When you're looking to find a product online, your first stop is most likely Amazon (AMZN -1.64%). The majority of online product searches start with the e-commerce giant, followed by a regular old search engine like Alphabet's (GOOG 0.74%) (GOOGL 0.55%) Google.
But Amazon's dominance of product searches appears to be waning while search engines like Google remain resilient.
Is Google gaining ground?
Jungle Scout, a company that develops software for online marketplace merchants, recently asked consumers where they start their product searches online.
While 61% of respondents said they started on Amazon during the second quarter, that's down from 74% in the first quarter of 2021. Meanwhile, search engines have remained steady at 49%. (Respondents could select more than one option.)
That might suggest Google is becoming a better discovery platform for online shopping. It's been an area of focus for Google for years, even before former CEO and executive chairman Eric Schmidt called Amazon its biggest competitor.
Current CEO Sundar Pichai said investments in e-commerce are paying off. During Alphabet's second-quarter earnings call, Pichai said: "People are shopping across Google more than 1 billion times each day. We see hundreds of millions of shopping searches on Google Images each month."
Interestingly, Amazon wasn't the only site or app that saw fewer respondents in 2022 versus 2021. In fact, practically every other potential response was selected less often, except for search engines. That includes Walmart and social media apps. That's despite heavy investments from competitors, including Alphabet's YouTube, in growing e-commerce on their platforms.
The survey shows Amazon is still dominating other retailers in the product-search space and fending off the growth of social media. Overall, consumers might be using fewer sources to search for products online, but Amazon remains the top option for more people than anything else.
Amazon has built a business as a search engine
The reason investors need to pay attention to Amazon's position as a product search engine is that it now runs a very big business based on product searches. The bulk of its ad revenue comes from sponsored products and brands in its search results.
Last quarter, ad revenue grew 18% to $8.76 billion. That's a $35 billion run rate. And that revenue is very high-margin relative to its marketplace, third-party seller services, and even its cloud computing business. Notably, that ad revenue growth has slowed significantly after monster increases in 2020 and 2021.
Amazon dominates e-commerce channel advertising even more than it dominates e-commerce. While its robust user base and meaningful data on its users help attract more-valuable ads, it's the search traffic that has led to that dominance.
As e-commerce growth continues to outpace in-store sales growth, Amazon is poised to see the benefit of shifting ad budgets from things like end caps in store aisles to banner ads on Amazon and other online retail websites.
But Google sees that opportunity as well, and it could present a bigger threat to the growth of Amazon's ad business than any of its retail competitors. While the most recent Jungle Scout survey indicates Google is making progress in e-commerce, Amazon remains at the top of the chart. For now, there appears to be plenty of growth left in Amazon's ad business, but Amazon investors should keep an eye on Google's progress in e-commerce advertising.
