Please ensure Javascript is enabled for purposes of website accessibility

Google Just Lost a Huge Advertising Customer

By Evan Niu, CFA - May 11, 2018 at 4:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The search giant's biggest rival is ramping up the competition.

Remember when Alphabet (GOOG 5.20%) (GOOGL 5.11%) subsidiary Google's then-CEO Eric Schmidt said that (AMZN 3.58%) was the search giant's biggest competitor? That sounded counterintuitive, since Google was aggressively competing with Apple at the time in the smartphone market, but Schmidt was referring to the fact that many of Google's most lucrative ads come from online shoppers looking for a specific product. If those users know that said product is available on Amazon, they'll simply head directly there, bypassing Google altogether.

More recently, Amazon has been ramping up its own advertising ambitions in a much more direct threat to Google. On the earnings call last month, CFO Brian Olsavsky noted that the growing advertising business was a "strong contributor to profitability." Adding insult to injury, it turns out that Amazon has stopped buying some ads on Google altogether.

Exterior shot of the Googleplex campus

Image source: Google.

Amazon is becoming a bigger player in advertising

Bloomberg reports that the e-commerce behemoth has stopped purchasing product listing ads, the type that appear at the top of Google search results when users are shopping for a specific item. These are among Google's most profitable offerings, and Amazon had started bidding on product listing ads back in 2016. Beyond losing direct ad revenue from Amazon, having such a prominent bidder pull out could even potentially hurt ad prices that Google earns from the remaining ad customers.

Amazon has an opportunity to win over advertiser spending from Google as it continues to grow its own advertising business. The company is smartly taking a measured approach, though, so as not to hurt the user experience with excessive ad load. Here's Olsavsky again from the call, responding to an analyst question about ad load (emphasis added):

On advertising. Let's step back a bit. It's now a multibillion-dollar program and growing very quickly. Our main goal here is to help customers discover new brands and products. When we show sponsored products, we're trying to show people things that they maybe wouldn't have seen otherwise in their normal search results. We're looking for a good balance here, as we said. We want customers to get the benefit of the new brand and product discovery. Then we want to let sellers, for both emerging and established brands, reach those customers. Those advertisers are all shapes and sizes with a main goal of, again, trying to reach our customers, whether to drive brand awareness, discovery, or hopefully purchase.

To be clear, the ongoing ad competition between Google and Amazon pales in comparison to other arenas where the companies butt heads. Voice commerce has emerged as a promising new way to make purchases, which has been a huge win for Amazon and Alexa. In March, Google announced a new program called Shopping Actions to challenge Amazon in voice commerce, allowing users to purchase products on the Google Assistant platform via voice.

Amazon and Google have a lot of battles waging concurrently, and advertising is just one of them.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$2,370.76 (5.20%) $117.07
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,359.50 (5.11%) $114.66, Inc. Stock Quote, Inc.
$116.46 (3.58%) $4.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.