Algorithmic Commerce: How AI is Reshaping E-commerce and Marketing

We've all been there: Scrolling through social media and spotting the ads recommending something you never knew you needed, whether it's the perfect pair of shoes, a gadget to solve an annoying problem or the ideal holiday gift for your mom.

As the holidays approach and shopping ramps up, you're more likely to see gift ideas inspired by and advertised by algorithms, experts in the field of algorithmic commerce and online shopping say.

Algorithmic commerce essentially means retailers use technology, including artificial intelligence, to track and analyze consumer purchases, and predict or suggest other items to buy, according to Haya Ajjan, the associate dean of the Love School of Business at Elon University. Ajjan said that use of the method is growing, with artificial intelligence "reshaping e-commerce and marketing."

"When I go to Amazon, I feel like sometimes what it's recommending to me is exactly what I need to purchase," said a machine learning and data mining expert. "It's even taking away the search that I was about to embark on, but the way that this is done is typically that the algorithm analyzes my online activities, how I browse the web, where I'm searching, and then tries to anticipate my need. Sometimes I think that the websites I'm using are kind of anticipating my need, or even a need that I did not know I had." 

What does this mean for my holiday shopping? 

Using algorithms to navigate the endless products for sale on the Internet is like having "a personal shopper for the holidays," said the global CEO of a brand agency.  

"If you are buying for people you are close with, communicate with on a regular basis, and you begin your shopping online ... chances are pretty good you have some personalized help in the form of an algorithm helping to inspire your gift list!" she told CBS News in an email. "Less creepy than it may sound, the value of our favorite retail sites learning our shopping behaviors, preferences, style, taste — is a major boost when the pressure is on to complete our holiday shopping in (the) days remaining." 

Most people buying holiday gifts do at least some of their shopping online, according to an October poll — making it more likely that algorithms will influence their purchases. Ninety-three percent of people told the poll they would do at least some of their holiday shopping online — just 7% of people said they would not shop online at all. 

Social Media's Influence on Shopping

Social media platforms have become powerful tools for shopping, thanks to the amplification of algorithms. These algorithms work to ensure that relevant videos, photos, and other content are shuffled into users' feeds. Platforms like Instagram and TikTok have taken this a step further by emphasizing the shopability of the content shared. They now offer features that allow users to buy products directly within the app.

According to a Gallup poll, 33% of shoppers plan to do some of their shopping using social media platforms. The majority of these shoppers are younger individuals, with 48% of people aged 18-29 stating that they will do "a little of" or more of their shopping through social media.

Dr. Ajjan, a social media expert, compares social media to the Christmas windows at New York City's Macy's department store. Just as the displays in the windows entice shoppers to enter the store, social media platforms entice users to make purchases.

TikTok, one of the leading social media platforms, has seen tremendous success with its in-app TikTok Shop. Over 200,000 retailers have registered to sell their items on the platform, and more than 100,000 content creators participate in the affiliate program, earning a percentage of the sales they generate. However, Meta, the parent company of Instagram and Facebook, did not provide a comment when contacted by CBS News.

Video content can be particularly compelling, because it allows shoppers to see how a product works. Sometimes, these videos are edited or altered, but "visual presence plays a big role in driving purchase behavior," and videos from influencers that you've been following for a long time can sometimes feel like "peer recommendations" from a trusted friend.

Sometimes, videos from influencers are ads, and while there are rules mandating that influencers disclose when they are being compensated for mentioning a product or item, those restrictions aren't always followed. In 2022, Kim Kardashian was fined more than $1.25 million for not disclosing that she was being paid to promote a cryptocurrency.

Is there any way to avoid algorithms determining my purchases?

Just avoiding shopping online doesn't mean your shopping isn't being curated by an algorithm, experts said. The effects of algorithmic commerce can also be seen in physical stores.

"All retail strategies are becoming increasingly data-driven, aiming to provide a very highly tailored and personalized experience for the customer," said. "This is something you see whether you're on your Amazon account, or whether you go to Nordstrom, or honestly any retailer."

In these brick-and-mortar locations, retailers use algorithms to determine what people are shopping for, to predict which items will be bestsellers, and even to organize the store in the most efficient, appealing way for shoppers. said that these algorithms are educated by the "large amount of data" retailers have collected about their customers, and all retail strategies are taking advantage of the information available.

Algorithmic Commerce and its Influence on Shopping

Despite this, physical shopping is the best way to avoid algorithms influencing your purchases. If you're shopping online and want to avoid that influence, it is recommended to turn off or reduce cookies and tracking across your online activity, but this isn't a foolproof solution.

"If you are someone who spends time online between search sites, shopping sites, and social sites … your preferences are being tracked" with the goal of companies being better able to show users relevant content and recommendations.

How can I use algorithmic commerce to my advantage?

Beyond using algorithm-based recommendations as a "personal shopper," these suggestions can help consumers find ideal gifts for loved ones or themselves.

"If you are someone who buys for others based on what you are attracted to, what you wish (or) want for yourself … all of your online search, browsing and shopping will be informed by algorithms that are getting smarter behind the scenes on your taste, preferences and shopping habits. If your holiday list includes people you shop for throughout the year, the same applies," said in an email.

Even if you're shopping for people outside your normal search behavior, algorithms will still have an impact: Recent searches and views will inspire the algorithm, and the algorithms used by retailers and brands will still be used to suggest products and services.

"Beginning your holiday shopping and browsing outside of retail sites, like social platforms, offer good opportunities for algorithm-driven ideas and influence to help form your gift list this holiday season," said a spokesperson.