Slowly but surely, artificial intelligence (AI) is becoming an integral part of our lives. Of course, we don't have AI-enabled robots running errands for us just yet, but tech companies are integrating the technology very subtly into things that we interact with every day. From Google searches to automatically tagging photos on Facebook, and talking to Siri on your iPhone, we have interacted with AI in some form or the other.
Our interaction with AI is only going to grow with the advent of self-driving cars and service robots. As AI applications gain ground, this space could generate $60 billion in revenue by 2025 as compared to just $1.4 billion last year, as per Tractica. So, it is not surprising to see why technology giant Amazon (NASDAQ: AMZN) has started to integrate artificial intelligence in various aspects of its business.
Let's take a look at how the company is leveraging the benefits of AI to steal a march over rivals.
AI in the cloud
Amazon leads the cloud space by a fair distance. Its Amazon Web Services (AWS) subsidiary controls around 35% of the global cloud infrastructure market, and it is trying to extend its lead with the help of AI. AWS has lagged in AI tools, but it has been rapidly bringing its platform up to speed by adding a host of new features.
According to Bloomberg, cloud computing rivals Microsoft and Google are trying to ensnare customers away from AWS with features that allow developers to create AI applications in the cloud without owning any of the required infrastructures. This could potentially cut Amazon's lead as sales of software needed to create AI applications in the cloud is expected to rise 40% over the next four years, hitting $8 billion in 2021.
But Amazon has recognized this flaw and is fast working on plugging the holes. It is expanding its team of AI specialists to help develop products that could be deployed on AWS, and the results are already flowing in. Within a span of just one year, AWS boasts of services such as Lex, Rekognition, and Polly, which have brought capabilities such as understanding speech and text, as well as image recognition.
These new features have swung the momentum in favor of AWS. For instance, insurance provider Liberty Mutual was reportedly looking at AWS rivals as it wanted to build a chatbot to answer employees' questions. But the commercial availability of Lex on AWS earlier this year helped Amazon retain Liberty as a customer.
Amazon recently announced a machine learning lab that will connect experts in the field with AWS customers. These experts will allow Amazon's cloud customers to recognize business challenges and develop solutions based on machine learning and artificial intelligence.
AI deployment in the cloud will help Amazon retain its lead in this market, and grow its revenue, thanks to the multi-billion dollar opportunity.
AI in retail
Amazon is integrating AI into various aspects of its e-commerce business to make shopping easier for consumers. For instance, the company is using sensors enabled by AI in its Amazon Go store concept.
With Amazon Go, the e-commerce giant wants to create a shopping experience that'll eliminate the need for checkout lanes and cashiers. Consumers will simply walk into a brick-and-mortar grocery store and pick up items they want. Then, Amazon will use a mix of sensors, computer vision, and AI to add the items to the consumers' cart, and finally, charge the buyer's Amazon account.
The concept is currently in the pilot phase, but it won't be surprising if Amazon eventually launches the Amazon Go on a large scale -- especially in light of the recent acquisition of Whole Foods Market.
Amazon's AI-enabled Echo line of speakers, powered by the Alexa voice assistant, is also doing its bit to enhance online sales. According to RBC Capital Markets, half of the Echo owners use the device on a daily basis, and 17% of them have already placed orders on the e-commerce website using the speakers. The Echo speakers are expected to hit $10 billion in annual sales by 2020, so Amazon could reap the additional benefit of stronger online sales as more consumers get access to these AI-enabled devices.
AI can help Amazon reduce costs
Amazon is spending a lot of money on shipping. Last quarter, the company's worldwide shipping costs shot up 39% year over year to $5.4 billion, driven by the addition of more employees and its focus on reducing delivery times. By comparison, Amazon's revenue increased 34% year over year, so the company needs to get a handle on this line item if it wants to be profitable in the long run.
This is where AI could come into the fray, helping Amazon automate its delivery processes to achieve faster shipping times at lower costs. Earlier this year, a patent filing revealed that Amazon could be working on self-driving trucks. Such a move could help Amazon reduce shipping expenses as the patent indicates that its trucks will be able to plan the most efficient routes in advance, thereby spending less time in traffic.
This technology could become an additional revenue stream if Amazon decides to license the technology to other logistics companies. The e-commerce giant's focus on automating the movement of goods is a logical one given the potential efficiency improvements.
In all, AI is sure to play a crucial role in various aspects of Amazon's business. The company has already set the wheels in motion by introducing artificial intelligence in the cloud and equipping its smart speakers with the AI-powered Alexa voice assistant, and these are already delivering results. As Amazon makes more progress in artificial intelligence technology it could reap richer benefits on various fronts.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Facebook. The Motley Fool has a disclosure policy.