a16z Podcast - The Death of Search: How Shopping Will Work In The Age of AI

Episode Date: September 17, 2025

The web is unhealthy, and AI agents are about to rewrite how we shop.In this episode, a16z General Partner Alex Rampell and Partner Justine Moore explore how AI agents will change commerce and the implications for Google’s business model, affiliate marketing, online shopping, and more. Timecodes: 0:00 Introduction 0:12 The Role of AI Agents in Commerce1:28 Affiliate Marketing & Impulse Buys4:02 Observing Consumer Behavior & AI6:08 Dynamic Pricing & E-commerce Trends7:20 Online vs. Offline Shopping Behaviors10:09 The Challenge of Attribution in Commerce12:19 Aggregators, Brands, and Business Models15:24 Trend Cycles & Single SKU Retailers17:49 Google, Search, and the Freemium Model22:41 The Unhealthy Web & Commercialization26:04 Video Reviews & Trust in Commerce29:10 The Costco Model & Consumer Trust33:15 AI’s Impact on Different Types of Purchases39:56 The Future: Specialized Shopping Agents40:16 Opportunities for New Durable Companies44:18 The Merchant Side: Infrastructure for AI Agents Resources: Read the article: http://a16z.com/ai-x-commerce/Find Alex on X: https://x.com/arampellFind Justine on X: https://x.com/venturetwins Stay Updated: If you enjoyed this episode, be sure to like, subscribe, and share with your friends!Find a16z on X: https://x.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zListen to the a16z Podcast on Spotify: https://open.spotify.com/show/5bC65RDvs3oxnLyqqvkUYXListen to the a16z Podcast on Apple Podcasts: https://podcasts.apple.com/us/podcast/a16z-podcast/id842818711Follow our host: https://x.com/eriktorenbergPlease note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Stay Updated:Find a16z on XFind a16z on LinkedInListen to the a16z Podcast on SpotifyListen to the a16z Podcast on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The World Wide Web is unhealthy right now. Most of the things on the internet are crap, and they're crap, and we know that they're crap, but they SEO optimized crap. So how do you de-crapify that? AI agents can direct people to things if people start their purchase activities there. Like Google, they kind of are a tax on GDP.

Consumer spending is a huge part of GDP. They get a percentage of all that spend because they're charging per click. That tax might just shift elsewhere. Why is this system so complex? What are the different types of purchases where AI can play a role? And what are we hoping to see as we think about the broader market? Today, we're talking about the future of commerce at the age of AI.

The web is flooded with SEO junk. But what happens when AI agents start directing how we search, shop, and buy? Joining me are Alex Brampell, general partner at A16Z, and just Steve Moore, partner at A16Z. We discuss how AI could disrupt e-commerce from impulse buys to big-ticket purchases and what it means for Google, merchants, and startups. Let's get into it. So you guys have both been thinking about and commerce for a while.

Alex, when do you talk about what inspired this piece and how did this sell to germinate for you? Well, so I had started a company called trial pay a long time ago. And actually, I'd been selling stuff on the internet for a very, very long time, even before the internet. And I was just trying to think, well, number one,

what happens to Google? Because a lot of people, this is on their mind? So, like, is search volume going up or down? So I have my own personal experience of, like, well, my search volume going down, but not for commerce, but clearly for everything that is not commerce. So that was one thing. But also, this company that I started trial pay, we were one of the biggest affiliates in the world. And affiliate marketing is basically you send somebody, this is the

oldest business model on the internet, if you will. It actually predates AdWords and AdSense by a bit of you just get a share of the, you get a commission, basically. If you send something there, it was all, this was started, apparently apocryphly, it came from pornography because that was the world's oldest business model on the internet. Like, how do you track? So that eventually made its way to commerce, and it's all based on cookies and pixels. So you drop cookie on the person's computer, and then on the confirmation page, you have a little, like, invisible one-by-one tracking pixel that reads the cookie, and that's how you know to say, Eric sent me the customer. So what we did at trial pay, we were one of the biggest ones there. Like,

is that really going to be what powers this new realm of commerce? And then is it even relevant for a lot of things, because impulse buys are huge. And with impulse buys, like almost tautologically, you're not going to use AI to tell you to buy something. Like, you shouldn't buy anything that's an impulse buy. Like, you go to the supermarket. You shouldn't be buying like Coca-Cola, like, in the checkout line. They actually charge you more at the checkout line than they do if you just buy in the Coca-Cola section. So, like, all of these things are designed to, like, tug at your emotions to get you to buy and spend money that you don't want to. That's not going to be AI. On the other hand, it's like these very, very expensive items. You're

researching the heck out of them with AI, but, like, there's no affiliate. Like, how do you then commerce and transact? So, like, number one, it was, like, the ontology of, like, commerce was very interesting. And then number two was this whole, like, affiliate thing, is it still going to be relevant because it seems like that's what chat GPT and others are getting into. And then number three was just my own personal behavior. It's just like I probably use chat TPT, like three orders of magnitude more than I use Google now, which is interesting. Justine, what excited you to contribute to this piece, slash, what did you find was remarkable? There's a couple really massive consumer markets, the biggest of which might be like online shopping. But I think we've seen thus far

relatively few startups trying to take a crack at that market with AI, even though, like Alex said, there's a lot more opportunity because you now have these really smart LLMs and agents that can help you make better decisions than you could have made on your own or even make purchases on your behalf, which you would think would create an opportunity for more folks to package these into products that they then offer to consumers. But we haven't seen a bunch of folks doing that yet. So I think part of this piece was to dive into like, what do you think about the broader market in hopes that, you know, folks who were working in the space would kind of give us a heads up and let us know, and we could hear how people were approaching

it. And you can observe. I always like to like observe first because like that's objective and then predict second. Predicting is hard. I forgot the funny quote about predicting the future, but it's very hard to predict the future. And like there actually is a lot that can be observed. And like that's where, like, I think Camel, Camel, Camel is, like, the greatest set in the world. We have no stake in Camel, Camel, Camel, so this is not self-promotional at all. But it's like people use this thing. It's like Google News Alerts for pricing. And I gave a talk to the Amazon Prime team recently, and, like, they're very, very aware of it

because I think it's actually Amazon's biggest affiliate. And people, every day, like, I would buy this product, and this is like Econ 101. I would buy this product if it was priced here. It is currently priced here. Please let me know when it is priced here, because what will I do with that information? I'm going to buy it. So, like, the consumer is the... agent, and this is like a very, very inefficient AI, right? And if you could actually complete the

entire circle and say, like, no longer give information but allow for automatic action on information, like people will do that because we have observed that behavior today. This is, like, the easiest form of predicting the future ever, because you're really just like you're chronicling the present, and you're just saying there's going to be one additional appendix to the present, which people would do anyway, because they are doing it anyway, they just have an easier way to do it. I think my version of observing was seeing there's a couple viral examples of this. Some that were really good because the AI found the product perfectly and some that were hilariously bad because AI couldn't find the product.

But teenage girls started using Chachy BT to upload photos of like Lana Delray at a concert or Taylor Swift snapped in a street style photo or whatever and asking like, what is this hair brett she's wearing or like, what is this sweater? Like I want to find it and I want to buy it. And it worked really well because it often found like, hey, This sweater is like $5,000. Like, you as a 19-year-old girl in Missouri are probably not going to be buying this. Like, here are some alternative, maybe less expensive options that look the same that you can buy.

And that age demographic tends to be like a really early predictor of all sorts of consumer behavior, which is why this is probably going to be happening more and more. From the research side of things all the way to making purchases, probably agentically when prices are right, like Alex was mentioning. Alex, you imagine a world where there's sort of dynamic custom pricing sort of to the extreme where it's like we're looking at the same thing on Amazon but it charges you more because maybe I'm cheaper than you or you have more money. Do you imagine that world?

Well, I mean, people have tried this a lot. I mean, the problem, I think this probably, it's a very smart world from an econ 101 perspective for sure. Like how do you capture the consumer surplus? Consumer surplus is great for consumer. It's bad for producer. And apparently Delta is doing this a little bit or they were trying to do this. I mean, there are like the poor man's versions of this, which are like, if you have an iPhone, you should get charged more than if you have an Android phone because, like, iPhones are more expensive. Like, you have basically communicated that your elasticity of demand is different than somebody who has less money. I think

probably you're going to run into regulatory challenges with that. Or certainly you will run into, like, very, very high levels of unpopularity with your customer base. But people have tried this. But generally, it's hard to get away with. Right. Let's reflect on previous platforms shifts before getting into this right now e-commerce is 16% of total retail sales. If we were, you know, talking 20 years ago and predicting, you know, what percentage of commerce would be, e-commerce we would probably think it's much higher. Why hasn't that been the case?

It turns out the demand curve is different for immediacy versus non-immigacy. So even though, like, overnight shopping is pretty darn cool, instantaneous, like, one-second shopping is like, I need toothpaste right now because I'm going to bed and I want to brush my teeth and I just ran out, oh, there's a Walgreens over there. I'm going to go there and buy toothpaste. And, like, Amazon's awesome, but getting the toothpaste at 7 a.m.

It's like, I don't have demand for that. Like, that's not part of the demand curve. There's demand curve for, like, real-time toothpaste. That's part. The other part is just, like, I'm bored. Like, what do I do today? I know I will go to the shopping mall. And, like, there's the experience of doing that.

And it's like, that's kind of a little bit more impulsive, but even it's like, oh, there are these, like, these long-term considered purchases, or we talked about an RP's aspirational purchases, Like, maybe I'm going to gawk at that Rolex a little bit more, and, ooh, I just got my bonus. Maybe I'll go buy it. But it's all part of the experience. So I think those are kind of broadly speaking, the two.

I mean, I've seen this. I'm on the board of a company called Wise, and the product is sending money. And it turns out that the market for sending money where it is received in real time is just much, much different than the market for sending money where it is received two days later. Because sometimes it's just like the two days later send thing is just like less demand for that. And again, Amazon has proven this, as shipping has become, it's like, once upon a time, like, when you go back to the early days of e-commerce, you would get something in, like, two weeks. So it's almost not surprising that the curve has just, like, continued to expand. It's almost surprising that it's only, you said, 16%, that seems very low.

I think it's higher. So I'm not doubting your research on the numbers. Here's why I think it's higher. I think there's a lot of behaviors where people do research online and then purchase in person, like, especially. especially for big sorts of purchases or even like, sometimes I'm like, hey, I need a new laptop. I'm going to do like all of the research on like Reddit or on Instagram or on the Apple website. But then I'm going to like go into the store and feel like, okay, what is actually the difference in like the pro weight versus like the MacBook air weight, right? And so I think there's a lot of those sorts of things where like or buying clothes is another great example where like I live in SF.

So a lot of people will just order a ton of clothes, try it all on and then send a ton of it back because there's not a lot of big store. stores near us. But I grew up in Oregon and there, like, it doesn't make a ton of sense to order a ton of clothes online and send them back. It's just inefficient when there's so many clothing stores that are like a five to ten minute drive from you. But a lot of people will kind of do research about where to go or what specific items they're looking to find or like what style they're looking to buy online. So I think, yeah, it might be like 16% are like fully transacted online. But I think they're even in a lot of those other purchases, there is some sort of online research component.

Well, this is actually the hardest thing that's related to this topic is attribution. It's the bane of everybody's existence, which is like, okay, how do I allocate attribution for Justine's MacBook sale? And like the most the most kind of pervasively corrosive business model, I think, on the internet is this like last click attribution. So you allocate 100%. It's like, okay, part of it was like, I read this post on Reddit, that kind of inspired me.

Part of it was I saw this really cool ad at the Super Bowl. You could do this, like, kind of piecemeal, which is probably the more accurate way of doing it, but it's not exactly deterministic. And the thing that feels deterministic, which is actually incorrect, is it's like, oh, whoever's something that click last is the one that I should reward with the spoils.

And a lot of people that just don't understand correlation versus causation fall into this trap, where this is the business model that I hate the most in the entire world. Like the things like honey, you know, honey, right? So what does that do? It's like you're already on the web page about to purchase. And then it's like, do you want a coupon code?

Oh, yes, I do. Why would I not want a coupon code? 10% off click here. You go click here. What does it do? It redirects you to an affiliate page. It puts a cookie on your machine. It redirects you back to the page that you were just on.

And then it actually steals that attribution. And what's funny is if you talk to a lot of the marketing people at these larger e-commerce companies, and Amazon is very smart, they're not, that's why they don't do any of this stuff. They're like, oh, our best channel by far is honey. Like, they're growing so much. Or Retail Me Not, that was the original one.

It went public, you know, big valuation. And it was just theft. But it's just because, again, like, how do I figure out how to do attribution? And this is only going to get more complicated in the AI world where, like, it might be the same thing. Where it's like Justine might have researched on Reddit, saw the Super Bowl, like did all of these things, asked a question on chat GPT, and then clicked purchase. And it actually is incorrect for Apple to say, oh, chat GPT, we owe you the entire. That drove the purchase.

No, it didn't. It's part of it. But it didn't drive the purchase. And figuring out and disentangling attribution is very, very hard. Those reflect back on the category as well. It seems like the big winners have been the aggregator level, where it's sort of Shopify or obviously Amazon and sort of the individual, you know, big brands like, I don't know,

Allbirds or Casper. It seems like they were quick to get a lot of revenue, but didn't become, you know, durable businesses in the same way, didn't get, you know, didn't get better as they scaled. Why don't you reflect, Alex, a bit a bit on the category in general and why it's played out that way. Well, I mean, ultimately, if it's a one-and-done transaction, you don't really make the product. Like, you know, Casper didn't make the mattress, right?

Like, there's probably some OEM in China that made the mattress, and they put their little logo and they called it Casper on it. Well, then they're just buying, they're buying traffic on Google and Facebook. so actually Google and Facebook were the real victors there more so than anybody else and then people are like, wow, mattresses, that's a really good category. I should do that. Oh, I'm going to go to Shenzhen or wherever. Like, I'm going to go

like find that. I'm going to slap my logo on it. I'm going to undercut them on price and that's what always happens. And it's one thing of you can ameliorate this to a certain extent if at least you have recurring billing. It's like I'm going to I'm going to have this problem. Like, you know, think about what Drop Camp did, if you remember that. That was an e-commerce product, but at least it was attached to a subscription.

So now there are like nine billion cameras that all do the exact same thing. So like that category has arguably gotten worse even as the category has expanded or like the demand has expanded. But at least like Google owns Nest, which bought DropCam, they probably still make a lot of money on that category.

Whereas Casper, if I bought a Casper mattress five years ago, I'm still sleeping on it. And like they have to find new people to sell that mattress to. And meanwhile, the original factory that was making the mattresses is now selling the exact same mattress to, like, 5,000 other manufacturers

and it's just, like, not a good business model. So, in general, just being a commodity reseller of products, and, like, I think this is the problem. It's, like, a lot of people will say, oh, well, like, Casper is its own mattress. Allbirds is its own shoe. But, like, they're not normally making these products. Like, there's somebody else that's making the product

because it's almost obvious, like, what happened during intranet 1.0, the long tail of commodity resellers went away because location no longer mattered. Because a lot of what really drove retail for the longest time was that, like, in Justine's town in Oregon, like, there's this store and, like, you could drive like

somewhere else, but that's really far away. So, of course you're going to go to this store. Now the internet, you can go to any store. So if there are like 5,000 stores that don't make their own products, and they all sell the exact same shoe from Nike, that doesn't make sense. You should either go to Nike directly or you should go to, like, the one store that has

the fastest shipping, the best service, whatever, and like the long tail of commodity retailers basically started dying. And, like, we saw this play out. But the first party commerce experience is not that much better either. Yeah. Because it's like the actual, like, there's no barrier to entry. And if there's no barrier to entry, then that normally doesn't... It works out great for the consumer in capitalism. It doesn't work out great for that, you know, one of N, where N is

quite large producers of, or non-producers, but just marketers of the product. I think there's also, especially with, like, true consumer products. And I would consider a mattress, maybe more of a utility. product, but with, you know, shoes, like Allbirds or makeup. It's very trend-based, especially with the Internet. Like, nothing stays that hot for that long. Like, you know, All-Bords is the big shoe one year. And then the next year, it's the retro Adidas that everyone's going back to. And now it's, like, the on-running shoes. Like, I was watching the Bama Rush who already TikToks this year, and, like, every single girl has the on-running shoes, whereas last year they all had the

new balance, like, cool look from Japan. And if you're All-Bords, like, that's a problem, right? because you can't capture all of the trends. Like, you have your kind of one skew or multiple skews across one style, whereas, like, the Shopify's and the Amazons can kind of ride whatever the trend is and have demand come to those individual skews. Which I think is going to be an interesting challenge

in the age of AI, too, because you could argue that AI agents can direct people to things if people start their purchase activities there, which could be an opportunity or a challenge for, like, the single skew retailers. guess is it'll still end up being more of a positive for, like, the aggregators. Also, I think it's going to be very hard for AI to, for like a better term, inculcate demand. Yeah.

Just like, how do I know that, like, the on shoe is cool? It's like, well, I need to see that Bama. Yeah. It's just. I'll send you some. I meant like, I need you. I mean, it's a metaphorical eye, right? It's like, once I see, oh, wow, I should have that too.

Right. I'm in a sorority. I want that shoe. So, and it's very hard for AI to do that. So, which is why, like, the utility. part of it's like, well, I know what I want, now buy this for me. Like, that seems like a no-brainer.

Because that's a lot of what Google does. Like, Google, I mean, I respect the hell out of that company, but they kind of are a tax on GDP. Yeah. Right? It's like a lot of GDP happens. A lot of that is commerce, right? A lot of consumer spending is a huge part of GDP. Where do you start that spending journey

with that little, nice little search box? And then they get a percentage of all that spend because they're charging per click or per impression or per action. So that is somewhat imperiled. Like that tax might just shift elsewhere. Yeah. Let's flesh out the piece now.

Let's get into, you know, what are some of the things that are going to be taken away from Google? Some of the things are going to stay. I also want to get into the different kinds of consumer spend as it relates to e-commerce. Maybe, Alex, do you want to start with you? Yeah, I mean, well, I think Google has been the canonical freemian business model forever, which is they built a better search engine.

Everybody knows that started in 1998, and there was like the 47th search engine or something, oh, this isn't going to work. But it was just so much better because the way that they linked it, it really kind of goes actually back to, like, research, which is like, it's kind of like the H index, but for finding things.

Oh, everybody, like, when you search for bagel, everybody, like, hyperlinks to, like, this one site, like, that must have a high page rank. Like, let's go show that first. So, but most of the searches when Google started because commerce was actually quite nascent on the internet at the time. Like, it was all free.

It was all kind of information. I remember using Google when it first came out, and it was like, oh, this is so much better than Hotbot and all the other things out there. It was all free, non-monetizing. They eventually, basically copied the overture business model, which this guy Bill Gross came up with. This was a Idea Lab company

that eventually became part of Yahoo. This is why Yahoo ended up owning part of Google, if you know the whole history. And the entire thing that made Google this giant $2 trillion company was AdWords. And actually, the cool thing about it is that there are a lot of framing, business models where it's like, ah, I don't want to pay for it.

Here, it was freemium, but actually having relevant search results that are paid alongside search that is organic, made the search better. Like, if I'm searching for tennis racket and somebody hadn't figured out how to page rank optimize and everything else, or SEO optimize, it was very useful for them to be able to show ads here, and then those ads wouldn't show up unless people clicked on them, because the relevance was never, like, preordained. It's like, if people click on it, it's relevant. If people don't click on it, it's not relevant.

So Google has always been freemium, and that's kind of bearing out right now, which is like, you know, it's still freemium. Like you search for lots and lots of things with no intent to buy, but every now and then it's like this is your default behavior. It's like, hmm, I wonder about X, you go to Google. Or sometimes you don't even go to Google.

You go to, like, you know, Safari because, like, Apple makes tens of billions of dollars a year by sending all of those searches to Google. So what is currently happening is they are starting to lose some of the free, but not any of them, imium, right? They're losing some of these informational queries, like, who won the Oscar in 1977?

Like, that's not a monetizable query, but, like, that's what you're going to want to know. You're going to just ask ChatGBTGBT, and people are doing this right now, and ChatGPT has, you know, I think, what is it, 800 million weekly active users, a huge, huge number. That's what they're doing with it,

because they're not buying in ChatGPT. We know that, because Open AI is trying to build commerce. So, like, clearly they haven't built it yet, so, like, they're not buying directly in there. But for the IMEUM, right, the premium part of the freemium, that is happening in Google still. And, like, how do I know that?

Well, I can look at their financials. And, like, their financials, like, the numbers are still going up, but we also know that search volume is actually going down. So what are they losing? If they're not losing revenue, they're only starting to potentially

lose some of the free searches. And maybe they're... What I don't know is maybe they're directing some of those to Gemini. But I think that's unlikely. I think right now what's happening is it's like people are using paid for Google, no changes at all.

They're just going elsewhere with AI for free. I think part of probably why that's been happening is, like all LLMs, but I'll use chat GPT as the example because the most people use it, had this really unfortunate and annoying problem of hallucinating around product recommendations that basically everyone experienced if you tried to use it for that.

I think you have this grand idea of like, okay, I want to buy a pair of leggings and I'm going to go search in Google or I'm going to go search in Amazon and then I'm going to get the highest ranked pages but what I really want to know is like I'm doing this specific type of hiking and this is what the weather is going to be like

and I want to know specifically for my needs like what is the best lagging it might not be the best overall lagging right and so a lot of people I think especially I saw a lot of young women trying this were like great I'll go to chat GPT it can take all my information in natural language it can make a recommendation it can spit out products

And then they would find that a lot of the products it recommended did not exist or previously existed but did not exist in a current form or the amount that they were charging was way different than it said, which I think drove a lot of people who experimented with it sort of back to, you know, I'm going to return my searches to Google or Amazon and wait until chat GPT figures out this commerce thing. My take is people are like, as we know OpenAI is working on commerce and they're trying to integrate it more into the experience

and have actually, like, real, relevant, up-to-date information on products. Google will probably be at risk of losing some queries, but I totally agree with Alex that we have not really seen that behavior at any sort of scale today. Well, the biggest problem right now for the Internet writ large is I would say the, and I remember I've talked to John Lilly, who was the original, he was the CEO of Firefox back in the day, and kind of an early web stalwart.

The internet is... The web, the worldwide web, is unhealthy right now. And the reason why it's unhealthy is because so many things that used to be the open internet, when it really was like, you know, DARPANet, then ARPANET, then like this, like, internet thing that people started using,

but only really researchers and stuff like that. Everything was just on the open web. There was no concept of a walled garden. I mean, like, search has already been fractured, by the way. It didn't happen with chat TBT. It's like, if you want real-time search, you go to Twitter. or X, right?

You want search for your friends when you go to Facebook. Like, none of that is on, you can't search for Google in terms of like stuff that's happening amongst your friend group that's like walled off there. So you have all of these different walled garden.

So that's unhealthy part number one. Unhealthy part number two is just the commercialization of the internet, which is not bad. I'm a capitalist. I like commercialization. But so much of, like, if you look for what is the best sneaker, right?

Like, who are the people that are writing content about great sneakers. Like, in 1995, if you had a blog, number one, you just hosted it on your own site, you set up Apache on your own server that you racked yourself, and then you just did it for the love of the game.

And then affiliate links provided the monetization model, but they really polluted the internet that was still open because so much is like, oh, top 10, like a lot of these top 10 sites are out there. It's like top 10 running shoes. You know what that is? That's top 10 affiliate revenue to me. And I pay somebody in India

to go write gobbly gook and then SEO the heck out of that to make money. Contrast this with like pre-internet where there is a publication, it's still around today, called Consumer Reports. And the really cool thing about Consumer Reports is they were the only publication that refused to take advertising. It was entirely subscription-based. And the idea was that you could trust the actual reviews. And they would do things like they were like the Ralph Nader of consumer products where it's like, you know, this thing is terrible. Don't buy this blender or will chop off your finger.

Like, do buy this thing. Like, they would really, really review everything. We kind of need that. And, like, that entire business model just went away, right? Like, you know, Craigslist killed almost all of traditional media. I mean, maybe they deserved to die. Maybe they didn't. But, like, they made money from two things.

They made money because they had a monopoly on information. They charged for ads there. But, like, a big part of the monetization model was, like, the local classified. It's, like, all of that went away, which is why newspapers have been dying. And you could imagine, like, a newspaper would have, like, a do-goater thing where it's like, oh, let's review all the blenders, and, like, we're obviously not going to, like, show blenders that cut off your fingers.

Like, that's bad. Like, that whole thing went away. Like, so the summarization of the open internet is tough because there's less open internet than there used to be, like, as a percentage of all the content being generated. A lot of is walled off. And then the stuff that is not walled off

is just, like, pervaded by, like, junk. And that's why, like, what we talk about in the piece is, like, you can't turn shill junk into honest analysis. So I don't know how we solve that. Like, no matter how good, like, no more hallucination, like everything is awesome, but most of the things on the internet are crap.

And they're crap, and we know that they're crap, but the SEO optimized crap in order to earn affiliate commissions, and, like, summarizing that crap is not helpful. So how do you de-crapify that? And that's quite challenging. I think, honestly, what I've seen in terms of the channels where you see the least crap is actually video, because as a creator, like, if you're a creator, now it's due to the death of traditional media, there's now creators who go out and review 10 different shoes for running.

And we'll specifically make it very clear in the video, either this is sponsored by this specific brand or the better ones, obviously, are completely non-sponsored. But they get ad revenue from Google, from YouTube, from people watching the video. And so honestly, when I want an honest review of, like, someone has looked at five different blow dryers for this sort of hair, I will go to an unsponsored YouTube video,

which often have a lot of views because there's a lot of people having similar queries. But the sense I have is that Google is not, like, because it's a video and it's not skimable and they're not like automatically generating transcripts for every video, that information does not appear in traditional search. Right. And I think now we're starting to see some companies say like, hey, look, like we should turn all of those high quality videos into transcripts and an LM can then read and review and make

recommendations, but that doesn't seem to have hit like the traditional Google part of the internet, yeah. Yep. I agree with that. Yeah. New York Times recently bought wirecutter, which may be an example of what you're talking about. Well, but I think yes and no. I mean, it's like everything's affiliate link. Like, is it really true? Like, it's so suspicious that like almost every

item that they recommend always has an affiliate link. Isn't that odd? Right. Like, does that mean, like, you know, is that like a sampling bias thing? Is that true? So I'm quite skeptical of a lot of these things. And again, like the consumer reports era was just a little bit different. I mean, you might have the biases, like,

Maybe the person reviewing things for consumer reports just hates this one company is taking out their buy. Like, this is always possible. But you would think, with all these algorithms and everything else, if you could get like true objective feedback, this would be fantastic. And a lot of, I mean, Amazon actually is a giant search engine. And like, that thing is polluted to crap as well. Because what happens is, but a lot of the sellers on Amazon, what they do is they go on

this site called Ali Express. And Ali Express, I mean, this has changed a little bit with tariffs. But like, they'll buy like 400. of some gizmo that shows up six weeks later, and they'll buy it for $2 each. They'll slap their logo on it, now they'll sell it for $25. It actually goes back to this latency point

that I was making before. Like, how many people want something six weeks from now versus how many people want something tomorrow? So a lot of what Amazon was is they would just arbitrage that. But if you search for an item, particularly in consumer electronics, I remember I was looking for heated socks for skiing.

Turns out they're very useful. There are like 9,000 different pairs of heated socks that all have the same OEM, the original equipment manufacturer. And it's like, and they all have like bogus reviews. And part of like the bogusiness, and Amazon should fix this, but they have no incentive to do so.

It's like, I used to sell a rock on Amazon. I get five-star rock reviews. Now I switch the skew from rock to heated socks. And I trade off my five-star review. And it's like, how does Amazon... And again, Amazon just wants to sell more crap. So like, they're totally fine with this. But like most things, if you're willing to wait,

you're so much better off buying on AliExpress than Amazon, and it's just like this polluted sea of crap. Like, my favorite business model for commerce, by far, is Costco. I think Costco is the greatest company of the world. Because Costco refuses to sell bad things. They refuse to take a high gross margin. Like, why would they refuse? It doesn't make any sense.

Why would they refuse to take a high gross margin? You know why? Do you know why? Because they want to pass back to customers? No, no. It's because it degrades the value of the membership. They make money from the membership. So they'll charge you something like $100 a year to join Costco. And if you look at their net income,

it's basically the number of members that they have like 50 plus million members it's some huge number times the price of the membership that's their net income and then everything else just kind of is a wash and if you are making a 50% gross margin on a shirt

they're like that's too much you're fired like you can't make that much money it devalues the membership so I mean they'll do crazy things like you know the hot dog is still $1.50 they started their own chicken farm because the rotissory chicken like the costs were going too high

it's like that's how they run the business and they refuse to sell anything that they are not proud of. And the generic brand is just as good, like, you know, Kirkland wine, Kirkland beer, Kirkland shirts. They're getting sued by Lulu Lemon right now because they made pants that were better than Lulu's pants that are much, much cheaper, but they're actually much better. So Costco is the greatest thing.

And that's why Costco has been like the, like, for everything we talked about in commerce, like pre-internet, like internet, AI, like Costco's immune to all of this. Because it's like they're like the consumer reports plus like the, like, it's just they treat customers incredibly well, and that's why this company is worth hundreds of billions of dollars to them. And people really trust them. Like, my mom has been a Costco member for forever,

and now she gets her glasses at Costco. Every time I, like, want to go get flights or something, she's like, log in and, like, use the Costco thing. Because she always thinks that Costco is going to have the best option at the best price, and she's usually right. That is sacrosanct to them. They refuse to violate that because they can make so much more money if they decided to. And Amazon, it's interesting because, like, normally,

I remember there's a speech by Jeff Bezos, where he talks about this. Like, you know, there are two business models. There's the, like, how, what's the most that we can get away with the terms of charging? Like, that's Apple, right? It's like, oh, like, you know, let's charge $1,600 for this iPhone, you know, 25 that we're going to come out with that has 18 cameras. Like, oh, how about, can we even get away with $1,700? They have very high gross margins.

There are other companies, like, how do we charge the least amount possible? That's kind of Amazon. Like, let's have this sea of, like, crap. But, like, you know, whatever. like, why would we curate the crap? Like, that's up to the consumer. We'll have the reviews and everything else, but they don't do a great job in the reviews.

And, like, those are the extremes, right? Like, you know, Android and Apple or, like, there are so many examples of this. There's, like, the premier provider, right? There's, like, the Mercedes, the Ferrari, whatever. And, like, they just want to show, like, high-end stuff. And then there's, like, the mass-produced, like, you know, low-end stuff.

And then there's this very, very unique business model that is very hard to replicate called Costco because normally it doesn't work because it's like, hey, just trust me, because I'm the best. Well, you have to have to have a, like many, many decades of trust such that Justine's mom is like,

I don't know what it is, but if it's sold at Costco, it's good. Yes. And if you were a CEO of Costco, would you further leverage that trust to do other things, or would that risk the whole enterprise? I think it's a lot that they can. I mean, it's funny, we've met with the, one of my partners met with the Costco board and like pitch them on

financial services. Because it's like, you know what, everybody's, every bank is trying to rip you off, right? They're trying to overcharge you for loans or like underpay you on your deposits. And like the Costco loan would just be like the cheap as possible. Like they're trying to make no money on that because they make money on the membership.

So they probably could expand it quite a bit. But yes, it's hard. There's some modernization that they could probably do because it still is this very warehouse thing that closes at 5 p.m. And I wish it were open later and everything like this. And like their shipping isn't great if you want to order stuff. But it is a very, very unique business model

that is somewhat of a, it will stand the test of time and I think it's AI proof. Yeah. Justine, why don't we get into other ways in which A.A. will change commerce. you outline a few different types of purchases that they might get Ian. Yeah, so we kind of looked at the range of purchases from like the impulse buys, which I think used to, I mean, still, they still are like the Coke thing, the Coke bottle

on the aisle, but often now for like a lot of people, they're like the TikTok shop thing where you're watching a video and it shows up and you're like, that t-shirt looks cool, I'm going to buy it all the way to like really considered purchases, like a house or like a wedding venue or like a car where you're spending like a significant chunk of your income. It's like a one or a multi-time thing and you're like doing a lot of research. And I think the, so both ends of the spectrum, I think, are harder for AI to disrupt. I think the impulse buy, because, like, there's no research in advance, and you're not going anywhere specific to buy it. Like, by its nature, you are making the decision to buy it immediately when

you see it. And so, you know, there's, like, algorithms will get better and better to target you with the shirt that shows up on your TikTok feed that somehow has your dog's name and you're going to buy that more than the other thing. But that's sort of not the, like, generative AI that that we're talking about. And then sort of the most consideration end of the purchase, I think it's hard to have that be fully AI end-to-end because while you may start doing your research online on chat, GBT, or Gemini,

or any sort of new AI native property that shows up, the purchase is so significant that you're probably going to want to have some sort of in-person experience where you're seeing the thing, touching the thing, experiencing the thing, talking to another human expert about it, right? And so that means there's this whole range of products in the middle that I think we believe the purchasing behavior could be disrupted by AI

in a couple of different ways. So one is obviously like the research way of like, you know, I'm trying to find the best, my handbag wore out that I bring when I travel all the time. Like I need the best one that fits a laptop, can fit a big water bottle, all this sort of stuff, can be fine in the overhead part of a plane. And if you're busy, you don't have a ton of time to do that research yourself. and you might ask an AI agent that can watch all the TikToks for you,

read all of the Reddit posts, and pull in the kind of real consumer feedback, and then make a recommendation. And you might want to do some of your own sort of clicking through to look at options. But I would say in that case, it's like decently likely that if there's then a good integration to purchase, you might do it through an AI agent. There's also sort of just things you already know you want,

like Alex has mentioned, where you want the best price. And so I think AI agents can do a lot around, price optimization. Like, if you always buy a specific type of laundry detergent, it can find across the internet, where is this laundry detergent best priced? And it can also probably know, hey, I should scan this daily, and if it's 30% less on this specific site, then it usually is anywhere else, and it's going to arrive in a reasonable amount of time. I should probably just buy this, and they can store an extra box of laundry detergent because, based on what I know about the consumer, that's worth it to them.

As you move sort of up the consideration stack, there's another sort of purchase that I think will be sort of AI intermediated, but maybe have some human impact, things like maybe bikes or couches, like a little bit of higher value purchases, laptops, where you want to feel like someone has taken the time to really understand all of your criteria and help you make the best decision about what you should buy, This is probably an item that you are going to be using for years,

and it's important to you that it works and that it's the best option and doesn't kind of immediately become obsolete. And today, I think the only way that this has happened is, like, people will go super deep into these Reddit threads on the, like, Buy It for Life Forum and all of these different places. Or they have a brand they really trust like Apple and they're willing to pay the premium.

I think in the future, it's fun to think about having an AI agent that really kind of deeply understands you where you can have a more in-depth conversation about that sort of thing, like maybe even a phone call, where they're asking you a bunch of questions dynamically back and forth and providing them with the information they need

to go back, do the research, and decide. So that's kind of some of the things that we've considered about how AI could impact purchase behavior. And there's another kind of lens. There are many different ways of cutting this, but does the product that you're buying have a UPC or no?

If you know what a UPC is a universal product code and that's the little scannable thing. It's kind of the successor to the ISBN, which is for books. And if it doesn't have a UPC, actually a lot of the commerce that has worked kind of post-Internet 1.0, like, you know, how did Wayfair work?

Why did Wayfair work well? Well, like, they're selling things like bar stools. You know, like, I want a barstool, but there's no UPC on this. So it's like, well, here's a barstool. It fits the right dimensions, but, like, there's no scannable code. If there is a UPC, you can run this little algorithm

of, like, get me the lowest price. and pre-AI you would just run this algorithm on your own and you'd probably end up at Amazon. So, like, everybody who was in Amazon just got killed and Amazon did well. I'm oversimplifying a little bit. If it doesn't have a UPC, then that's a little bit of a different process than if it does.

Because if it has a UPC, then, like, the algorithm that I was describing is, like, exponentially better with AI because, like, before you'd have this, like, some people value time more than money and some people value money more than time. And if I value money more than time, I am the algorithm. I will spend so, I need to find the best coupon. I need to find the best cashback site.

Like all of these cashback sites are out there on the internet, which lots of people, money more than time, like they do this. All of that will be automated away or automated for the benefit of the consumer. If and only if you have something where you have determined the skew or the UPC, the skew has a UPC, you feed it in there, good. If it doesn't have that, then that's another lens where it's like, okay, I'm probably, I can't feed whatever like again kind of impulse to highly considered

AI is going to help you on the highly considered side but not help you buy it but if it spits out something with a UPC or a skew then this part of the AI will just automate that right right so if it's like bike sure like I don't know what bike to buy but if it's a specialized bike and like here's the here's the thing it has a UPC on it like boom

why wouldn't you feed it to this part of the thing as this gets developed because that's just going to buy it for you with the best shipping the best terms the best whatever And right now, the reason why that doesn't happen, it does happen, but it happens manually. And the people that have time valued more for them than money, they don't do any of that stuff. Putting this all together, we were talking about how over the last decade there hasn't been a ton of net new, you know, big winners in the space and all the gains have gone to the aggregators. Why do we believe that over the next decade, there's some opportunities for net new, big and durable companies? And maybe to share what types of companies those could exist that we're excited about that could exist?

I mean, obviously, chat CBT is, I mean, they are an upstart to a certain extent, but it's not Amazon, it's not Shopify. It's a net new company that clearly will have a role in commerce. The question is, will there be specialized sub-segments? And I do think that the like, you know, the hyper-optimized, I know you very well. And like, you know, Camel, Camel, Camel is an independent company that's probably very, very profitable. As far as I know, they've never raised venture capital. A lot of people use them. A lot of these cashback sites, like these things that have always been like you value money more than time. There was a site called Ebates that was bought by Rakutown a while ago. There's a company in the UK called Quidco, which is very, very similar, like these kind of things. You can imagine them going much, much more mainstream and being very, very specialized shopping agents, particularly not on the heavy research side, but on this one little tiny vector that might actually be very big, going back to how like most companies can't really figure out attribution. It's like, we are going to be the last click. Like, the last click of the 21st century post-AI is going to be AI companies that know how to do this.

And it might not be chat GPT because they're like this horizontal everything, but it's like, I'm going to give you all of my credit cards. You're actually going to even figure out which credit card you use for this particular purchase because this one has higher cashback than that one for this type of good. And you're going to integrate, like, affiliate tracking where you give me cashback like Ebates does or, you know, Raku-10 does. You're going to do all the coupon stuff. And not all of this will be good for merchants, by the way, but you can imagine, and again, it doesn't require a lot to imagine this

because, like, there already are a lot of companies that do this, but they have been somewhat of a niche space because they only appeal to the, like, people, and there are plenty of people that are like this, by the way, that value money more than time, and are somewhat technical. So it's actually not just money more than time. It's like, my mom might want to use one of these probably would value money more than time

because she's retired, so why not? But it's just too complicated to use. And if you make it so easy, I mean, that's the other thing. It's like we talked about like how if you make something show up right now, that's going to have a bigger market than if something shows up five weeks from now. Like that makes sense.

If you make something so painfully easy to use that it's more of an IQ test, it's like, do you want to pay less for something or more for something? And like, everybody, of course, would say, I want to pay less for something. But it's like, oh, but you have to do these 18 things, download that like, ah, that's too complicated. I can't figure out how to do that.

But if it's so easy, I think that that's one area where you could, I mean, this is where startups have lived, because it's clearly not going to be Amazon, because it's like Amazon wants you to shop at Amazon. Amazon, by the way, like the other thing that there's somewhat imperiled by, Amazon has a giant revenue and profit line item from advertising. It's like you go to the Amazon website,

and then you click on an ad that takes you away from the Amazon website. That's 100% gross margin for Amazon. They'd rather sell you that than sell you a product where they have to deliver it, God forbid. So, like, the best skew that they sell is the advertising skew. And that's going to be imperiled if they no longer control the price. because AI intermediates it.

But I think it's like this kind of money more than time, expand that to the entire universe, there's certainly a there there. Yeah, I think there's sort of two sets. So I think there's the consumer side, right? Which is, if we go back to my conversation earlier about you want to have a really in-depth conversation about what bike to get, you could imagine someone

fine-tuning a model that is much better on tons of conversations between bike experts and people to actually know the right questions to ask to give you a much better buying experience. buying experience and better outcome than chat GPT could. So that's one way that, like, consumer distribution could be disrupted beyond the chat dbt disruption that will happen. Then I think there's the merchant side of things,

which is, like, what are the implications if we suddenly have a ton of AI agents browsing your site and potentially even making decisions on behalf of consumers and hitting the purchase button instead of people? Like, how do websites, how should websites change to make themselves more browsable, more easy to interact with, more easy to find, what the Asian is looking for, what sort of infrastructure do we need on the financial side for AI agents to actually be able to make a purchase

on behalf of someone and use their credit card? Like, the entire infrastructure and merchant-facing side of it is probably going to change quite a bit. And I think that will be just as big as the consumer side of the market. I think it's a good place to wrap. Alex, Justine. Thanks so much for the great conversation.

Thanks for having us. Thanks for listening to the A16Z podcast. If you enjoy the episode, let us know by leaving a review at rate thispodcast.com slash A16Z. We've got more great conversations coming your way. See you next time. As a reminder, the content here is for informational purposes only. Should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16Z.com forward slash disclosures.