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Amazon Is Trying to Limit Orders, and That's Bad for Google

By Adam Levy – Apr 19, 2020 at 2:30PM

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Amazon doesn't need to advertise if it already has more orders than it can handle.

Amazon (AMZN -2.74%) has seen overwhelming demand on its online marketplace amid the novel coronavirus pandemic. The surging number of orders has really thrown a wrench into Amazon's operations, forcing it to hire 175,000 employees in quick fashion, suspend its third-party shipping program, halt acceptance of items it deems nonessential in its warehouses, and delay shipments on orders for nonessential items. It's even going to push back Prime Day, and it won't run promotions for Mother's Day or Father's Day this year.

Amazon's made some subtle changes to its website recently in order to limit the amount customers are purchasing. It's no longer recommending additional items on product pages or at checkout, and it's scaling back the number of coupons it offers. 

It's also pulling back on paid search advertising on Alphabet (GOOG -2.61%) (GOOGL -2.56%) subsidiary Google. And that might be the case for a long time.

Amazon boxes laid out in front of a Prime Air cargo plane.

Image source: Amazon.

When will Amazon go back to normal?

Amazon created an internal team to determine when to start opening things back up, dubbed the "speed team," according to The Wall Street Journal. Amazon's made the decision to allow third-party sellers to ship nonessential items into its warehouses again, but shipping delays and other pandemic-related policies remain in place. 

The speed team said it could be more than two months before things return to pre-pandemic capacity, where Amazon is able to deliver every item in the one or two days Prime members expect. That puts us all the way into mid-June. Prime Day is usually in mid-July. The annual summer shopping event has been pushed back indefinitely.

Even when it gets to the point where it can fulfill orders across product categories in a timely manner, things won't be normal for Amazon. The changes it's made to its website and its lack of Google search advertising will limit order volume still. And its suspension of Amazon Shipping doesn't even begin until June. That said, Amazon doesn't expect the changes to be permanent, according to WSJ

A prolonged pullback on ad spend for Google

Amazon pulling back its spending on Google is bad news. The retail giant ranked as the No. 5 ad and promotion spender in the world last year, according to Ad Age. The publisher predicted in December that Amazon could rank as the top advertiser in the world this year.

Amazon pulled back its spending in March, so it'll likely be between three and six months for Google without one of its biggest ad buyers. (Not to mention it's also seeing lots of spending pulled back from big spenders like online travel agencies.)

Still, Google's search ad business ought to hold up better than other advertising platforms long-term. Pulling back on Google ads may have been one of the earliest moves for Amazon and others that no longer have a need for increased customer traffic in today's environment. That's because it's relatively easy to reduce spend on digital ad platforms. But Google may be one of the first to get those ad dollars back when Amazon's ready to open the funnel again. That's because it offers highly targeted traffic.

In fact, the heightened demand Amazon is currently seeing may accelerate the shift to more online retail, which is undoubtedly a boon for Google. Amazon's always looking to grow sales as much as it can. As CEO Jeff Bezos says, "It remains Day 1." So, Google doesn't have to worry about Amazon permanently halting its ad spend on its platform (although it's made threats in the past). Amazon's spend (along with other retailers, travel agencies, and other big advertisers) will come back eventually. But it'll be a tough couple quarters for Alphabet in the meantime.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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