve that. No matter how good the AI, no more hallucination, everything is awesome, but most of the things on the internet are crap. They're crap, and we know that they're crap, but they SEO optimize crap in order to earn affiliate commissions. Summarizing that crap is not helpful. So how do you decrapify that? That's quite challenging.
--:-- Alex Rampell: Honestly, what I've seen in terms of the channels where you see the least crap is actually video. Because due to the death of traditional media, there are now creators who go out and review ten different shoes for running. They'll specifically make it very clear in the video, either this is sponsored by this specific brand, or the better ones are completely non-sponsored, but they get ad revenue from Google, from YouTube, from people watching the video. So honestly, when I want an honest review of someone who has looked at five different blow dryers for this sort of hair, I will go to an unsponsored YouTube video, which often has a lot of views because there are a lot of people with similar queries.
--:-- Alex Rampell: But the sense I have is that Google is not, because it's a video and it's not skimmable and they're not automatically generating transcripts for every video, that information does not appear in traditional search. I think we're starting to see some companies say, "Hey, we should turn all of those high-quality videos into transcripts that an LLM can then read and review and make recommendations." But that doesn't seem to have hit the traditional Google part of the internet yet.
--:-- Justine Moore: Yep, I agree with that. New York Times recently bought Wirecutter, which may be an example of what you're talking about.
--:-- Alex Rampell: Well, I think yes and no. I mean, it's everything affiliate link. Is it really true? It's so suspicious that almost every item they recommend always has an affiliate link. Isn't that odd? Does that mean it's a sampling bias thing? Is that true? So I'm quite skeptical of a lot of these things. Again, the Consumer Reports era was just a little bit different. You might have biases, like maybe the person reviewing things for Consumer Reports just hates this one company and is taking out their bias. That's always possible. But you would think, with all these algorithms and everything else, if you could get true objective feedback, this would be fantastic.
--:-- Alex Rampell: A lot of... I mean, Amazon actually is a giant search engine. And that thing is polluted with crap as well. What happens is, a lot of the sellers on Amazon go on this site called AliExpress. This has changed a little bit with tariffs, but they'll buy 400 of some gizmo that shows up six weeks later for $2 each. They'll slap their logo on it. Now they'll sell it for $25. It goes back to this latency point I was making before. How many people want something six weeks from now versus how many people want something tomorrow? A lot of what Amazon was is they would just arbitrage that.
--:-- Alex Rampell: But if you search for an item, particularly in consumer electronics, I remember I was looking for heated socks for skiing. Turns out they're very useful. There are like 9,000 different pairs of heated socks that all have the same OEM, the original equipment manufacturer. They all have bogus reviews. Part of the bogusness, and Amazon should fix this, but they have no incentive to do so, is that I used to sell a rock on Amazon. I get five-star rock reviews. Now I switch the SKU from rock to heated socks and I trade off my five-star review. How does Amazon... and again, Amazon just wants to sell more crap. So they're totally fine with this. But for most things, if you're willing to wait, you're so much better off buying on AliExpress than Amazon. It's just this polluted sea of crap.
--:-- Alex Rampell: 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. Why would they refuse? It doesn't make any sense. Why would they refuse to take a high gross margin? You know why? Because it degrades the value of the membership. They make money from the membership. So they'll charge you something like $100 a year to join Costco. If you look at their net income, it's basically the number of memberships they have, like 50-plus million members, times the price of the membership. That's their net income. Everything else just kind of is a wash.
--:-- Alex Rampell: And if you are making a 50% gross margin on a shirt, they're like, "That's too much. You're fired." You can't make that much money. It devalues the membership. So they'll do crazy things. The hot dog is still $1.50. They started their own chicken farm because the rotisserie chicken costs were going too high. That's how they run the business, and they refuse to sell anything that they are not proud of. The generic brand is just as good. Kirkland Wine, Kirkland Beer, Kirkland Shirts. They're getting sued by Lululemon right now because they made pants that were better than Lulu's pants that are much, much cheaper, but they're actually much better.
--:-- Alex Rampell: Costco is the greatest thing. For everything we talked about in commerce, pre-internet, internet, AI, Costco's immune to all of this because they're like Consumer Reports plus the store. They treat customers incredibly well, and that's why this company is worth hundreds of billions of dollars. People really trust them. My mom has been a Costco member forever, and now she gets her glasses at Costco. Every time I want to go get flights or something, she's like, "Log in and use the Costco thing," because she always thinks that Costco is going to have the best option at the best price, and she's usually right. That is sacrosanct to them. They refuse to violate that, because they could make so much more money if they decided to.
--:-- Alex Rampell: Amazon is interesting. I remember a speech by Jeff Bezos where he talks about this. There are two business models. There's "What's the most that we can get away with in terms of charging?" That's Apple, right? "Let's charge $1,600 for this iPhone 25 that we're going to come out with that has 18 cameras. Can we even get away with $1,700?" They have very high gross margins. There are other companies, like "How do we charge the least amount possible?" That's kind of Amazon. "Let's have this sea of crap, but whatever. Why would we curate the crap? That's up to the consumer. We'll have the reviews and everything else." But they don't do a great job on the reviews.
--:-- Alex Rampell: Those are the extremes. Android and Apple, there are so many examples of this. There's the premier provider, the Mercedes, the Ferrari, whatever. They just want to show high-end stuff. And then there's the mass-produced, low-end stuff. And then there's this very unique business model that is very hard to replicate called Costco, because normally it doesn't work. It's like, "Hey, just trust me because I'm the best." You have to have many, many decades of trust such that Justine's mom is like, "I don't know what it is, but if it's sold at Costco, it's good."
--:-- Justine Moore: And if you were a CEO of Costco, would you further leverage that trust to do other things, or would that risk the whole enterprise?
--:-- Alex Rampell: I think it risks the whole enterprise, but there's a lot that they can do. It's funny, one of my partners met with the Costco board and pitched them on financial services. "Every bank is trying to rip you off. They're trying to overcharge you for loans or underpay you on your deposits. The Costco loan would just be the cheapest possible." They're trying to make no money on that because they make money on the membership. So they probably could expand it quite a bit. But yes, it's hard. There's some modernization that they could probably do because it still is this very warehouse thing that closes at 5 p.m. I wish it were open later. Their shipping isn't great if you want to order stuff. But it is a very unique business model that will stand the test of time, and I think it's AI proof.
--:-- Justine Moore: Yeah. Why don't we get into other ways in which it will change commerce? You outlined a few different types of purchases that might get eaten.
--:-- Alex Rampell: Yeah, so we looked at the range of purchases from the impulse buys, which I think still are like the Coke bottle on the aisle, but often now for a lot of people, they're 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 going to buy it." All the way to really considered purchases, like a house or a wedding venue or a car where you're spending a significant chunk of your income. It's a one or a multi-time thing, and you're doing a lot of research.
--:-- Alex Rampell: Both ends of the spectrum, I think, are harder for AI to disrupt. The impulse buy, because there's no research in advance, and you're not going anywhere specific to buy it. By its nature, you are making the decision to buy it immediately when you see it. Algorithms will get better and better at targeting you with the shirt that shows up on your TikTok feed that somehow has your dog's name, and you're going to buy that more than the other thing. But that's sort of not the generative AI that we're talking about.
--:-- Alex Rampell: For the most consideration end of the purchase, I think it's hard to have that be fully AI end-to-end. While you may start doing your research online on ChatGPT or Gemini or any sort of new AI-native property 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.
--:-- Alex Rampell: So there's this whole range of products in the middle that I think we believe the purchasing behavior could be disrupted by AI in a couple different ways. One is the research way. You're trying to find the best... My handbag wore out that I bring when I travel all the time. I need the best one that fits a laptop, can fit a big water bottle, all this sort of stuff, can be fine in the overhead part of a plane. If you're busy and you don't have a ton of time to do that research yourself, you might ask an AI agent that can watch all the TikToks for you, read all of the Reddit posts, and pull in the real consumer feedback, and then make a recommendation. You might want to do some of your own clicking through to look at options. But in that case, it's decently likely that if there's a good integration to purchase, you might do it through an AI agent.
--:-- Alex Rampell: There's also sort of things you already know you want, like I mentioned, where you want the best price. I think AI agents can do a lot around price optimization. If you always buy a specific type of laundry detergent, it can find across the internet where is this laundry detergent best priced. It can also probably know, "I should scan this daily, and if it's 30% less on this specific site than it usually is anywhere else, and it's going to arrive in a reasonable amount of time, I should probably just buy this." They can store an extra box of laundry detergent because based on what I know about the consumer, that's worth it to them.
--:-- Alex Rampell: As you move up the consideration stack, there's another sort of purchase that I think will be AI-intermediated, but maybe have some human impact. Things like bikes or couches, 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 immediately become obsolete.
--:-- Alex Rampell: Today, the only way that this has happened is people will go super deep into Reddit threads on the Buy It For Life forum and all of these different places. Or they have a brand they really trust, like Apple, and they're willing to pay the premium. In the future, it's fun to think about having an AI agent that really deeply understands you, where you can have a more in-depth conversation about that sort of thing, maybe even a phone call, where they're asking you a bunch of questions dynamically back and forth, and providing them with the information they need to go back, do the research, and decide. So that's some of the things we've considered about how AI could impact purchase behavior.
--:-- Alex Rampell: There's another kind of lens. There are many different ways of cutting this. Does the product that you're buying have a UPC or no? If you know what a UPC is, a universal product code. It's the little scannable thing. It's kind of the successor to the ISBN, which is for books. If it doesn't have a UPC, a lot of the commerce that has worked post-internet 1.0, like how did Wayfair work? Why did Wayfair work well? They're selling things like bar stools. I want a bar stool, but there's no UPC on this. So it's like, "Here's a bar stool. It fits the right dimensions," but there's no scannable code.
--:-- Alex Rampell: If there is a UPC, you can run this little algorithm of "Get me the lowest price." Pre-AI, you would just run this algorithm on your own, and you'd probably end up at Amazon. So everybody who was in Amazon just got killed, and Amazon did well. I'm oversimplifying a little bit. If it doesn't have a UPC, that's a different process. Because if it has a UPC, then the algorithm that I was describing is exponentially better with AI. Before, you'd have this... Some people value time more than money, and some people value money more than time. If I value money more than time, I am the algorithm. I need to find the best coupon, I need to find the best cashback site. All of these cashback sites are out there on the internet. Lots of people who value money more than time do this. All of that will be automated away, or automated for the benefit of the consumer, if and only if you have something where you have determined the SKU or the UPC. The SKU has a UPC, you feed it in there, good.
--:-- Alex Rampell: If it doesn't have that, then that's another lens. I'm probably... again, kind of impulse to highly considered. AI is going to help you on the highly considered side, but not help you buy it. But if it spits out something with a UPC or a SKU, then this part of the AI will just automate that. So if it's a bike, sure, I don't know what bike to buy. But if it's a specialized bike and it has a UPC on it, boom, why wouldn't you feed it to this part of the thing as this gets developed? That's just going to buy it for you with the best shipping, the best terms, the best whatever. Right now, the reason why that doesn't happen is it does happen, but it happens manually. The people that have time valued more for them than money, they don't do any of that stuff.
--:-- Justine Moore: Putting this all together, we were talking about how over the last decade, there hasn't been a ton of net new big winners in the space and all the gains have gone to the aggregators. Why do we believe that over the next decade, there's some opportunities for net new big and durable companies? And maybe share what types of companies those could exist that we're excited about?
--:-- Alex Rampell: I mean, obviously, ChatGPT. They are an upstart to a certain extent, but it's not Amazon, it's not Shopify. It's a net new company that clearly will have a role in commerce. The question is, will there be specialized sub-segments? I do think that the hyper-optimized, "I know you very well," and 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 cashback sites. These things that have always been like, "You value money more than time." There was a site called Ebates that was bought by Rakuten a while ago. There's a company in the UK called Quidco, which is very similar.
--:-- Alex Rampell: These kinds of things, you can imagine them going much more mainstream and being 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 most companies can't really figure out attribution. It's like, "We are going to be the last click." The last click of the 21st century post-AI is going to be AI companies that know how to do this. It might not be ChatGPT, because they're this horizontal everything, but it's like, "I'm going to give you all my credit cards. You're going to figure out which credit card you use for this particular purchase, because this one has higher cashback than that one for this type of good. You're going to integrate affiliate tracking where you give me cashback like Ebates does or Rakuten does. You're going to do all the coupon stuff."
--:-- Alex Rampell: Not all of this will be good for merchants, by the way. But you can imagine, and it doesn't require a lot to imagine this because 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 people that value money more than time and are somewhat technical. It's actually not just money more than time. My mom might want to use one of these, probably would value money more than time because she's retired, so why not? But it's just too complicated to use. If you make it so easy... That's the other thing. We talked about how if you make something show up right now, that's going to have a bigger market than if something shows up five weeks from now. If you make something so painfully easy to use that it's more of an IQ test, it's like, "Do you want to pay less for something or more for something?" Everybody would say, "I want to pay less for something." But it's like, "Oh, but you have to do these 18 things, download..." 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 startups have lived, because it's clearly not going to be Amazon. Amazon wants you to shop at Amazon.
--:-- Alex Rampell: Amazon, by the way, the other thing that they're somewhat imperiled by... Amazon has a giant revenue and profit line item from advertising. 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 the best SKU that they sell is the advertising SKU, and that's going to be imperiled if they no longer control the presentation layer because AI intermediates it. But I think this kind of "money more than time" concept, expand that to the entire universe. There's certainly a there there.
--:-- Justine Moore: Yeah, I think there's sort of two sides. There's the consumer side, right? If we go back to my conversation earlier about you want to have a really in-depth conversation about what bike to get, you could imagine someone fine-tuning a model that is much better 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 outcome than ChatGPT could. So that's one way that consumer distribution could be disrupted beyond the ChatGPT disruption that will happen.
--:-- Justine Moore: Then I think there's the merchant side of things. 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? How do websites need to change to make themselves more browsable, more easy to interact with, more easy to find what the agent is looking for? What sort of infrastructure do we need on the financial side for AI agents to actually be able to make a purchase on behalf of someone and use their credit card? The entire infrastructure and merchant-facing side of it is probably going to change quite a bit. I think that will be just as big as the consumer side of the market.
--:-- Host: I think it's a good place to wrap. Alex, Justine, thanks so much for the great conversation.
--:-- Alex Rampell: Thank you.
--:-- Justine Moore: Thanks for having us.
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