Jeff Jordan, partner of venture capital company Andreessen Horowitz, recently posted some interesting thoughts on Fortune.com on what he describes as two internet giants locked on a collision course. The article, Godzilla vs. Mothra, the sequel, contends that Google’s biggest competitor isn’t another search engine, but Amazon, the most successful online shopping platform on the planet.
According to Forrester Research, e-commerce sales are expected to grow at an average of 9 per cent a year through 2017, to $370 billion. While e-commerce is clearly the future of retail, Google, it seems, is determined to take a bigger slice of the e-commerce pie. However, it’s not just about e-commerce, it’s about product search too. Something like 30 per cent of online shoppers in the US need look no further than Amazon and make use of its sophisticated product-based vertical search capabilities first before even thinking about searching Google. This of course poses a significant threat to the search giant. After all, Google’s most important slice of ad revenue comes from selling space next to product-related search results.
In his post on Fortune.com Jordan argues: “In my personal website use, I increasingly find myself searching for products on Amazon instead of Google. Shopping on Amazon is a superior user experience and it runs the table on the magical retailer formula of selection, price and convenience. I can buy an item on Amazon in a minute, secure in the knowledge that I'm likely paying the lowest price while getting free shipping and fast delivery.”
He adds: “Contrast that with the shopping experience on Google. Shopping on Google is work. It has infinite selection… if you can manage to find what you're looking for amidst the forest of search results. You have to work to find the best price, typically by pogo-ing in and out of different search results to check both prices and shipping costs. And when you find a product you want to buy from a new merchant, you need to enter all the payment and shipping information from scratch. Buying on Google takes chunks of an hour, not an Amazon minute.”
Jordan contends that Amazon, with its rich shopping experience, is able to provide e-commerce merchants with a viable advertising alternative to Google. He also points to a report from Wordstream which uncovers the top industries contributing to Google's earnings in 2011, which include:
- Finance & Insurance – $4 billion
- Retailers & General Merchandise – $2.8 billion
- Travel & Tourism – $2.4 billion
- Jobs & Education – $2.2 billion
- Home & Garden — $2.1 billion
In the ‘retailers and general merchandise’ industry, Amazon stands apart in the same year as Google’s biggest spender.
- Amazon - Spent $55.2 million on Google AdWords
- Ebay - Spent $42.8 million on Google AdWords
- Macys - Spent $35.6 million on Google AdWords
- Sears - Spent $34.3 million on Google AdWords
- JC Penny - Spent $30.9 million on Google AdWords
You don’t have to be a rocket scientist to work out how quickly this core business might dwindle if Amazon was a truly global company on the scale of Google and if these major retailers chose to place more of their search ads directly at Amazon and not through the search giant.
Over the past 17 years, Amazon has accumulated vast amounts of data about the actual buying habits of millions of consumers from around the globe. The big question many analysts are asking is whether Amazon will unleash this data and become an advertising platform in its own right. There’s no doubt that an advertising platform based on what people are actually buying is more valuable than one based on what they are searching for or what they like.
Of course, for the time being, Amazon will continue to make its money from wafer thin profit margins compared to Google's weighty advertising revenue. Yet beyond the business-to-consumer e-commerce environment the two tech giants also compete in the areas of streaming content, 7-inch tablets, cloud computing and daily deals.
Meanwhile, the media continues to be awash with stories of Google being a wannabe Amazon, and with good reason. This year Google has launched a same-day delivery service trial in San Francisco called Google Shopping Express, which it is supporting through the Google BufferBox – secure boxes dotted around the city in convenient locations that consumers can choose to have their items shipped with.
It is clear that these initiatives are all about enhancing Google’s e-commerce capabilities and protecting their advertising business from Amazon. Indeed, with retail transforming into an omnichannel experience where all channels come together seamlessly, the ability to satisfy customers’ e-commerce expectations, and make shopping easy, is key.
Whether Amazon can withstand this current e-commerce assault from Google and continue to dominate web shopping is yet to be seen. One thing is certain – the days of Amazon being an online bookseller and Google being a search engine are long gone.
Simon van Wyk is the founder of digital agency HotHouse.