Google is fighting battles on almost every front: social networking, mobile operating systems, web browsers, office apps, and so on. Much of this makes sense, inasmuch as it is strategic for them to dominate or commoditize each layer that stands between human beings and online ads. But while they are doing this, they are leaving their core business vulnerable, particularly to Amazon.
When legendary VC John Doerr quit Amazon’s board a few months ago, savvy industry observers like TechCrunch speculated that Google might begin directly competing with Amazon:
[Google] competes with Amazon in a number of areas, particularly web services and big data. And down the road, Google may compete directly in other ways as well. Froogle was a flop, but don’t think Google doesn’t want a bigger chunk of ecommerce revenue from people who begin their product searches on their search engine.*
In fact, Google and Amazon’s are already direct competitors in their core businesses. Like Amazon, Google makes the vast majority of its revenue from users who are looking to make an online purchase. Other query types – searches related to news, blog posts, funny videos, etc. – are mostly a loss leaders for Google.
The key risk for Google is that they are heavily dependent on online purchasing being a two-stage process: the user does a search on Google, and then clicks on an ad to buy something on another site. As long as the e-commerce world is sufficiently fragmented, users will prefer an intermediary like Google to help them find the right product or merchant. But as Amazon increasingly dominates the e-commerce market, this fragmentation could go away along with users’ need for an intermediary.**
Moreover, Google’s algorithmic results for product searches are generally poor. (Try using Google to decide what dishwasher to buy). These poor results might actually lead to short term revenue increases since the sponsored links are superior to the unsponsored ones. But long term if Google continues producing poor product search results and Amazon continues consolidating the e-commerce market, Google’s core business is at serious risk.
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* Froogle (and Google Products) have been unsuccessful most likely because Google has had no incentive to make them better: they make plenty of money on these queries already on a CPC basis, and would likely make less if they moved to a CPA model.
** Most Amazon Prime customers probably already do skip Google and go directly to Amazon. I know I do.
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Great post. Good reason why Google should buy Hunch, too.
[...] This post was mentioned on Twitter by Atul Arora, chris dixon, Andre Siregar, Boris Wertz, rob zand and others. rob zand said: RT @cdixon: While Google fights on the edges, Amazon is attacking their core http://bit.ly/9BqPAk [...]
Agreed with your meta point, and I would add travel to that list. If one or two players are able to aggregate most of the travel discovery and purchasing activity (read TripAdvisor + Expedia done right) it would cause some in Mtn View heart-burn. In fact Bing should take note of this. Rather then fight a head-on bloody war with Google they should aim to dominate a single and highly lucrative category (perhaps travel) sucking all the revenue for that category away from Google.
Regarding CPA vs. CPC: See this conversation on Quora…
“Whether the value is brokered in impressions, clicks or actions, the math is the same — it’s just a matter of where the risk of inaction is spread.”
http://www.quora.com/Why-does-Google-sell-pay-per-click-instead-of-pay-per-conversion-ads
Chris, do you think Walmart could threaten your thesis by simply using their economies of scale to lessen Amazon’s monopoly in e-commerce?
Do you not think too that with the Internet becoming more global each day, and therefore fragmenting further, that other e-commerce companies will change the landscape e.g Baidu, Rakuten, Alibaba?
I get the point trying to be made here and do agree that Google is not paying as much attention to search, which is the Goose that Lays the Golden Egg. That said, I couldn’t disagree more vigorously with Chris’s assertion that Amazon poses a threat to Google’s search business. First off, retail is just one category of advertisers on Google and I suspect it accounts for less than 25% of Google’s total revenue. Second, Amazon is growing rapidly; however, it currently accounts for less than 10% of all ecommerce sales in the US so it isn’t exactly dominating in online commerce right now, let alone anytime soon. Further highlighting just how small a player Amazon is keep in mind that Walmart posts annual sales nearly 20x that of Amazon. Finally, Amazon spent $600m on all of its advertising (web, print, tv, etc) in 2009 while Google generated $23b of ad revenue that same year. Again, I appreciate the point Chris is trying to make, but I think when you look at the numbers, his argument just doesn’t hold up.
Great post.
Great example of the power you get when opening your platform like Amazon did.
But if it happens, its a US case. Amazon is optimized for the US market, the shipping, regulations, returns policies, payments etc; this is the what drives their growth.
It may take Amazon many many years, if ever, to achieve the same efficiency it in intl. markets.
But online tools that offer better purchase experience , have existed for a long time. for example , shopping comparison sites. or even amazon.
And still google made all this money.
I think you underestimate the importance of the “google search habit”, or there’s something else at work here.
I agree with this post and really think the meta point is that irrelevant search results will ultimately fatigue Google users and drive them to niche providers elsewhere; be that Amazon, Expedia, etc.
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
In 5 to 10 years, the commerce component of the web will look far more like a mall than today’s flea market. Curated branded shopping experiences from trusted vendors will win out over the chaos of unbranded vendors. At the mall, you don’t need a search engine to help you figure out up from down – at the flea market, you need the search engine to help you make sense of the chaos.
One problem: Amazon's search engine sucks. It's often easier for me to search for Amazon products on Google than it is on Amazon. Google takes the approach of “let me help you find exactly what you want.” Amazon takes the approach of “let me help you find exactly what we want.” Therein lies the difference. Unless Amazon repents on this matter, Google's got nothing to worry about on the search front – though I like your idea and Amazon ought to be thinking like this.
Like Google, many shopping comparison sites – including NexTag – appear to prefer a CPC model – because it lacks external dependencies of a CPA model. It would seem then that Amazon threatens those sites' business even more so than it does Google's. Perhaps I am stating the obvious ;-
Thus, Google should buy Hunch?
Elie – While I’m sure what you describe sounds attractive from a business point of view, it would be terrible for the consumer. When it comes to getting accurate and unbiased information, people don’t expect to find the information about a company coming from the company itself. People don’t trust brands, they trust other people. I don’t think Google is threatened.
I’m a Prime subscriber too, and I do go directly to Amazon for small stuff, but for any major purchase there’s a fair bit of Googling involved, too.
Good post! I was confused by your tweet, but this makes more sense.
Do you have any data as to how much ad $$ come from purchasing consumer products vs services? It may well be that Google’s core is not consumer product advertising. And no one searches for services on Amazon/ eBay (yet)
I definitely agree with you that Amazon is really dominating retail and personally I always skip Google to buy stuff on Amazon, only because 1) they save my payment/shipping info and 2) their customer reviews tend to be very accurate
PS I wish you stuck to Disqus comments, this seems so old school
I get the point trying to be made here and do agree that Google is not paying as much attention to search, which is the Goose that Lays the Golden Egg. That said, I couldn't disagree more vigorously with Chris's assertion that Amazon poses a threat to Google's search business. First off, retail is just one category of advertisers on Google and I suspect it accounts for less than 25% of Google's total revenue. Second, Amazon is growing rapidly; however, it currently accounts for less than 10% of all ecommerce sales in the US so it isn’t exactly dominating in online commerce right now, let alone anytime soon. Further highlighting just how small a player Amazon is keep in mind that Walmart posts annual sales nearly 20x that of Amazon. Finally, Amazon spent $600m on all of its advertising (web, print, tv, etc) in 2009 while Google generated $23b of ad revenue that same year. Again, I appreciate the point Chris is trying to make, but I think when you look at the numbers, his argument just doesn’t hold up.
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
[...] Cross posted at Cdixon.org [...]
Whatever happened to Amazon’s search efforts? A9 or something. They were making in roads in their offense against Google but obviously didn’t do enough.
I’m a huge Amazon primer user and I definitely skip google for any purchases that can be fulfilled by Amazon though these tend not to be big purchases like travel.
Hey Victor,
A9 was shut down bc it was an inferior search engine. I think that Google has a lot to be concerned about, but the assertion that people navigating directly to Amazon is a threat is quite hollow and not defendable by any real data whatsoever in my opinion.
Scott
So, it's to Google's advantage to provide sub-par search results, so you will click on their advertising links. Think about that for a minute.
I would have to disagree about Amazon sucking. Its usually relevant, and the reviews are great. I usually start my search on Google and end up on Zappos, Amazon, etc once I see where the most results are. Google is the default search but that will not last forever. Amazon is getting better and better, and I spend less & less time on Google. One of Google's most touted internal metrics is how fast they get people off of the site. Unless something dramatic happens, I dont see that changing anytime soon.
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
[...] While Google fights on the edges, Amazon is attacking their core Google is fighting battles on almost every front: social networking, mobile operating systems, web browsers, office apps, and so on. Much of this makes sense, inasmuch as it is strategic for them to dominate or commoditize each layer that stands between human beings and online ads. [...]
Wrong!
You forget one piece of vital information, which relates to the real business of Amazon.
In fact, Amazon's core business is not about selling products; it's about making money on cash they hold. Exactly like banks do, Amazon is making $$$ while sitting on customer's cash while waiting to pay off the goods.
man for a person who makes money betting on “what will be” vs. “what is/has been” this article is very “what has been” in the sense that google and amazon today compete in desktop and Google has very much held its own and should continue to do so (are you only going to look for a dishwasher online at Amazon…if so, I want to sell everything I got to you) given comparison of different vendors. Going forward, where a little vision is required, Google should dominate mobile shopping (google goggles on android for those who want to see where the world is going). Amazon has nothing to compete
[...] While Google fights on the edges, Amazon is attacking their core … [...]
[...] While Google fights on the edges, Amazon is attacking their core … [...]
[...] While Google fights on the edges, Amazon is attacking their core [...]
[...] On his personal blog, angel investor Chris Dixon says that Amazon has the potential to dominate the e-commerce space and Google should pay attention. Interesting view. From here it might be early to say that Amazon will dominate e-commerce. They are the leaders in e-commerce (read April WSJ story) but other brands lurk such as Wal-Mart which has $400 billion (about $2 billion was e-commerce according to the last figures available) in total revenues compared to Amazon's $19 billion. Read more on why Google should battle Amazon. [...]
[...] While Google fights on the edges, Amazon is attacking th… [...]
Wow, get a clue! Google’s core business is advertising.
Worthless.
wow, nid, i think that’s the single dumbest comment i’ve ever had on my blog. congrats!
[...] While Google fights on the edges, Amazon is attacking their core - Chris Dixon [...]
I appreciate the call out wrt to the innovator’s dilemma around (product) search quality. As you note, good organic results from a search engine threaten to cannibalize the CPC value of the ads. If I click on an ad, Google gets paid; organic result: nope. At least for that one-shot game, Google has no incentive to deliver good results. (I wrote more on that here: http://bit.ly/bIHyFQ)
This post also hints why it was so damn smart of Amazon to include data from “competitors” on its product pages, such that it (at least appears to) offer legitimate price comparison integrated into the shopping experience.
BTW – looks like AMZN was about 18% of all US e-commerce sales in 2009.
(as an aside, seems like overall comment quality has taken a beating since moving off disqus)
Amazon ultimately sits on a better data set for performing search-with-purchase-intent: They have purchase history, buyer reviews, and buyer correlations; while Google has PageRank. Amazon doesn’t have to take over 100% of e-commerce: They can try to federate the remainder via seller services e.g., payments, warehousing & fulfillment and bring 3rd party catalogs into Amazon.com
[...] serial entrepreneur Chris Dixon has a blog post that shines a light on the real potential loser from Amazon’s dominance – [...]
Product Search and Web Search need to be tackled in different ways. I’m afraid Amazon has about a 10 year lead on Google for product recommendation and search. Like I said in another post, I think Google’s play will be direct shopping results to Google Product Search and let buyers purchase directly via Google Checkout. Buyers will never have to leave the Google site. Offer buyer guarantees up to a certain amount for Google Checkout, provide reviews on merchants, and you have a solid formula for buyer trustability.
[...] Google vs. Amazon: Amazon attacking Google right in the core. (Chris Dixon) [...]
[...] Introducing Adobe Reader for Android Hulu trix0red into running on FroYo *cough* bullshit *cough* While Google fights on the edges, Amazon is attacking their core Google vs Apple: Google Doesn’t Need To Win Extensions to Push to Android [...]
[...] Introducing Adobe Reader for Android Hulu trix0red into running on FroYo *cough* bullshit *cough* While Google fights on the edges, Amazon is attacking their core Google vs Apple: Google Doesn’t Need To Win Extensions to Push to Android [...]
Google can fight back by moving in the same direction they always have…the cloud. Revolutionize the music industry by acquiring GrooveShark because that is what Apple is doing. They shutdown LALA to develop a cloud based application because lets face it, downloading is a thing of the past due to the proliferation of highspeed access.
Although I don’t think that Google’s dominance in general will be affected too much just by Amazon I agree with 2 things:
1 – they are not focusing enough on search and this will hurt thm in the long run;
2 – Amazon is about to become far more pervasive than we can imagine; once their Kindle app becomes ubiquitous also thanks to Apple, many more purchases will be made directly from it (e.g. I am reading a magazine about golf on the Kindle app and I can purchase a golf club via Amazon with one click).
Travel/local is also shaping up to be an interesting battle.
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
Google Editions is coming soon.
[...] While Google fights on the edges, Amazon is attacking their core … [...]
Agree. I noticed that I search for products more at Amazon th at Google since Amazon find better products/cheaper products/more choice/more relevant products.
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon'… [...]
[...] While Google fights on the edges, Amazon is attacking th… [...]
I usually find your analysis to be incredibly right, but this time I disagree.
Google and Amazon have been in a quiet feud for a long time. You’re right about Google wanting more of the eCommerce market. And you’re right about Froogle flopping.
But the backbone of Froogle was Google Base – and that still exists, powering Google Product Search, which is being offered more and more through ‘onebox’ presentations.
http://www.blindfiveyearold.com/image-based-google-shopping-onebox
The initial idea was to connect Google Checkout with Froogle and cut out all of the intermediaries like … Amazon. While they botched both rollouts, they still exist, along with the nifty Google Dashboard which can track all your purchases.
But lets not forget about books, which a colleague of mine referred to as the milk of the Internet. It’s at the core of Amazon’s business and Google took aim at it well over 5 years ago as it began to scan books. And Google Base was originally built with books, music and video in mind.
Shortly after Google announced the Google Books Settlement Agreement, Amazon stopped paying affiliates for keyword bidding traffic. It was a fairly transparent response to shutting out incremental AdWords revenue.
http://www.azhttp.com/2009/04/06/amazon-associates-program/
Google’s taken the long-view on their war with Amazon. They’ve worked at it and soon will have an iTunes like product for books that could compete heavily with Amazon’s core business.
As far as search goes, your personal experience aside, search trends are up regarding shopping and reviews. Research shows an increasing reliance on ratings and reviews, with users wanting a diversity of opinions.
I consult with a major review site so I have a fair idea of the volume and effectiveness of the vertical. Is it perfect? Not by a long shot. Is Google trying to make it better? Yes but … Is Google trying to own more of it? You bet.
I’d argue that it’s Google which is attacking Amazon’s core.
I think all it is going to take is someone to come up with their own version of adsense and pay a little bit better than google. This might be a good thing for amazon to do as they have all those advertisers and products built in.
And yet Amazon gives Google $0.5 million every day.
http://www.keywordspy.com/research/search.aspx?...
Google may want commerce revenue but will never compete with Amazon. To compete means holding inventory, logistics, customer service, returns and everything else that goes with being a retailer. The best Google can do is be a sub-par shopping engine i.e. Google Shopping as it is today. Sub-par because to be a real player, it would need to drive large amounts of qualified traffic to retailers which would require flooding Universal Search with products. Then the whole 'purchase intent' theory comes into play and relevance is threatened. When you search for a kindle is it an e-reader or firewood? Amazon knows what you want because you're there, Google has no freakin' idea.
Finally, if Google was to truly compete in commerce it needs a new revenue model. Selling AdWords next to product listings, as you see in Product Search today, generates virtually no revenue. They can't charge for clicks on the listings themselves because that messes with the purity or organic results. So where does that leave Google? Throwing Shopping on the scrap heap with Froogle and figuring out how the hell to monetize Maps and YouTube and sell more Android phones while continuing to build up those cash reserves by milking the CPC cash cow. It's inevitable.
For products, Amazon dominates Google search in organic and Product search, even through the Amazon results may not be the best for the searcher. The joke is becoming “oh, those spots are reserved for Amazon” in search.
Certainly, Google is aware this and are letting it continue, which driving boat-loads of searches to this competitor, especially as product search becomes more visible. Possibly because Google is hoping that people will continue to search on Google even when their purchasing intent is to buy on Amazon (most likely). Possibly because of Amazon's Adwords spend. Any other domination of their engine would be termed “unnatural” and drive changes in the algorithm.
Clever post. So search is not Google's core business. Interesting take.
[...] Investor und Unternehmer Chris Dixon schreibt über die Gefahr, die Amazons Aufstieg für Googles Einnahmen bei transaktionsgetriebenen Suchabfragen bed… [...]
[...] While Google fights on the edges, Amazon is attacking their core cdixon.org – chris dixon’s … [...]
[...] data + birds of a feather + transactional-bottom-of-the-funnel-marketing… target now! And read a post from May by Chris Dixon about the coming Google/Amazon showdown… or is it a Google/Facebook [...]
They're all chasing yesterday Chris. I'm much more concerned with who's. inventing tomorrow.
[...] only person feeling like this. Anyway I’m sure this is the start of something else and with Facebook just recently partnering up with Amazon. There are some great opportunities for Brands to buy my Love;) – Doooo [...]
I don’t think Google is pretending to be another Amazon. Google core business is searching and advertisement. Google will not hold inventories because of the disadvantages and physical work. Google is a much more valuable company than Amazon, so Google do not fear Amazon in any way.
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