Saturday, November 15, 2014

Goliath v Goliath: who will reign supreme in the Google v Amazon wars?

A small handful of American companies define much of what we recognise as the web of today. Google, Amazon, Apple, Facebook, Twitter and Yahoo suck up hours of our time and report huge revenues, but the complex inter-dependencies of Silicon Valley mean that some of these companies are “frenemies”, alliances and strategies shifting.

Amazon and Google are a prime example. Amazon is one of Google’s biggest advertising clients, but is also a ferocious rival across a number of products and services. Kantar Media estimates that Amazon spent $157.7m on Google US search ads in 2013, almost twice that of the second largest advertiser, Priceline Group. Internationally, Amazon also spends heavily with Google, so its total investment is much higher.

In 1998, Larry Page and Sergey Brin were running Google from the famous Menlo Park garage owned by (now YouTube CEO) Susan Wojcicki when Amazon founder Jeff Bezos invested $250,000 of his own money in the fledgling search engine.

When Google went public in 2004, that $250,000 investment translated into 3.3m shares of Google stock, which at Google’s IPO represented a stock share position worth over $280m. Bezos has not disclosed how many of those shares he still holds, but at the current price of Google stock they would represent an investment position of over $1.5bn. That means that the Amazon founder is both a successful early investor in Google and one of its biggest advertising clients.

The venn diagram of Amazon’s and Google’s businesses has become increasingly competitive as the two battle in increasingly diverse sectors.

Google has similarly expanded away from its core search advertising business into mobile software Android, mobile hardware with the Nexus mobile device range and entertainment through the movies, apps and games on the Google Play store - not mention the wearable technology Google Glass and self-driving cars.

Once famed for cheap books and CDs, Amazon now has a vast portfolio of businesses from its Kindle-branded tablets and ereaders to Amazon Web Services (AWS), its cloud storage arm.

The original Kindle e-reader was launched in 2007 and has extended to include Kindle Fire HD tablets, which rival Apple’s iPad or tablets running Google’s Android software. In fact, Amazon cleverly avoided the need to develop their own operating system, adapting Android to suit their own devices including integration with the Amazon appstore for games, music and videos. Amazon cut out the space usually reserved for Google’s own Play service, which can be found on most other Android devices.

Google launched its own signature mobile devices under the Nexus brand and now compete for hearts and minds with Amazon, Apple and their own Android partners such as Samsung, HTC and LG.

Cloud storage is an area of vast opportunity that Amazon has quietly come to dominate, and again competes with Google’s own enterprise cloud services. AWS started back in 2006 and opens up Amazon’s vast array of servers to other companies, offering a cheap way of accessing processing power for their own web services.

Amazon makes a thin margin on mass reach, where Google profits more on services to larger companies with their revenue model.

Amazon has even taken a stab at taking Google’s Android app business, opening up a competitor app store. Both companies want their customers to buy into their ecosystems, so their digital lives are occupied completely by their chosen platform.

Jeff Bezos wants you to stream movies from Amazon Prime with your Kindle Fire or on Kindle TV, download the latest Beyonce album and keep it in Amazon Cloud Player. Larry Page would prefer you download an app on your Nexus phone, stream your favourite TV series, bought on Play, via a Chromecast and again store all your tracks in the cloud on Google Music.

Both companies have recently experimented with trials of same-day fresh food deliveries and are fighting a PR war on drone deliveries to show the world who is at the cutting edge of ecommerce. They were both in the running to acquire video game streaming service, Twitch - a skirmish which Amazon eventually won last month, so creating a potential rival to Google’s all-conquering YouTube video platform.

With Google moving into Amazon’s territory for ecommerce, Amazon are, in true aggressive fashion, striking back by the launch of their Ad Platform to directly compete with Google’s omnipotent AdWords - the small text ads alongside all of their search results which have driven the majority of Google’s revenues.

Even on the streets of east London, Amazon are trying to edge out their Californian counterparts. Google and has set up Campus on Silicon Roundabout to help foster start-ups in the UK, and as well as several offices in the capital it has announced it is building a vast new office in King’s Cross. Amazon, not to be outdone, is now building an office for 5,000 staff close to Google’s Campus building, where all of their currently Slough-based employees will eventually work. Both seek out talented British engineers and other staff to help build their successful empires.

Will one company win out, or is there still plenty of room for both in these vast and exponentially growing markets? It’s very hard to predict, but maybe one day you’ll flick through the news on a Kindle phone or Nexus mobile only to see a smiling Jeff Bezos and Larry Page shaking hands having done a megadeal - and the legendary, fearsome Googlezon will have been born.

Cut benefits? Yes, let’s start with our $85bn corporate welfare handout

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