Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

You'll Never Guess Who Google Considers Its Biggest Competitor

By Adam Levy - Oct 19, 2014 at 9:00AM

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

It's not afraid of other search engines ... at least not in the traditional sense.

When it comes to searching for something on the Internet, most people head over to Google ( GOOG 0.06% ) ( GOOGL 0.12% ). A growing portion of Internet users (19.2% of U.S. searches) use Microsoft's Bing,but very few consider Amazon.com ( AMZN 0.16% ) a big competitor in search. But Eric Schmidt, speaking in Berlin earlier this week, said the giant e-tailer is its biggest competition.

Google is facing antitrust regulations from the European Commission. While Schmidt's wasn't directly addressing regulators, his speech was clearly aimed at swaying their opinion. To that end, Schmidt says Google has a lot of competition on the Internet, but why does he think Amazon is its biggest competitor?


Source: Amazon

The best searches go to Amazon
Search advertising's highest priced ads are for search terms that have intent to buy. (Something like "raincoat.") But Schmidt cited research by Forrester that found almost one-third of people looking to buy something started their research on Amazon. That's more than twice the number that went to Google.

The data clearly backs up Schmidt's claim. Only 12.4% of Amazon's traffic comes from search, and a large portion of that is from people typing "amazon" into their search bar or Google. That's well below average. In 2011, Google said the average website gets 28% of its traffic from search. A 2006 study from Forrester found that 93% of web traffic originates from search engines. My best guess is somewhere in between.

But people go to Amazon first because its product is simply better than Google's for shopping specific searches. Google doesn't consider Bing or any other search engine its biggest competitor because it knows it can do what they do better than them. Amazon has the advantage of reviews, related product suggestions, and a very good price benchmark. Even if people aren't intending to buy something on Amazon, they can find lots of information about a potential purchase through the website.

This summer, Google added star ratings to its product listing ads. These ads, which appear in search results above organic results and in Google's "Shopping" product, have been a thorn in the side of Amazon. Google started rolling them in in 2012 and has steadily improved the product since. All the while, Amazon.com has refused to buy the ads, and its subsidiaries (Zappos.com, Diapers.com) have scaled back ad purchases recently.


Source: Google Commerce blog

As Google improves its shopping products, it hopes to attract a large portion of the majority of Internet users that don't use Google or Amazon as their primary shopping research destination.

Not just a search competitor
Amazon and Google go head to head in a lot of categories besides search. Here's a list of just a few areas where the two compete.

  • Cloud computing. Amazon offers Amazon Web Services, which encompasses a wide range of cloud computing services, and Google offers similar services running on its own servers. The two are constantly undercutting each other's pricing, and rolling out new services to attract businesses. Amazon is a clear leader in cloud computing, but the competition is fierce.

  • Advertising. This summer, Amazon entered the world of advertising for third-party sites. Amazon is using its users purchase and browsing history to target advertisements and direct traffic all over the web. This new product competes directly with Google's ad network, which uses cookies and other data Google collects to target advertisements. Amazon's targeting data is arguably better, but likely has a lot of gaps where Google is superior.

  • Consumer electronics. Both companies offer low-price tablets, and Amazon recently followed Google into smartphones with the Fire. Amazon forked Google's Android OS to create its own mobile operating system, which cut Google out of a lot of revenue from app purchases on Kindle Fire devices.

  • Digital media. Amazon operates the second largest digital music store and its the largest ebook seller. It also sells digital videos, and streams music and videos through Amazon Prime. Google has its Play store, and it operates the largest music and short-form video streaming service in YouTube.

  • Rapid delivery. Amazon offers its Prime membership for $99 a year, which includes two-day shipping on most items sold on its online marketplace. Google is working with retailers to offer same-day shipping from local stores through a service it call Google Express.

More opportunity than threat
For Google, Amazon's share of the product search market is more of an opportunity than a threat. The bigger opportunity, though, is the share of the market that doesn't go to either Amazon or Google. Amazon has a lot of dedicated shoppers -- especially its estimated 50 million Prime subscribers. Those people aren't going to suddenly switch to Google.

Amazon's threat to Google is minimal, and Google's threat to Amazon is only slightly larger. The two are competing for the rest of the market.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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.
GOOGL
$2,949.00 (0.12%) $3.61
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,528.80 (0.16%) $5.51
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$332.96 (-0.58%) $-1.96
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,962.39 (0.06%) $1.66

*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 service.

Stock Advisor Returns
652%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

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

Our Most Popular Articles

Premium Investing Services

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