Is Amazon.com Crimping Google’s Ad Revenue?
Few people would dispute that Amazon.com, Inc. (NASDAQ:AMZN) is the reigning king of online retail, and the Amazon stock price reflects that fact. But you might raise more than a few eyebrows if you started claiming that Amazon could be a direct competitor to Alphabet Inc. (NASDAQ:GOOG, GOOGL).
Sound outlandish? Sometimes reality is stranger than fiction. Amazon.com, the largest online retailer in the world, could find itself competing with Google, the most popular search engine on the web.
Let’s take a step back and first go through Amazon.com’s surge in market growth in the last year or so.
This Could Be a Big Catalyst for AMZN Stock
BloomReach, an up-and-coming e-commerce research firm, recently published findings which conclude that 40% of people go to Amazon’s web site directly when they want to purchase a specific item on the internet. (Source: BloomReach, October 6, 2015.)
The research firm surveyed over 2,000 American internet shoppers, of whom slightly more than four of every 10 reported they go directly to Amazon.com when browsing for online items. Approximately 21% responded that their online purchasing process begins with a visit to a site other than Amazon.com in fact, which underlines the company’s strong market share.
BloomReach conducts research of this type as part of its overall software development strategy, which is based on maximizing the revenue of online retailers by personalizing user experiences on the basis of data collected. The argument put forth is that customized online shopping experiences will streamline users’ wants and needs, thus increasing sales volume for online merchants.
But how did Amazon get so popular?
Nothing gives a stronger insight on market trends than raw numbers. Amazon.com’s growth trajectory and incredible surge in popularity was framed well by a 2012 study undertaken by Forrester Research, which showed that 30% of e-commerce shoppers started their product search on Amazon’s web site, and approximately 13% of them began on a traditional search engine. (Source: VentureBeat, July 26, 2012.)
Of course, the two studies mentioned above are not completely equal. They were conducted by two separate research firms which similar but still different research methodologies. It would be difficult to dismiss their comparative value when taken together, as they underline Amazon’s massive surge in market share over the past three years.
Whichever way you want to interpret the data, today’s online retailing space is fully dominated by Amazon.com. There’s simply no other rival which even approaches Amazon.com’s market share. This success is largely the result of its competitive advantages. Amazon.com has lifted itself head and shoulders above the crowd by applying its significant financial resources, rising market share, and continuous development of new and exciting value-added services.
Considering the fact that its central business model represents absolutely no obvious competitive moats, the success of Amazon.com is nothing short of remarkable. Put another way, Amazon.com is in the business of selling items over the internet, which is not an especially difficult business model to replicate.
So what is it, then, that differentiated Amazon.com from the competition?
Amazon.com was able to distinguish itself from competitors by portraying itself as the default online retail space. This sounds deceptively simple, because today’s success is the result of years of hard work. However, today the company’s name is essentially a synonym for e-commerce.
The Amazon Prime program had an important role in the company’s success. This service integrates cloud storage, video streaming, and e-commerce into one easy platform. Amazon.com has been able to pull together these disparate services and offerings, facilitating the company’s role as the default online shopping site. The careful inclusion of more and more value-added perks and services has resulted in a very robust customer retention program.
Now you might be asking what any of this has to do with Google.
It might be tempting to think that the world’s biggest online shopping web site and the most popular search engine on the internet can’t possibly be in competition. The truth might surprise you.
Amazon.com represents an unseen but increasingly more aggressive rival to Google, and here’s why.
Most people don’t know that a great deal of Google’s revenue comes from ads which come up after a person searches for items to buy. This is one of Alphabet’s most lucrative business endeavors, as it presets constant opportunities to place targeted ads alongside normal search page results.
Remember how we were talking about a growing number of people going straight to Amazon instead of searching first on the Google web site?
This is where things are getting tricky for the premier global search engine, because this latest competition has essentially sprung from the shadows and no one really saw it coming. Alphabet has moved quickly and is now actively searching for ways to break into the e-commerce realm, in fact. The recent advent of Google Express, a simplified e-commerce platform which promises brisk and efficient delivery services as well as instant “buy” buttons, is now being integrated into targeted ads.
The Bottom Line for Amazon.com Stockholders
The fact remains that Amazon.com and Google are the kings of online commerce and search engines, respectively. Amazon.com produces revenue in the range of $100 billion per year. However, its management team has been quite blunt that profitability will now be taking a backseat to expansion and product development. The company will be concentrating on dominating its industry more than ever before, including ways which will inevitably bring it into conflict with companies such as Alphabet.
The question of when and how Amazon.com will be able to clash with Alphabet’s Google is up for debate, but the data and analysis point towards a possible surge in the AMZN stock price.
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