Does Amazon.com Pose a Threat to Google Inc.? Maybe.
It’s no secret that Amazon.com Inc. (NASDAQ:AMZN) absolutely dominates the online retailing space, but few would ever consider the e-commerce giant a threat to Alphabet Inc. (NASDAQ:GOOG, GOOGL).
You heard that right. The world’s biggest retailer might soon find itself in direct competition with the world’s premier search engine.
But before getting into that, let’s rewind a little and track Amazon.com’s recent market share growth.
A new report by the e-commerce research startup BloomReach concluded that more than four out of 10 people resort to using Amazon.com directly when looking to buy an item or items online. (Source: Survey: Amazon is burying the competition in search, BloomReach, October 6, 2015.)
Amazon is Now the Undisputed Go-To Site for E-Commerce
The company conducted a survey of 2,000 U.S. e-commerce shoppers, of whom 44% responded that they search for or research a product by going directly to Amazon.com. Only 21% stated that they begin an online product search by going to another online retailer’s web site. BloomReach conducted the research as part of its larger software expansion. The company believes that by personalizing e-commerce sites and tailoring them to individual wants and needs, it can increase the overall sales of online vendors.
It might be best to give you some perspective by quantifying how quickly Amazon.com has risen in popularity. A 2012 Forrester Research study concluded that approximately 30% of online shoppers began their research on Amazon.com, while 13% started on a search engine such as Google. (Source: Forrester: 30% of online shoppers research Amazon before buying, VentureBeat, July 26, 2012.)
Now, this is an imperfect comparison because it involves two different companies using two different methodological approaches. The disparity however can’t be denied, and Amazon has clearly enjoyed a large rise in market share in the range of 50% since 2012.
Either way you look at it, Amazon.com is the absolute controlling force in its market. No other competitor comes even close to challenging its position. This is where the company’s competitive advantages are important to take note of, and where Amazon can bring to bear its substantial financial resources, ever-growing market position, and continuous development of new value-added services to lift itself above the competition.
For a business model that represents no obvious moats to competitors, Amazon.com has been a remarkable success story. Think of it this way: Amazon.com’s business model is to sell merchandise online, which is not a particularly difficult task from either a technical or logistical perspective.
What Makes Amazon.com So Different?
Well, quite a bit, as it turns out. Amazon is a counterintuitive and unseen threat, and here’s why.
What differentiates the company from its rivals is that it has successfully branded itself as the default platform for e-commerce. Amazon.com has in fact made its name synonymous with internet shopping while simultaneously drawing distinctions between its virtual platform and more traditional physical stores.
Much of this success can be attributed to the Amazon Prime program, which integrates e-commerce, cloud storage, and video streaming with downloading capabilities. Lateral integration on this level has facilitated Amazon’s status as the default e-commerce platform. By providing value-added services such as the ones mentioned, the company has developed a solid customer retention model.
Product searches are among the most lucrative sources of traffic for Alphabet, as they provide the opportunity to present ads in addition to the regular search page results. The implications of Amazon’s market dominance have not been lost on Alphabet, which has looked to aggressively expand its e-commerce capabilities. The largest search engine in the world has now added Google Express, a quick shopping and delivery service, as well direct Buy buttons alongside its mobile ads.
Here’s the Bottom Line on Amazon.com Stock
Amazon is to internet commerce as Alphabet is to the world of search engines. The e-commerce giant currently generates about $100 billion a year in revenue, but its CEO Jeff Bezos has been quite honest that it is not all about profit right now. What Amazon is actually focusing on is industry dominance, which includes encroachment on the market share of physical retailers, but also lateral expansions such as the services I mentioned.
Whether or not that grand strategy includes taking bites out of Alphabet is anyone’s guess, but I’ll let the facts and numbers speak for themselves.