Memo: Lessons for the eCommerce Space

Klarna is making waves again—but this time for something much bigger than installment payments. The Swedish fintech giant has boldly declared that artificial intelligence (AI) is not just an enhancement but the future. This assertion is not merely a marketing ploy; Klarna is actively reshaping its workforce and operations in line with its AI-driven ambitions. With a target to reduce its full-time workforce by more than 50%—from 5,000 to 2,000 employees—CEO Sebastian Siemiatkowski has made it clear that this shift is central to the company’s strategy for the future. But what does this mean for larger enterprise software companies, particularly in the eCommerce space?

A Turning Point for Klarna

Klarna’s embrace of AI goes beyond surface-level adjustments. The company has made substantial gains, reporting significant revenue growth and operational efficiency due to AI initiatives. According to Siemiatkowski, the company can “do much more with less.” For example, Klarna has reduced its workforce to 3,800 employees, down from a peak of 5,000, and plans to further reduce that number. Yet, despite the reduction in human resources, the company’s revenue per employee has skyrocketed, increasing from SEK 4 million ($393,000) to SEK 7 million ($689,000) in just one year. These figures are a direct testament to the power of AI to replace inefficiency, drive productivity, and boost profitability.

Klarna is at the very forefront among our partners in AI adoption and practical application. Together we are unlocking the vast potential for AI to boost productivity and improve our day-to-day lives.

Brad Lightcap, COO of OpenAI

The company’s most headline-grabbing innovation has been the development of an AI-powered chatbot, built in collaboration with OpenAI. This chatbot handles the workload equivalent of 700 customer service agents. Klarna also projects $40 million in profit improvements from its AI initiatives in 2024 alone. While this showcases the effectiveness of AI in operational roles, the narrative extends beyond cutting costs and workforce downsizing—it highlights AI’s potential to dramatically transform businesses, particularly as Klarna prepares for a long-awaited IPO.

The Drive Toward Profitability

For Klarna, the pursuit of profitability is nothing new. Between 2007 and 2018, the company reported profitable yearly results, peaking with SEK 523 million ($61 million) in earnings before tax in 2017. However, the past few years saw Klarna experience losses as it aggressively expanded into new markets. With large investments in its Visa-issued Klarna card and several acquisitions, including the now-defunct New Zealand arm of Laybuy, Klarna sought to scale quickly, broadening its market reach and market depth. Artificial Intelligence aside, this physical credit card move is just as fascinating.

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Klarna’s foray into the physical payments space with the Klarna Visa is an interes58ht testament to the company’s innovative approach to embedding the BNPL model into consumers’ everyday lives. The Klarna Visa, unlike traditional credit cards, charges no interest and instead converts every purchase into a BNPL transaction, requiring payments in four bimonthly, interest-free installments. Running on the Visa network, it allows users to transform any purchase made at merchants that accept Visa into a manageable installment plan, expanding the reach and appeal of the BNPL model.

While these moves brought returns—such as increased market penetration and a larger share of the BNPL market—Klarna’s strategy came at a cost. AI presented itself as a lifeline to reestablish profitability.

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Klarna’s AI-Led Workforce Reductions

One of the more controversial aspects of Klarna’s AI transformation has been its impact on the workforce. Since the company stopped actively recruiting for non-engineering roles, headcount reductions have primarily occurred through natural attrition. Departing employees are not replaced, and their work is absorbed by AI tools. Siemiatkowski’s “directional” target of 2,000 employees hints at further cuts, even as he avoids specifying a deadline.

The most visible impact of this shift has been in customer service. Klarna’s AI assistant, launched in early 2024, now handles two-thirds of the company’s customer service chats, matching the efficiency and customer satisfaction levels of its human counterparts. The average time to resolve customer inquiries has dropped from 11 minutes to 2 minutes, a significant improvement that demonstrates how AI can optimize traditionally human-led processes.

The AI assistant’s success has extended beyond customer service. Klarna has saved millions by reducing reliance on photographers, image banks, and marketing agencies, with the marketing team reporting higher productivity despite a reduction in size. AI is also employed across departments like communications, marketing, and legal, further streamlining operations.

Challenges and Drawbacks of Klarna’s AI Approach

Despite its financial successes, Klarna’s aggressive use of AI has not been without challenges. Internally, some employees report burnout and frustration with increased workloads, as fewer staff are left to handle the non-automatable aspects of their roles. Employee satisfaction ratings have dipped significantly, with Glassdoor reviews showing an average rating drop from 3.8 in 2022 to 3.0 in 2024. Several reviews highlight concerns over high workloads, stress, and a lack of pay raises or career progression.

And externally, Klarna’s vocal AI strategy has sparked concerns among the public. While AI’s potential to replace jobs is widely recognized, many view the rapid workforce reductions as a threat to job security. Though social media has amplified some outrage, there is no concrete evidence yet that this backlash has impacted Klarna’s sales or customer engagement.

There are also legal and ethical concerns surrounding AI-generated content. Klarna’s decision to reduce employment in roles like photography and design raises questions about potential copyright infringements, as AI-generated work can often replicate existing material without proper attribution. OpenAI, Klarna’s AI partner, is currently embroiled in lawsuits over copyright issues, with outcomes that could shape how companies using AI handle intellectual property disputes in the future.

Lessons for eCommerce and Enterprise Software

Klarna’s AI-led transformation offers valuable lessons for the broader e-commerce and enterprise software sectors. First and foremost, it highlights the immense potential of AI to streamline operations, reduce costs, and drive profitability. Klarna has leveraged AI not only to cut jobs but also to improve efficiency across its entire business, from customer service to marketing.

For other companies, especially those operating at large enterprise scales like Salesforce or Workday (both of which Klarna has ended partnerships with), the question is how to integrate AI without sacrificing employee morale or risking a public relations fallout. Klarna’s approach has been fast and aggressive, driven by the looming IPO. While this might work in the short term, companies looking to adopt AI should consider a more measured approach that balances automation with employee well-being.

While the company has seen tremendous financial benefits, it is still navigating the complexities of employee satisfaction and public perception. As AI continues to evolve, companies will need to develop strategies that leverage its benefits while addressing its potential drawbacks.

If Klarna’s AI-driven trend continues, we could see a significant shift across the eCommerce and SaaS landscape. Companies may increasingly adopt in-house AI solutions, leading to widespread cost reductions, workforce downsizing, and reduced reliance on traditional third-party service providers. Here are 10 DTC industry SaaS companies that could be impacted by AI innovations as businesses begin to bring these capabilities in-house to manage costs more efficiently:

Klaviyo
AI advancements could enable companies to develop personalized communication systems in-house, reducing their need for third-party solutions.

Yotpo
In-house AI tools could streamline content generation, review management, and even customer rewards, making Yotpo’s services less essential.

Gorgias
With advanced AI, brands could build internal customer service automation systems, reducing dependence on platforms like Gorgias for managing queries and tickets.

Attentive
As AI improves personalization and engagement, companies might develop their own messaging platforms, minimizing the need for external SMS marketing providers.

Loop
AI-powered solutions could give DTC brands the ability to manage returns internally, optimizing logistics without external software.

Kustomer
In-house AI could streamline customer service and data management, reducing the need for third-party CRM tools.

Privy
As AI enhances lead generation and conversion strategies, businesses could develop these capabilities internally, eliminating the need for external tools like Privy.

Recharge
AI-driven solutions could allow businesses to develop and manage their own subscription services, reducing the reliance on external billing platforms.

Bold Commerce
AI could enable businesses to build personalized checkout and upsell systems internally, eliminating the need for SaaS platforms like Bold Commerce.

Zendesk
With AI advancements in natural language processing, brands may build in-house support solutions to handle inquiries and resolve issues without the need for a third-party platform like Zendesk.

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I believe that Klarna’s bold bet on AI signals a future where it plays an even more central role in cost management and profitability. The company’s rapid adoption of AI tools has allowed it to reduce costs, increase revenue, and position itself for a successful IPO.

For larger-scale enterprise software companies, Klarna’s example offers both inspiration and caution. AI has the potential to transform industries, but it must be implemented thoughtfully, with an eye toward the long-term impacts on employees and society at large. In the end, Klarna’s AI journey may serve as a blueprint for others, but only time will tell how sustainable its rapid transformation truly is.

Research, Data, and Writing by Web Smith 

Memo: Active Listening and Retail Media

The digital marketing world has evolved to fit the times but it’s evolving far faster than public knowledge has been made aware. The data available to the most savvy marketers far exceeds the potency of what existed at Facebook’s third-party advertising peak. It leaves the latest iteration, first-party data far behind. This months old anecdote by James Heurcher of AdExchanger adequately sums up the struggling promise of first-party data:

The promises of first-party data and individual personalization are alluring, he said. What vendors don’t mention is its super-fast half-life: first-party cookies and device IDs disappear, IP addresses change, emails turn out to be placeholder spam accounts. And through it all, ad blockers prohibit many one-to-one marketing use cases.

Operations are finding workarounds using increasingly sophisticated, open-sourced intelligence-based approaches. This summarizes one of several that I am aware of. Identifiable data is acquired at a premium; one of the most prevalent forms comes through active listening, which has emerged as a solution, according to recent reports and documents. The technology leverages real-time interpersonal conversations to build precise, hyper-targeted advertising campaigns. Cox Media Group (CMG) is at the forefront of this innovation, whose Active Listening technology claims to collect voice data from smart devices and pair it with behavioral insights to target consumers who are “ready to buy.” While the concept sounds futuristic, it also raises concerns about privacy and the boundaries of data collection.

According to reporting by 404 Media, CMG’s pitch deck (view here) reveals how voice data is allegedly sourced from device microphones. However, it is unclear which specific devices are involved—whether smart speakers, televisions, or smartphones. The company’s strategy relies on AI to process this data, enabling advertisers to reach potential customers before competitors do. CMG claims to work with 470+ data sources, combining voice and behavioral data to create highly targeted audience lists that can be uploaded into major ad platforms like Google, Facebook, Amazon, and Bing.

The Mechanics of Voice-Driven Ad Targeting

The core of CMG’s pitch centers on its ability to capture real-time intent data by listening to conversations near device microphones. This voice data is processed through AI and enriched with other behavioral insights to generate a list of consumers who are ready to make a purchase. Once the list is created, advertisers can target potential customers through a variety of channels, including streaming TV, audio, display ads, and social media.

This precision targeting comes with a price: $100 per day for a 10-mile radius, or $200 per day for a 20-mile radius. By geo-targeting consumers within a specific area, businesses can serve ads to the right audience at the right time, significantly improving the effectiveness of their campaigns. According to the pitch deck, CMG promises that this approach not only reduces click and acquisition costs but also enables advertisers to generate lookalike audiences at a fraction of the typical cost.

A Partnership Network in Question

In its pitch, CMG positions itself as a leader in digital marketing, citing key partnerships with tech giants such as Google, Facebook, and Amazon. According to the 404 Media report, CMG boasted of being among the first media companies to become a Facebook marketing partner and the first-ever media partner for Amazon Advertising. Additionally, CMG claimed to be a Google Premier Partner, which places it in the top 3% of advertisers.

However, these claims have come under scrutiny. Google has since removed CMG from its Partners Program following an inquiry by 404 Media, signaling potential violations of Google’s advertising policies. In a statement to 404 Media, Google emphasized that all advertisers must comply with applicable laws and regulations. Amazon also distanced itself from the program, stating that it has never worked with CMG on Active Listening and has no plans to do so in the future. Meta (Facebook’s parent company) has been more cautious, stating that they are reviewing whether CMG’s use of voice data violates their terms and conditions.

The Ethical Debate: Privacy Concerns and Transparency

The concept of using voice data from everyday conversations for targeted advertising inevitably raises ethical questions, at the very least. How much are consumers aware of how their data is being used? And more importantly, where is the line between personalized advertising and invasive surveillance? CMG’s technology sits at the center of this debate, especially as it gains traction in a world where privacy laws are tightening and consumers are becoming more protective of their personal data.

When 404 Media first reported on CMG’s Active Listening capabilities, the company’s website openly advertised the service with provocative language: “No, it’s not a Black Mirror episode—it’s Voice Data, and CMG has the capabilities to use it to your business advantage.” That page was subsequently removed following the initial media coverage, leaving more questions than answers about the future of this controversial advertising approach.

Further complicating the matter is a related report by 404 Media involving MindSift, a smaller company that similarly boasted about using voice data to target ads through smart speaker microphones. After the revelations, MindSift quickly wiped any mentions of this capability from its social media platforms, raising concerns about how many companies are quietly exploring this invasive form of data collection.

A Competitive Edge with Active Listening—But at What Cost?

From a business perspective, CMG’s Active Listening offers clear advantages. By being able to pinpoint when a consumer is discussing a need for a product or service, advertisers can deliver highly personalized, contextually relevant ads in real-time. This precision not only drives higher conversion rates but also reduces advertising spend on irrelevant audiences.

Yet, as 404 Media points out, this technological capability also raises significant concerns about data transparency and the potential misuse of voice data. Companies looking to use Active Listening as part of their advertising strategy must tread carefully, ensuring compliance with privacy regulations and being transparent with consumers about how their data is being collected and used.

The Future of Voice Data in Advertising

While CMG’s voice-driven ad technology promised to reshape how brands reach consumers, it also faces considerable hurdles, both from a regulatory and consumer trust perspective. As Google, Amazon, and Meta reevaluate their relationships with CMG, the broader industry will need to reckon with the ethical implications of using voice data for commercial gain.

For brands, the decision to engage with this type of technology requires careful consideration of both the potential ROI and the risk of alienating consumers. In a world where privacy is increasingly valued, the future of voice data in advertising will likely be shaped as much by public perception as it will by technological advances.

On May 21, a company called Audacy, Inc. posted the following:

Among those likely to use voice to interact with ads, most would likely to get additional information (71%) or learn about deals (62%). Almost half (46%) of those interested in voice-based interactions would go ahead and complete a purchase.

And who are the voice shoppers of today? They are high-income suburbanites with smart speakers at their homes. They are almost universally streaming audio, with more than half listening to podcasts weekly. Women tend to be the more cautious, but smart shoppers: Among those interested in voice ads, information- and deal-seekers (59%) skew female, men (53%) are slightly more likely to purchase with voice. [CITE]

The above feels innocuous but the part that went unsaid is that it’s the high-income suburbanites with smart speakers in their homes that are supplying this trade. Active Listening technology may be a powerful tool in the marketer’s arsenal, but it also pushes the boundaries of consumer privacy. The involvement of companies like Google and Amazon in distancing themselves from this practice suggests that the risks might outweigh the rewards. For now, brands considering this technology must weigh the benefits of hyper-targeted ads against the ethical and legal scrutiny that will undoubtedly follow.

By keeping an ear to developments in this space, marketers can better navigate the future of voice-driven advertising, ensuring that they remain compliant with regulations while also respecting consumer trust.

Research, Data, and Writing by Web Smith 

Memo: An Emerging Marketing Channel

Adding my drivers license to my Apple Wallet was revelational; the screen was less a convenience and more a necessity. Then it got me thinking: loyalty, visibility, transactional power, and identity. The Apple Wallet is one of the most significant pieces of digital real estate for brands – DTC, enterprise, and everything in between.

With the recent announcement that California residents will soon be able to add their driver’s licenses and state I.D.s (joining Arizona, Maryland, Colorado, Georgia, and Ohio) to Apple Wallet, the implications for both consumers and brands are profound. This move signals a shift towards a future where the Apple Wallet screen—especially the area above the fold—becomes an essential touchpoint for brands aiming to deepen their relationships with consumers. It becomes a loyalty play, an engine to allow them to remain top-of-mind. This space’s high visibility and frequent usage will make it invaluable for brand engagement, particularly among high-earners-not-rich-yet (H.E.N.R.Y.s) who are known for their discerning tastes and desire to signal brand affinity and status. This is a psychographic that I will use to denote key consumers in the Gen Z and Millennial demographics.

The Apple Wallet as Prime Digital Real Estate

The Apple Wallet is waiting for the first co-branded credit card; a DTC powerhouse and the card’s provider. Which brand would you want to see in your wallet every day? I can name a few.

It’s no longer just a convenient app for storing credit cards and boarding passes. It is quickly becoming a central hub for all forms of identification and access. The Wallet’s role in daily life is expanding. As The Verge reported, this fall, some California residents will be able to participate in a pilot program allowing them to add their driver’s licenses and state I.D.s to Apple Wallet. This pilot is part of a broader trend where digital I.D.s are becoming more commonplace. What happens when Apple authorizes every state in the union?

This expansion of digital I.D.s within Apple Wallet means that users will interact with the app more frequently. Whether they’re going through airport security, purchasing age-restricted products, or simply proving their identity, users will open their Apple Wallet multiple times a day. This increased usage transforms the Wallet screen into prime digital real estate, particularly the area above the fold, which is the first thing users see when they open the app. Brands that secure a presence in this space can achieve daily consumer interaction, making it a powerful tool for brand reinforcement and customer loyalty. And, as of yet, Apple cannot control it.

Above the Fold: A New Battleground for Brand Visibility

The concept of “above the fold” originates from the newspaper industry, where the most important stories were placed on the upper half of the front page, above the literal fold, to attract attention. In the digital age, this concept has been adapted to websites, where the most crucial content is placed at the top of the page before users scroll. With the increasing significance of the Apple Wallet, the “above the fold” area of the Wallet screen is becoming one of the most coveted spaces for brands.

When a user opens their Apple Wallet, the first cards they see are those that reside above the fold. These cards are likely to include their most frequently used payment methods, co-branded credit cards, digital car keys, and digital I.D.s. For brands, being visible in this area resembles having prime billboard space in the busiest part of town. Every time a user opens their Wallet, they are exposed to the brand’s presence, reinforcing brand recognition and fostering a sense of familiarity.

For H.E.N.R.Y.s, who are often on the cutting edge of technology adoption, the Apple Wallet’s above-the-fold section becomes a digital expression of their lifestyle and values. These consumers will likely curate their Wallet to reflect their brand affinities and status, keeping certain cards or I.D.s in prominent positions as a subtle signal of their preferences and social standing.

H.E.N.R.Y.s and the Power of Brand Affinity

H.E.N.R.Y.s (“High Earners, Not Rich Yet“) represent a unique consumer segment characterized by their substantial disposable income, yet they are not typically classified as wealthy. This demographic is particularly attractive to brands because they have the financial means to make aspirational purchases and are highly brand-conscious. For H.E.N.R.Y.s, the brands they choose to associate with are more than just providers of goods and services; they are extensions of their identity.

The Apple Wallet offers H.E.N.R.Y.s a powerful platform to signal their brand affinities. For instance, having a premium credit card or a membership to an exclusive club stored in a prominent position in their Wallet can serve as a potent status symbol, visible each time they use their device. This is akin to how physical wallets once displayed gold or platinum cards as indicators of financial success, but in a more digital and dynamic form.

Brands targeting H.E.N.R.Y.s must recognize the potential of the Apple Wallet as a status-signaling tool. By offering digital cards that convey exclusivity or prestige, brands can deepen their relationships with this demographic. For example, a luxury brand could offer a co-branded, digital loyalty card that provides rewards and features exclusive design elements or limited-time offers that appeal to the H.E.N.R.Y.’s desire for unique, high-status experiences.

Privacy and Security: A Key Consideration

While the Apple Wallet presents a significant opportunity for brands, it is also essential to address the privacy and security concerns that come with storing sensitive information in a digital format. As The Verge recently noted, state-run mobile I.D. programs have sparked debates about potential security risks, including the possibility of third parties accessing users’ information or law enforcement using mobile I.D.s as a pretext to seize phones.

Apple has made assurances that I.D.s stored in Apple Wallet are secure and cannot be accessed by third parties, including Apple itself. According to Apple’s press release, driver’s license information added to Apple Wallet is only stored on the user’s device and is not accessible unless the user chooses to present it. This level of security is crucial for maintaining consumer trust, especially for H.E.N.R.Y.s, who are likely to be highly aware of the importance of data privacy.

The Future of Brand Engagement in the Apple Wallet

As the Apple Wallet continues to evolve beyond movie passes and debit cards, it is poised to become one of the most important digital platforms for brand engagement. The integration of the above mentioned categories of cards means that the Wallet will be a frequent touchpoint in users’ daily lives. For brands, particularly those targeting H.E.N.R.Y.s, securing a presence in the above-the-fold section of the Apple Wallet offers an unparalleled opportunity to deepen relationships with consumers. This trend is likely to continue, making the Apple Wallet a key platform for brand engagement in the future.

The Apple Wallet’s transformation into a central hub for digital identity and access is not just a convenience for users; it is a strategic opportunity for brands. By understanding the importance of this digital real estate and how it can signal brand affinity and status, brands can position themselves to engage with consumers meaningfully and meaningfully. As digital I.D.s become more common and the Wallet’s role in daily life expands, this screen will become as valuable as the traditional home page, if not more so, for brands aiming to connect with today’s discerning consumers.

Research and Writing by Web Smith