There's a reason people keep shopping on Amazon.com (NASDAQ:AMZN) even when it doesn't necessarily have the lowest prices on the Internet. It's more convenient than filling out all of your information on another e-commerce website.
That's a problem Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Facebook (NASDAQ:FB), and Twitter (NYSE:TWTR) are attempting to solve. Both Facebook and Twitter have already unveiled their "buy" buttons that allow users to make purchases directly within the social networks' websites. Google, too, is reportedly working on a buy button that would reduce the friction between seeing an ad and buying a product.
In 2013, U.S. shoppers spent an estimated $263 billion shopping online. That number's expected to grow to $414 billion in 2018. Google, Facebook, and Twitter plan to grab a piece of that pie with their "buy" buttons.
Making Amazon work for Google
Amazon has put pressure on other retailers to cut prices, oftentimes to even lower than what Amazon offers. Smart shoppers might know that, but many just go straight to Amazon.com to find the product they're looking for.
In the third quarter, 39% of U.S. online shoppers started their search on Amazon.com, according to Forrester Research. That's why Google's Eric Schmidt has said Amazon is Google's biggest search competition. Only 11% of shoppers started their product search on a search engine.
But if shopping and purchasing items at the best price were as easy as shopping on Amazon, it stands to reason more people would migrate to the option that provided the best price. Google is in a very strong position to provide that service.
Google already partners with certain retailers to provide unlimited same-day shipping service for $95 per year. It also has dozens of retail partners buying product-listing advertisements that display nice graphics above organic search results on product-related search terms. Expanding those partnerships to make ordering directly from Google will make it easier for shoppers to buy from retailers besides Amazon.
On the flip side, creating an amalgamated online store from dozens of retailers will only incite further price cutting. Retailers may hesitate to participate for fears that competition will eventually squeeze everything out of their margins.
Facebook and Twitter have an answer for that
While Google is trying to capitalize on shoppers that are searching for a particular type of item, Facebook and Twitter think they can help retailers sell items their users may be interested in based on the data they have on them. Instead of going after comparison shoppers, Facebook and Twitter are going after impulse buyers -- who are much less price-sensitive.
In theory, buy buttons in users' timelines and news feeds should be more attractive to online retailers, because they don't rely on cutting prices to compete with Amazon.com and other big names. Additionally, the buy button can track the effectiveness of an advertisement better.
While retailers are on board with Facebook and Twitter's buy buttons, the social networks have hesitated to roll out the feature to all of their users. Both want to get the user experience right before offering the option to retailers. If either one doesn't get it right, they risk losing those advertisers to the competition.
Taking a piece of a $263 billion industry
With Americans spending hundreds of billions of dollars online every year, there's plenty of money to be made as a middleman. Google, Facebook, and Twitter could just charge retailers a premium to place the "buy" button in their advertisements. This would result in a safer income stream, as it doesn't completely rely on conversions to generate revenue.
It could be yet another means for Facebook to continue raising its average ad price, which seemed to be the rule in 2014, and ought to continue in 2015. Twitter, comparatively, has struggled as average ad prices declined last year. And Google has made no secret that product-related advertisements are its most lucrative.
Additionally, the advertising companies could take a small commission. Applying an Apple Pay-like 0.15% to the projected $414 billion Americans are expected to spend online in 2018 results in $621 million of high-margin revenue. But even taking the whole market wouldn't make much of an impact on Google, which is expected to generate over $78 billion in revenue this year.
As for Amazon, if these "buy" buttons take off, it will have to continue offering shoppers reasons to sign up for Amazon Prime to keep them loyal to its web store. While Amazon doesn't like to give out a lot of numbers, it has made several announcements about Prime in the past. Look for those to keep coming after "buy" buttons go mainstream.