Is Google Concerned About Amazon Eating Their Lunch?

Leveling The Playing Field

When monopolies state that they want to "level the playing field" it should be cause for concern.

Groupon is a great example of how this works. After they turned down Google's buyout offer, Google responded by...

• adding offers ads directly in the search results
• partnering with over a dozen competitors in the space
• acquisitions that would later lead to layoffs.

The same deal is slowly progressing in the cell phone market: “we are using compatibility as a club to make them do things we want."

Leveling Shopping Search

Ahead of the Penguin update Google claimed that they wanted to "level the playing field." Now that Google shopping has converted into a pay-to-play format & Amazon.com has opted out of participation, Google once again claims that they want to "level the playing field":

“We are trying to provide a level playing field for retailers,” [Google’s VP of Shopping Sameer Samat] said, adding that there are some companies that have managed to do both tech and retail well. “How’s the rest of the retail world going to hit that bar?”

This quote is particularly disingenuous. For years you could win in search with a niche site by being more focused, having higher quality content & more in-depth reviews. But now even some fairly large sites are getting flushed down the ranking toilet while the biggest sites that syndicate their data displace them (see this graph for an example, as Pricegrabber is the primary source for Yahoo! Shopping).

Some may make the argument that a business is illegitimate if it is excessively focused on search and has few other distribution channels, but if building those other channels causes your own site to get filtered out as duplicate content, all you are doing is trading one risky relationship for another. When it comes time to re-negotiate the partnerships in a couple years look for the partner to take a pound of flesh on that deal.

How Google Drives Businesses to Amazon, eBay & Other Platforms

Google has spent much of the past couple years scrubbing smaller ecommerce sites off the web via the Panda & Penguin updates. Now if small online merchants want an opportunity to engage in Google's search ecosystem they have a couple options:

• Ignore it: flat out ignore search until they build a huge brand (it's worth noting that branding is a higher level function & deep brand investment is too cost intensive for many small niche businesses)
• Join The Circus: jump through an endless series of hoops, minimizing their product pages & re-configuring their shopping cart
• PPC: operate at or slightly above the level of a non-functional thin phishing website & pay Google by the click via their new paid inclusion program
• Ride on a 3rd Party Platform: sell on one of the larger platforms that Google is biasing their algorithms toward & hope that the platform doesn't cut you out of the loop.

Ignoring search isn't a lasting option, some of the PPC costs won't back out for smaller businesses that lack a broad catalog to do repeat sales against to lift lifetime customer value, SEO is getting prohibitively expensive & uncertain. Of these options, a good number of small online merchants are now choosing #4.

Operating an ecommerce store is hard. You have to deal with...

• sourcing & managing inventory
• managing employees
• technical / software issues
• content creation
• marketing
• credit card fraud
• customer service
• shipping

Some services help to minimize the pain in many of these areas, but just like people do showrooming offline many also do it online. And one of the biggest incremental costs added to ecommerce over the past couple years has been SEO.

Google's Barrier to Entry Destroys the Diversity of Online Businesses

How are the smaller merchants to compete with larger ones? Well, for starters, there are some obvious points of influence in the market that Google could address...

• time spent worrying about Penguin or Panda is time that is not spent on differentiating your offering or building new products & services
• time spent modifying the source code of your shopping cart to minimize pagecount & consolidate products (and various other "learn PHP on the side" work) is not spent on creating more in-depth editorial
• time switching carts to one that has the newly needed features (for GoogleBot and ONLY GoogleBot) & aligning your redirects is not spent on outreach and media relations
• time spent disavowing links that a competitor built into your site is not spent on building new partnerships & other distribution channels outside of search

Ecosystem instability taxes small businesses more than larger ones as they...

• don't have as generous of terms with pushing items back on the supplier
• often get products at higher price-points due to delivering smaller volumes & not being "bigger than Japan"
• lack the offline sales channels to move product through when an animal from the plex hits their sites
• lack large capital reserves & generally don't have credit on as favorable terms
• can't bribe governments for special deals & can't rely on government subsidies for most of their profits

The presumption that size = quality is false. A fact which Google only recognizes when it hits their own bottom line.

Anybody Could Have Saw This Coming

About a half-year ago we had a blog post about 'Branding & The Cycle' which stated:

algorithmically brand emphasis will peak in the next year or two as Google comes to appreciate that they have excessively consolidated some markets and made it too hard for themselves to break into those markets. (Recall how Google came up with their QDF algorithm only *after* Google Finance wasn't able to rank). At that point in time Google will push their own verticals more aggressively & launch some aggressive public relations campaigns about helping small businesses succeed online.

Since that point in time Amazon has made so many great moves to combat Google:

• opting out of participating in Google's PLAs
• creating brand-specific pages hosted on Amazon.com managed by 3rd party brands & tying into social channels
• quietly fleshing out their own ad network

All of that is on top of creating the Kindle Fire, gaining content streaming deals & their existing strong positions in books and e-commerce.

It is unsurprising to see Google mentioning the need to "level the playing field." They realize that Amazon benefits from many of the same network effects that Google does & now that Amazon is leveraging their position atop e-commerce to get into the online ads game, Google feels the need to mix things up.

If Google was worried about book searches happening on Amazon, how much more worried might they be about a distributed ad network built on Amazon's data?

Said IgnitionOne CEO Will Margiloff: “I’ve always believed that the best data is conversion data. Who has more conversion data in e-commerce than Amazon?”

“The truth is that they have a singular amount of data that nobody else can touch,” said Jonathan Adams, iCrossing’s U.S. media lead. “Search behavior is not the same as conversion data. These guys have been watching you buy things for … years.”
...
Amazon also has an opportunity to shift up the funnel, to go after demand-generation ad budgets (i.e. branding dollars) by using its audience data to package targeting segments. It's easy to imagine these segments as hybrids of Google’s intent-based audience pools and Facebook’s interest-based ones.

Google is in a sticky spot with product search. As they aim to increase monetization by displacing the organic result set they also lose what differentiates them from other online shopping options. If they just list big box then users will learn to pick their favorite and cut Google out of the loop. Many shoppers have been trained to start at Amazon.com even before Google began polluting their results with paid inclusion:

Research firm Forrester reported that 30 percent of U.S. online shoppers in the third quarter began researching their purchase on Amazon.com, compared with 13 percent who started on a search engine such as Google - a reversal from two years earlier when search engines were more popular starting points.

Who will Google partner with in their attempt to disrupt Amazon? Smaller businesses, larger corporations, or a mix of both? Can they succeed? Thoughts?