Amazon (NASDAQ:AMZN) has been stealing away Google's most valuable searches over the last several years. More product searches begin on Amazon.com than the search engine owned by Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). And with the surge in e-commerce over the last few months, that disparity may be getting bigger.
In order to combat the growing popularity of product searches on Amazon, Google's offering brands and retailers free listings on its main search results. The move follows the decision in April to allow free listings on its Google Shopping tab. The company said it saw an increase in both clicks and impressions after the change.
The move makes Google a more robust product search engine by reducing the pay-to-play impact on its search results. That should produce a better user experience, leading to greater engagement with Google's search engine.
Competing against over 100 million product listings
Amazon has collected tens of millions of product listings over the years. It has 100 million items available for Prime shipping benefits in the U.S. alone. If you're looking for something, you'll probably find it on Amazon.
If Google wants to compete with the growing number of options available on Amazon, it needs to make it easier for brands and retailers to make their products available on its platform. The search giant took a big step toward that in April with its move to make the Shopping tab feature mostly free listings.
But that's just half the battle. Internet users need to know the usefulness of Google for online shopping. Including free listings in the main search results page could get more people to view Google's product search results positively. Shopping ads, seen at the top of search results pages for certain keywords, aren't always the best or most relevant product. But offering free recommendations powered by Google's troves of user data combined with a lot more product listings could be extremely relevant and drive greater engagement.
Free makes paid more valuable
The ironic nature of Google offering free listings is that it could make its paid shopping ads more valuable. Now that users will see more product listings in their search results, not just those that companies paid for, there's suddenly more competition for attention. Brands looking to stand out from the increasingly crowded field may spend more on Google's ad products.
Amazon has seen the dynamic play out as it's added tens of millions of products over the years. First, it led to more merchants using its Fulfillment by Amazon program to make their products eligible for Prime shipping. Then it led to increased ad spend in order to stand out from the growing competition.
Google should see a similar benefit if it can spark a virtuous cycle where it grows engagement for product searches and listings, giving brands greater incentive to add product listings to Google. With more product listings, brands find it more difficult to stand out, so they buy ads or are willing to pay more, driving revenue for the FAANG stock.
Google can't compete with Prime
The challenge Google won't be able to overcome is Amazon's Prime program. Amazon Prime members are extremely loyal to Amazon. Seventy-four percent of Prime members started their product search on Amazon, according to a survey from CivicScience conducted in May.
But when it comes to non-members, Google is actually more popular. Forty-two percent begin their product search on Google compared to just 29% for Amazon.
Unfortunately for Google, Amazon continues to grow its Prime membership despite signs it's been nearing saturation for years already. Continued improvements in its benefits like one-day shipping have managed to attract more and more users. Management says it saw very strong engagement with its digital benefits in March, which makes members more likely to stay subscribed long-term.
Google's free product listings ought to have a positive long-term impact on its shopping ads business. But Google can't fully stem the threat of Prime to its advertising business.