March 7, 2012

Research suggests we should all gang up on Amazon or we’re all going to die


It seems Amazon hasn’t run out of other businesses to threaten yet — according to a Business Insider report by Henry Blodget, no less than Google should be running scared of the growing behemoth from Seattle. Says Blodget, “One big threat to Google’s core search business is the potential for Amazon to usurp Google’s position as the ‘start point’ for many product searches and skim off the revenue that goes along with it.” Amazon is already making over $1 billion a year in ad revenue, he observes.

As Blodget details it,

Google makes an overwhelming percentage of its revenue from a relatively small percentage of its search queries, especially search queries for specific products.

As long as consumers start their product searches at Google, Google can be ambivalent about which merchant ultimately sells the product, because Google will get paid regardless.

Over the last decade, however, Amazon has been quietly expanding its web site to sell not only its own merchandise and the merchandise of third-party merchant partners, but to sell links and advertising to other third-party merchants that Amazon may have no other affiliation with.

Amazon places these links and ads at the bottom of product pages, and they are much more visual and targeted than some Google search results.

But it isn’t only Google who should be worried, says another report: Apple could be in trouble, too, says Matt Asay in a story for the UK’s The Register. “Amazon, after all, is the anti-Apple. Whereas Apple only knows how to do high-margin businesses, Amazon only knows how to do low-margin businesses. Guess which one tends to dominate markets over time?”

For reasons like this and more, says Asay, “Goldman Sachs has Amazon leapfrogging the now-dominant Apple in 2013 in terms of growth. In fact, this same report shows Apple’s growth seriously slowing in 2013, while Amazon remains on a torrid growth pace.”

All of which may explain why Google, at least, announced some price slashing yesterday — responding to a price decrease last month by Amazon for some of its cloud storage services, and still more cuts by Amazon just Monday, Google announced price cuts of as much as 15 percent in its Google Cloud Storage services. As a report by Barb Darrow on observes, “There seems to be a real race to the bottom in cloud storage.”

Before all is said and done, the race may not be in just cloud storage — and while I’m not a betting man, the race to the bottom is one Amazon usually seems to win.


Dennis Johnson is the founder of MobyLives, and the co-founder and co-publisher of Melville House.