Google's Competitive Response to Amazon: We're Not a Merchant


Heads up, online retailers. Google doesn't really like the idea that 30% of online shoppers start their product search at Amazon.com. That's a threat to some of the most lucrative parts of their online ad business. So they're taking action, and it's going to send some big waves through the online world. 

If I were an online retailer, or even a local retail business, I would be very focused on understanding exactly what Google is doing here.

Google Shopping Going Commercial

If you want an in-depth look at what's happening, then check out this video by Jon Venverloh, head of Shopping Platforms at Google (after you finish reading this article, of course). 

If you don't have time to watch it all, here are my key take-aways: 

Damming the Amazon:

Amazon is the competitive threat behind this evolution in Google's shopping experience. Google is clearly differentiating itself from Amazon, positioning itself as not a retailer but a connector and source of traffic for other merchants. 

This is a difficult competitive path for Google. Shoppers want simple, safe paths to buying stuff on the web. When you rely on third parties for fulfillment, that complicates things. 

In the end though, I believe this will be a winning strategy for Google. Why? Because integrating this new shopping experience with mobile will give Google a spot at the table with the much larger market for real world physical purchases. 

I also believe that as Google continues to invest in the Knowledge Graph, and semantic search more generally, the way we describe products and services will become increasingly standardized. As that happens, information decentralizes out of Amazon and shifts some power back to smaller merchants, with Google bridging the way. 

Commercializing Google Shopping:

Google Shopping used to be a confusing experience, by Google's own admission. There were ads mixed with free listings on the Shopping site and it was unclear how these results fit with Google's standard search results. 

Well, go to the Shopping site today, run a search for tents and you'll now get something like these much cleaner results: 


These entries are called "product listings." Let's take the "MSR Hubba Hubba Tent" as an example of what happens when you click through to an individual product listing: 

Scroll down a bit, and you'll see the "product listing ads," along with a very handy map showing which merchants claim to actually have that product in stock. 

Remember what I was saying about bridging into real world, physical commerce? Think about being out doing errands and you remember you need to buy a certain such-and-such before you head home. Pull up Google Shopping, type in your product ... and boom, there you go. No need for next-day shipping from Amazon. Oh, and you also help support businesses in your local community. Nice. 

Big Dollar Signs for Local

These product listing ads are, of course, paid for by merchants. When this transition to the new shopping service is complete in October, that's all you will see on Google Shopping - paid for product listings. 

From Google's perspective, this is going to be a very lucrative extension to their search business, with potentially significant implications for the company's overall revenues. Product listing  ads currently have a click-through rate that is twice as high as ad-word text ads. With those kinds of margins, you can bet that Google will be pouring a lot of energy and investment into these offerings to merchants and consumers. 

Suddenly all those purchases of travel information providers like Zagats and Frommer's makes a lot more sense now, as does the integration and out-and-out prominence of Places in Google+. Local is going to be an absolutely huge business opportunity for Google as they complete this transition from simple ads to transaction facilitation. 

The Hard Parts

Don't expect this transformation of e-commerce to happen overnight though. I once ran a very high-volume online car buying service for Microsoft. The service was called CarPoint, and we served seven million customers every month at our peak. There were two really hard parts about running that service. Do you want to know what they were? 

The first difficulty in running CarPoint was standardizing all of the automotive specifications that we got from the manufacturers and from third-party content providers like Kelley Blue Book, so that customer could easily compare a Honda Accord to a Toyota Corolla. I can't tell you how hard it was getting all that heterogenous data wrangled so that it was useful for our customers, and that was for just one product category: automotive. Google will have way, way more categories to wrangle. This is an area where Amazon has a huge base of experience from which to draw. 

The second difficulty in running CarPoint was that we were dependent upon local car dealers to complete the actual purchase transaction. When they did a good job, our customers were happy. When they did a bad job, our customers were not. We would often have to intercede on customers' behalves, and to be honest, the results depended 100% on how much leverage we had with that particular dealer; in other words on how much business we were sending their way. 

On that measure, I doubt any other company in the world has the kind of ability to drive traffic that Google does, so the company should have some decent leverage to ensure good merchant behavior, and that is no doubt part of the rationale for Google's Trusted Stores program as well. 

Big Battle Ahead for E-Commerce

I believe we are about to witness a battle between Amazon and Google that will dwarf anything we are currently seeing between Google and Apple, Facebook or Microsoft. Amazon represents a threat to Google's core business, which is search. Facebook does as well, but in not nearly as direct a fashion as do those 30% of online shoppers who start their product searches at Amazon. You can bet Google will work like crazy to drop that number down to single digits as soon as possible.

If I were a betting man, I'd put my bet on Google over the long-haul. It will take time, and it's anything but a done deal. With that said, if I were running a local retail store right now, I would be all over this thing like salsa on a hot tamale, trying to figure how to use Google's new direction to my fullest advantage.