The next great market shift is here. 2017 proved that the long-promised “smart home” is finally here — and this has distinct implications for merchants. Central to the smart home is the voice-activated personal assistant, which in turn gives rise to conversation commerce, the intersection of “chat” apps and shopping.
If there was still any doubt, the success of Alexa during the 2017 holiday shopping season should put that to rest. Alexa, Amazon’s voice-activated personal assistant, was the #1 app for both Android and iPhone on Christmas Day. The software’s flagship device, the Echo Dot, was the #1 bestselling item in any category on Amazon.com with millions sold. Amazon does not release sales numbers for their devices, but they did announce that “tens of millions” of Alexa-enabled devices were sold over the holidays, meaning that there is now roughly one Alexa device for every two American households.
With Alexa becoming so ubiquitous — and competitors like Google and Apple offering similar technologies — what does this mean for merchants?
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Personalized commerce is nothing new. Merchants have captured their audiences by knowing how to make them feel special. Consumers used to go to the store, listen to a sales pitch, and get emotionally attached to the pitch and the product before purchase. But today’s consumer is more discerning, distrustful of overt salesmanship and preferring to feel like they’ve come to their purchase decisions entirely on their own.
This change in purchasing habits makes Alexa a very effective product in the age of conversation commerce — and Amazon is well aware of this. Alexa’s ultimate purpose is to be your personal shopping assistant. To illustrate: Amazon dropped the price of the Echo Dot to only $29 during the holiday season — which is less than the cost to manufacture the product — in order to get it into more homes. Using the Echo Dot as a loss leader seems to have paid off, as a new study from CIRP has revealed that Echo owners spend significantly more on Amazon than the average:
- Echo owners spend on average $1,700/year on Amazon;
- Amazon Prime members spend on average $1,300/year on Amazon; and
- All Amazon customers spend on average $1,000/year on Amazon.
Increasingly, Alexa will serve as a personalized search engine, evolving to know your habits, hobbies, preferences and maybe even moods. In theory, it could be a great shopping assistant. But the more automation there is in commerce, the riskier it gets. There are two major challenges merchants face as consumers increasingly do their shopping using Alexa:
1. Software Errors
There have been numerous instances involving Alexa ordering the wrong product due to misunderstanding a voice command. Errors like this are bound to happen, as teaching software to recognize and decode voices accurately is an emerging and inexact science. This naturally results in more cancellations, refunds and chargeback disputes as frustrated consumers find that Alexa is placing their orders incorrectly. Since Alexa penetration is rising very quickly, if the software fails to mature rapidly enough, it could have significant adverse effects on Amazon’s business as a result of frequent errors and high dispute rates.
2. Security and Privacy
There have already been stories circulating about Alexa being attacked, such as this one that tells of a British security researcher who effectively turned an Echo into a “wiretap.” The researcher, Mike Barnes, described the technique in order to illustrate how easy it would be for cybercriminals to take advantage of the device. By hacking Alexa, criminals can access the owner’s Amazon account and their card info on file, and can also listen to the owner’s private conversations. This is another major problem of conversation commerce, as new security identity verification techniques will be required to make widespread adoption viable. With the recent boom in Alexa-enabled devices, it will be interesting to see how many account compromise cases will be reported in 2018 as a result of hacking.
The Market Shift
It isn’t just Alexa. Google is making a strong push into the smart speaker space, and Apple will be releasing its own smart speaker early this year. While those brands don’t have the huge built-in e-Commerce platform that Amazon does, they do both have well-established e-wallets. Going forward, conversation commerce will have to become at least somewhat platform neutral — consumers should be able to use their digital assistants to make all their online purchases, regardless of the merchant.
This means that merchants will have entirely new challenges to deal with. The technologies powering conversation commerce are in their infant stages, and as they mature there are bound to be hiccups. Errors and design flaws will have an impact on your business and will probably cost you money. Security and identity verification will have to be re-examined and adapted to account for these new technologies. And both of these things will inevitably result in more chargebacks.
There is no turning back now. Conversation commerce is what consumers want, and it is here to stay. This is a major opportunity for proactive merchants to engage with consumers, but will also be a time of transition, with all the challenges that come naturally during any market shift.
A pioneer in data analytics and industry-specific risk management, Suresh Dakshina is the President of Chargeback Gurus. He is a certified e-Commerce fraud prevention specialist and a Certified Payments Professional who knows firsthand the challenges business owners face, especially when it comes to chargebacks and fraud. Dakshina holds a Master’s degree from University of Southern California and has consulted Fortune 5000 companies for over a decade on chargeback and fraud minimization.
