Please ensure Javascript is enabled for purposes of website accessibility

Why Google Inc Is More Concerned About Amazon Than Microsoft

By Evan Niu, CFA - Oct 14, 2014 at 8:31PM

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

Most people probably think Google's biggest competitive threat is other search engines. They're wrong: it's Amazon.

Like Microsoft (MSFT 3.42%) before it, Google (GOOG 5.20%)(GOOGL 5.11%) is in hot regulatory water with the European Commission. After agreeing to a settlement in February, European antitrust regulators made the surprise move of reopening the investigation last month following continued pushback from Google's competitors.

Google Chairman Eric Schmidt spoke in Berlin yesterday, discussing the company's competition. While Schmidt wasn't addressing regulators directly, he knows they're listening. Interestingly, Schmidt considers Amazon (AMZN 3.58%) a bigger threat to its search business than Microsoft, despite the fact that Microsoft's Bing search engine continues to gain market share in the U.S. (Microsoft estimated its U.S. search share at 19.2% last quarter.)

Here's why.

The root of the question
While Amazon doesn't operate an actual search engine like Microsoft or Yahoo!, Schmidt is considering the final destination. Specifically, when a user is interested in buying something, they're more likely to head straight to Amazon to shop around.

Schmidt says that a third of users interesting in buying something will start on Amazon, which is more than twice the number of people that go to Google to start shopping. According to Schmidt:

Many people think our main competition is Bing or Yahoo. But, really, our biggest search competitor is Amazon. People don't think of Amazon as search, but if you are looking for something to buy, you are more often than not looking for it on Amazon. They are obviously more focused on the commerce side of the equation, but, at their roots, they are answering users' questions and searches, just as we are.

Of course, this is just one aspect of Internet search, but also likely one of Google's most effective and lucrative types of ads. The whole reason why search ads are so effective in the first place is because you're telling Google exactly what you're looking for, and it can pitch relevant ads accordingly.

There are other areas, such as travel information or local restaurant recommendations, that are also important to Google's business where it faces competition, but it's still interesting for Schmidt to characterize Amazon as the company's "biggest search competitor."

This doesn't appear to be Google downplaying the threat that Microsoft represents, like Microsoft has downplayed Google's threat to Office in the past. Rather, Schmidt is providing a broader frame of reference beyond explicit search queries. The traffic that Schmidt is concerned about isn't ever going to a search engine in the first place, and as such isn't reflected in search market share estimates.

Just in the nick of time
Coinciding with Schmidt's speech, Google just announced a new Amazon Prime competitor. The search giant launched Google Shopping Express early last year as a free trial, a service that offers same-day delivery from local stores. Google has added a handful of cities to the mix since.

Now, Google has rebranded it as simply Google Express, added even more cities and stores, and introduced a $95 annual membership (or $10 per month). That's comparable to Amazon's $99 Prime membership fee, although Prime includes other benefits, such as Prime Music, Instant Video, and a Kindle Library. While Google Express is unlikely to present a viable threat to Prime, the move is symbolic of the competition that Schmidt is referring to.

The thing is that Google can probably never supplant Amazon as the go-to e-commerce site, much like Amazon can't displace Google as the dominant search engine in the world. Neither company is going anywhere anytime soon.

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.
$2,359.50 (5.11%) $114.66
Microsoft Corporation Stock Quote
Microsoft Corporation
$267.70 (3.42%) $8.84, Inc. Stock Quote, Inc.
$116.46 (3.58%) $4.02
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,370.76 (5.20%) $117.07

*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.