Amazon (Shutterstock photo)
Amazon (AMZN) has turned over nearly every single market it has entered into, with astounding success -- books, cloud computing, online retail, subscription video, and more. However, it's the company's focus on artificial intelligence and machine learning which may be the next big revenue driver for the company.
In Amazon's 2016 annual shareholder letter, CEO Jeff Bezos highlighted what keeps Amazon running like a start-up, including embracing external trends, the latest being machine learning and artificial intelligence. Amazon has been using AI and machine learning in a number of ways, but Bezos hinted we may have only seen the beginning of it.
"At Amazon, we’ve been engaged in the practical application of machine learning for many years now," Bezos wrote in the letter. "Some of this work is highly visible: our autonomous Prime Air delivery drones; the Amazon Go convenience store that uses machine vision to eliminate checkout lines; and Alexa, our cloud-based AI assistant. (We still struggle to keep Echo in stock, despite our best efforts. A high-quality problem, but a problem. We’re working on it.)"
Wall Street analysts are starting to think about the implications of AI as a revenue driver.
In an investor note in March, RBC Capital Markets analyst Mark Mahaney wrote that Alexa could help it earn $10 billion in revenue by 2020. This would come from things like, "1) Device Sales; 2) Incremental Voice Driven Shopping Sales & 3) Platform Revenues."
In the shareholder letter, Bezos added that much of what the company is doing with machine learning and AI is done in ways consumers don't see, such as improving product search ranking, recommendations, demand forecasting and more.
"Though less visible, much of the impact of machine learning will be of this type – quietly but meaningfully improving core operations," he wrote.
Beyond that, AI and machine learning could have other applications for the Seattle-based tech giant, such as making shipping routes faster, re-rerouting processes on its public cloud to make them less energy intensive, helping with customer service, just to name a few -- all having a financial impact, either by cutting costs, growing revenues or in some cases, both.
A prime example (pun intended) of AI growing revenues and cutting costs is its upcoming grocery store initiative, coined Amazon Go.
Amazon is using AI to let consumers have a more pleasant shopping experience, thanks to its Just Walk Out technology. Consumers scan their smartphones and use the Amazon Go app, pick up what they want and leave, no cashier required. This could help Amazon further entrench itself in the $650 billion grocery market.
In the past, Bezos has talked about how important AI will be over the next 20 years. As of 2016, the company had more than 1,000 people working on it and that number has no doubt increased. Since then, the company's AI advances have really started to pay off for the company.
"Watch this space," Bezos wrote. "Much more to come."
Bezos is right -- Amazon is poised to capture more than its fair share of benefits from AI.