Amazon.com (NASDAQ:AMZN) is known primarily for its ubiquitous online retail store. But it has also been gaining renown for the explosive growth of its Amazon Web Services (AWS) and the increasing popularity of its Prime membership program. With these three impressive pillars forming the foundation of Amazon's business, you might think it has no worlds left to conquer. You'd be wrong.
I'm part of the new world
Amazon CEO Jeff Bezos believes that this innovation will be the next big tech battleground and area of innovation, and could be the fourth pillar of the company's business. In a recent interview, he had this to say:
I think it's gigantic. ... It's probably hard to overstate how big of an impact it's going to have on society over the next 20 years. It has been a dream since the early days of science fiction to have a computer that you can talk to in a natural way and actually ask it to have a conversation with you and ask it to do things for you. And that is coming true.
Would you like to play a game?
If you haven't guessed by now, the technology he is referring to is artificial intelligence, or AI.
Amazon has been working behind the scenes in the area for more than four years. The AI behind recent innovations is machine learning, and more specifically deep learning, which has led to impressive new advances in technology.
What is deep learning? A computer simulation of the human brain called a neural network is used to recreate our capacity to learn. It is fed a multitude of examples and complex algorithms that "teach" it to recognize similarities and distinguish differences. In its simplest terms, the computer learns to recognize patterns from massive quantities of data. This has led to explosive development in the areas of image recognition, natural language processing, user profiling, and voice recognition.
Nowhere is this emerging technology more evident than in the areas of voice recognition and natural language processing. Amazon's contribution to the field is Alexa, its AI-driven, cloud-based, voice-activated assistant. Alexa controls a variety of Amazons products including the popular Echo smart speaker and its sibling the Echo Dot. Alexa acts as the software to the Echo hardware. This product ecosystem has a dedicated team of over 1,000 working on its development. Alexa's home in the cloud allows it to learn continuously from all the devices it controls. The Echo and Echo Dot were among the most popular products on the Amazon website this holiday season. Some estimates put sales of Echo products at over 5 million since their debut two years ago, and they were sold out on the website in the weeks leading up to Christmas. Fun fact: Amazon reported in its most recent conference call that Alexa has received more than 250,000 marriage proposals to date.
You are just a machine
While Alexa is the company's most public-facing demonstration of AI prowess, Amazon's ambitions in the field don't stop there. Its AWS cloud computing platform provides businesses with server access that can scale from one to hundreds depending on the needs of the business.
Amazon has recently made three AI tools available to these customers: Rekognition, Polly, and Lex. Rekognition, an image recognition protocol, allows developers to build apps that analyze and recognize images. Polly, a natural language processing tool, is able to translate text to speech in one of 47 different voices in 24 languages. Lex, based on the same principles as Alexa, combines voice recognition with natural language processing and allows developers to build conversational bots.
These additional tools will likely contribute to greater interest in what is already Amazon's fastest growing and most profitable business segment. AWS produced $3.2 billion in revenue in the last quarter, up 55% year over year, and has an operating profit margin of nearly 32%. Over the past 12 months it has generated over $11 billion in revenue. Making AI available to an already robust business may provide an effective customer-retention tool, as well as an incentive for newer customers.
One is glad to be of service
Amazon Go, its latest AI-based initiative, combines computer vision, data fused from multiple sensors, and deep learning to create what the company calls "just walk away" technology. It eliminates the need for checkout lines at its physical store in Seattle. The technology automatically detects what customers have taken from (or returned to) shelves and tracks those items in a virtual shopping cart. Once a customer leaves the store, his or her account is charged for the purchase. While currently only open to Amazon's employees participating in the beta program, it is slated to become available to the public in early 2017.
Foolish final word
Across the breadth of its businesses and technologies, Amazon is accelerating the future with its contributions to the AI revolution. These investments may well form the fourth pillar of an already gargantuan business. Jeff Bezos put it best:
There's so much more to come. It's just the tip of the iceberg. ... It's the first inning. It might even be the first guys up at bat. It's really early. I think we're on the edge of a golden era. It's gonna be so exciting.
He sounds pretty excited about the future. If you are an Amazon investor, you should be, too.
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