ChatGPT's Instant Checkout Could Give Retailers Alot To Gain - And Lose

The chart at right shows the current and expected gain in consumers' using OpenAI's ChatGPT to shop.

Walmart's decision to use the feature is based on a simple premise: go where your customers are to capture more sales. But the potential downside, as always with tech, is that retailers may be surrendering margins and, eventually, sales to OpenAI and its competitors, as they work to cannibalize a greater percentage of those sales for themselves. It's a dilemma sellers have endured before - and the probable outcome is for larger companies to create their own AI sales bots. JL

Jinjoo Lee reports in the Wall Street Journal:

A lot of retailers’ web traffic comes from Google search already, but shoppers typically need to click through to the retailers’ websites to complete the transaction. ChatGPT’s Instant Checkout feature allows shoppers to go from browse to checkout without leaving the chat. Merchants pay it a fee on completed purchases. If people are going to chatbots for shopping, it makes sense to get the first-mover advantage. “You want to be closest to the place of discovery." But letting shoppers skip retailers’ websites and apps could hurt retailers’ customer loyalty and take away add-on sale opportunities. It could also dent retailers’ ad revenue. Of the $59 billion that companies will spend on U.S. retailers’ ad business this year, 60% is tied to search placements on those retailers’ sites and apps

ChatGPT has the potential to make shoppers’ lives much easier. The effect on retailers will be more complicated. 

Last week, investors cheered after Walmart—America’s WMT -0.88%decrease; red down pointing triangle largest retailer—said it would let shoppers buy its products directly within OpenAI’s ChatGPT. Walmart’s shares rose nearly 5% that day, adding about $40 billion to its market cap. Etsy ETSY 2.30%increase; green up pointing triangle and Shopify SHOP 3.27%increase; green up pointing triangle added 16% and 6%, respectively, when they announced their respective partnerships with ChatGPT.

A lot of retailers’ web traffic comes from external places such as Google search already, but shoppers typically need to click through to the retailers’ websites to complete the transaction. ChatGPT’s Instant Checkout feature allows shoppers to go from asking something like “find me the lightest strollers under $300,” browse, and proceed to checkout without leaving the chat. OpenAI has said that merchants pay it a small fee on completed purchases. The product results that come out of ChatGPT inquiries will be “organic and unsponsored,” OpenAI says. 

The retailers’ reasoning is pretty straightforward: If people are going to chatbots for shopping recommendations, it only makes sense to be there and get the first-mover advantage. “You want to be closest to the place of discovery,” notes Oliver Chen, analyst at TD Cowen. The share of retailers’ web traffic from GenAI tools such as ChatGPT is still small but quickly rising, according to Similarweb.

ChatGPT is the most popular AI chatbot by far, capturing about three-fourths of total AI chatbot traffic, according to Similarweb. And about 2% of conversations on ChatGPT are related to shopping, according to a working paper published last month by OpenAI’s economic research team. Roughly 38% of U.S. consumers surveyed by Adobe earlier this year said they have used generative AI for online shopping—ranging from product recommendations to seeking out deals.

Etsy and Walmart are the types of sellers that would benefit from visibility on such chatbots. Etsy has millions of bespoke listings that can be difficult to discover. Such platforms benefit from the type of idea-generation that people do on ChatGPT like getting gift suggestions. Walmart sells commoditized products, but has a wide selection, low prices and fast delivery—three things that shoppers will prioritize.

 

But letting shoppers skip retailers’ websites and apps could come at a cost. Airline companies, for example, haven’t had the best relationship with third-party booking sites. Some have pulled their fare information from those websites to avoid paying a fee and to improve sales of add-on products such as extra legroom and frequent-flier points through their own websites. 

Similarly, easy comparisons and direct checkout could hurt retailers’ customer loyalty and take away add-on sale opportunities. It could also dent retailers’ important ad revenue. Of the roughly $59 billion that companies are expected to spend on U.S. retailers’ ad business this year, more than 60% is tied to search placements on those retailers’ sites and apps, according to a report from Emarketer. “If discovery moves upstream to universal AI assistants, ad budgets could follow,” according to the firm’s report. Losing ad revenue would be bad news for retailers, especially Walmart, whose advertising business has helped make e-commerce more profitable. 

While OpenAI doesn’t run ads yet, it has been looking for ways to monetize the platform and has reportedly hired advertising talent from big tech rivals. Ads would be a low-hanging fruit for chatbots with lots of traffic and troves of valuable data. 

This could be why Amazon.com, an advertising giant, is boxing out external AI chatbots for now. The company has reportedly blocked GenAI platforms from scraping information from its website, preventing its listings from showing up on places like ChatGPT. Amazon AMZN 1.56%increase; green up pointing triangle is working on a handful of its own shopping AI features, including one that allows customers to shop for products outside of Amazon. 

For retailers, the best-case scenario might be a future where consumers use universal AI platforms such as ChatGPT only for certain types of purchases. Perhaps these are purchases that are higher budget or require more complex decisions, such as sofas or washing machines. Routine purchases such as groceries might continue happening directly on Amazon or Walmart, allowing retailers to keep their customer connections and ad dollars. Just as e-commerce hasn’t fully displaced retail, GenAI platforms are unlikely to take over all shopping, notes Simeon Gutman, analyst at Morgan Stanley. 

But retailers could be in more trouble if people’s lives become more organized around a chatbot of choice. Consumers might use universal chatbots to shop for a wide range of things—from household staples to season-appropriate clothing—without clicking on a single link to a retailer’s website. As America’s largest retailer, Walmart’s decision to partner up with ChatGPT is consequential because it could accelerate GenAI adoption by other retailers and shoppers. 

If GenAI shopping use becomes so widespread that retailers’ loyalty or ad revenues start getting hit, perhaps they will pull back from partnerships, or attempt to negotiate for a slice of AI bots’ profits. Google, for example, shares its revenue with U.S. news organizations, though it clearly has the upper hand in deciding that revenue split. 

Fast, frictionless shopping is a dream for retailers. But giving ChatGPT the keys to their customer relationships could turn out to be a costly decision.