Amazon Is Becoming the Greatest Threat Google Ever Encountered

Slowly but surely, Amazon turns into the greatest threat Google has ever encountered because Amazon is eating Google’s advertising lunch.

It has begun with more and more people using Amazon as the default search engine, the default starting point, for online shopping that entails looking up and comparing products. You know, things one needs a search engine for.

Business Insider

According to a survey by the financial services firm Raymond James, more than half of people start their search for online shopping on Amazon now, while only 26% use search engines like Google as the starting point.

Perhaps what’s more concerning is that the search engine’s share has been cut in half compared to 2014, while Amazon’s share has significantly increased over the past two years.

Amazon vs. Google

This is only possible thanks to Amazon’s successful marketplace, as we discussed last year, and programs like Fulfillment By Amazon, creating a consistent user experience:

Besides slowly taking over retail revenues at Amazon (already an obviously huge argument for the marketplace), the long-tail capacity, common for marketplaces, makes it feasable for Amazon to not just be an online retailer and a marketplace but also the search engine where it all starts.

Amazon Prime is fueling this -Amazon becoming the default starting point- even further, cementing Amazon’s default position for a lot of product categories for its subscribers.

This has huge implications for a lot of smaller online retailers which are still relying heavily on Google and SEO.

It means Google becomes less and less relevant.

For younger people who never knew a world without an Amazon Marketplace the trend is even clearer:

The prime 18 to 29 year age group prefers Amazon by a wide margin when it comes to online product searches, according to the survey.

For Google, this is a huge problem. The most lucrative AdWords are those for transactional searches, people looking to buy something. The more categories that get taken over by Amazon (and maybe other retailers along the way), the less advertising money Google will make.

But wait, it gets worse for Google.

Ten years after the iPhone ushered in the mobile world, we can witness the arrival of a new input paradigm and with it new dynamics, changing the online world yet again.

Voice input, in the form of Amazon’s Alexa, has been a constant topic at Early Moves since the publication’s inception. It is Amazon that is on the forefront of establishing the “voice first” world with its voice platform Alexa.

AmazonEcho.png

This year’s CES saw Alexa dominating, yet again, the trade show with a lot of manufacturers showing off integrations:

Even though Amazon wasn’t showing off Alexa at its own booth, the digital personal assistant stole the show as the most widely integrated technology: It was hooked up with smart speakers, refrigerators, lamps, robots, cars, and the list goes on.

I say ‘yet again’, because it is actually the second CES in a row that sported Alexa as its secret star.

This time around though, the gadgets with Alexa integration are actually going to ship as well. Alexa is hitting the mainstream.

For Google this is the next nail in the advertising coffin. Anything one can do better with voice instead of with a screen, may it be via mouse or multitouch, will be an online interaction void of ads. May it be messaging, (re-)ordering or, yes, looking something up.

This is why Google launched the Pixel smartphone and the Google Home. Google has realised that technological progress may soon start limiting the growth of online advertising and may even start decimating it.

Brian Roemmele, an expert on voice, on Quora in answering the question “Is Alexa the Google Search Ads killer?” writes:

Indeed it is and Google is concerned. I think Google is the best authority on the subject. After CES 2017 and the potential of Alexa on 1 billion devices from Ford, Volkswagen, Hyundai cars to LG Refrigerators, this may be as soon as 18 months. That is 1 billion opportunities not to see a Pay For Click or Pay For Display ad. […]

During an investor call [3] on November 29, 2016 Sridhar Ramaswamy, Senior Vice president of advertising and commerce at Google spoke to the coming shift of their business model as voice first device interactions begin to dominate our lives. Web based search will never fully disappear, but a generation of kids are growing up around the Voice First revolution and fully expect a computer to be something they talk to and talks back. […]

“I think it can range from being purely transactional meaning we make it convenient for you to fulfill a transaction with this assistance or it can involve promotion and our team is keeping an open mind about the kind of monetization opportunity that there is going to be.”—Sridhar Ramaswamy, Google Senior Vice president of advertising and commerce, November 29, 2016

One can say it this way:
While mobile grew the online advertising pie, and significantly so, voice will not. To the contrary, the better voice gets the more likely it becomes that voice interactions will replace more and more interactions that were conducted through screens before. (Voice will never replace all screen-based interactions, but that is beside the point.) And thus opportunities to show online ads slowly shrink.

This represents a huge problem for Google. The company may have the best voice recognition technology today, but it can’t deploy this technology in a way to deliver ads along services for the users. Google has a technology here that can’t manifest itself into a product for Google’s ad business.

Google’s answer is two-fold:

  1. Google sells their own integrated hardware. (Like Apple)
  2. Google will be the marketplace people are buying through. (Like Amazon)

So, Google hopes to make transactions convenient and thus offset the loss in advertisement revenue.

Good thinking.

But who is better positioned to fulfill that role? An ad-based search engine or an online retailer with a large logistics infrastructure and one of the biggest marketplaces worldwide already at their disposal?

For Amazon, the future looks bright. Already, the company is trusted by more and more online shoppers to be the starting point for product searches, making it more and more likely to not only start at Amazon but also to buy there. This makes participating on Amazon’s marketplace more and more mandatory for a growing number of online merchants and brands. Going full circle, this itself reinforces the notion of “Amazon equals the world of shopping” for end users.

Voice interfaces help Amazon cement this position further:
It is comparatively time-consuming to set up, say, buying X at retailer Y via voice. It helps then to have everything, payments, adress data, order history, already in place. What is far easier via voice is re-ordering products. (This, high setup costs and subsequent convenience, also implies higher future switching costs for customers on the marketplace level. But lets not get ahead of ourselves.)

While Google needs to completely change its business model for a voice world, for Amazon it is a natural next step that helps every part of its business.

Combine that with the fact that Amazon Alexa is, by far, leading the charge on smart voice assistants and is as well already eating into traditional shopping searches, and you get a perfect storm for Google.

More on this topic:

5 comments

  1. […] Amazon Is Becoming the Greatest Threat Google Ever Encountered […]

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  2. […] is a great new business for the new default shopping engine. Business […]

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  3. […] fooled. At the end of the day, Amazon is an online retailer. That is not a disadvantage. It means Amazon has business model advantages against almost any other tech company when it comes to voice assistants. And Amazon is poised to own a big chunk of a very large […]

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  4. […] Amazon Is Becoming the Greatest Threat Google Ever Encountered […]

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  5. […] Amazon Is Becoming the Greatest Threat Google Ever Encountered […]

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