Google Amazon competition: How Amazon Prime delivery hurts Google’s ad business.

Google Thinks Amazon Is Its Biggest Competitor. Here’s Why.

Google Thinks Amazon Is Its Biggest Competitor. Here’s Why.

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Commentary about business and finance.
Oct. 14 2014 5:09 PM

Google Thinks Amazon Is Its Biggest Competitor

Here’s why.

Bezos Schmidt
Amazon founder and CEO Jeff Bezos, left, and executive chairman of Google Eric Schmidt.

Photo illustration by Slate. Photos by David Ryder/Getty Images and Jessica Rinaldi/Reuters.

Google and Amazon didn’t always seem like competitors—Google is in the business of selling of ads, Amazon in the business of delivering goods. Lately, though, those businesses have converged. The first way this is happening is simple: Google is getting into the market for on-demand goods. It launched a same-day delivery service, Google Shopping Express, in the Bay Area in 2013 and expanded it to customers in Manhattan and West Los Angeles in May. On Monday, Google announced that its service is rolling out to Chicago, Boston, and Washington with a shorter name (Google Express), a more colorful logo, and a newly defined pricing plan.

Alison Griswold Alison Griswold

Alison Griswold is a Slate staff writer covering business and economics.

Google is making same-day delivery on Google Express available for three different prices: a flat rate of $4.99 per order, a monthly membership fee of $10, or an annual membership fee of $95. These numbers are hardly incidental—$95 is a shade cheaper than the $99 fee for a yearlong membership on Amazon Prime and significantly less than the $299 fee for Amazon Prime Fresh, a same-day delivery service for groceries and other “eligible orders” more than $35 on Amazon. (Amazon's same-day delivery option is also available in 14 cities to Prime members for a flat $5.99 fee.)

The two services have some differences. Google's is exclusively for delivery, while benefits for members of Amazon Prime include unlimited music and video streaming from Amazon's collections and one free Kindle rental a month. Google also doesn't have its own massive warehouses like Amazon does, but instead works with local merchants (Barnes & Noble, Fairway, PetSmart, Staples, Walgreens, and Target, to name a few) to gather and deliver goods to customers. You're less likely to find a same-day delivery-ready molecular model set on Google Express, but for everyday needs like groceries and toiletries, the two services are fairly comparable.

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So delivery is one area where Google and Amazon have collided. But in the second realm—search—it's a little less obvious. In a speech at the headquarters of Native Instruments in Germany on Monday, Google Chairman Eric Schmidt made this comment: “Many people think our main competition is Bing or Yahoo. But really, our biggest search competitor is Amazon.”

“People don't think of Amazon as search,” Schmidt continued, “but if you are looking for something to buy, you are more often than not looking for it on Amazon. They are obviously more focused on the commerce side of the equation, but at their roots, they are answering users' question and searches, just as we are.”

What this means is that Google Express might not really be about delivery first and foremost—instead, it might be about protecting the company’s core business by giving people another reason to stay on Google for their Internet searches. Here's how Re/code's Jason Del Rey explains it:

Each time someone searches for a product on Amazon instead of Google, the search giant loses a chance to serve up advertisements along with the search results. And advertisements, not toothpaste delivery, is still Google’s big business.

Google is afraid of becoming the middleman that gets cut out. “Research by the Forrester group found that last year almost a third of people looking to buy something started on Amazon—that's more than twice the number who went straight to Google,” Schmidt noted in his speech. Others head directly to Kayak for airline bookings, Airbnb for short-term rentals, and Yelp for restaurant information. Each of those searches is one less that Google can use for serving up ads.

Schmidt says that Amazon is Google's biggest search competitor; then again, since search is the biggest driver of Google's business, a challenge to that model could by extension be the biggest threat to Google. Facebook is arguably another important competitor in terms of mobile advertising—a constant headache to Google, with its plunging cost-per-click prices. But Google as a whole still dwarfs Facebook.

Amazon and Google don't have the same business or the same vision. Amazon Prime and Google Express, for all their overlap, aren't the same service, either. But their similarities are getting more similar and their differences less different. As Schmidt put it to his audience: “In tech, competition isn't always like-for-like.”