Thursday, May 16, 2013

Amazon's Waters Could Flood Google

Jeff Jordan, a partner at Andreessen Horowitz with the Midas touch, recently opined that’s e-commerce capabilities and successes represent a meaningful threat to Google’s product-search-related advertising business.

I will take Jeff’s thesis — with which I fundamentally agree — one step (maybe even more) further by saying that I believe is one of the few companies that has the ambition, permission, structure, and, maybe most important, data, to actually beat Google at its own game.

As an Internet equity research analyst from 1996-2009 (go ahead... throw your drink on your screen and curse me loudly enough that the barista hears you...), I had a front seat to The Show.  I covered from its days as “just” a bookseller and Google when it was still a private company, in addition to eBay, Yahoo!, Excite,, Netflix, Omniture, aQuantive, CNET, E*TRADE, and many other industry-defining companies.

From the earliest days, it was clear to me (and a few others, obviously) that was no ordinary company, at any level.  However, three attributes set it (far) apart in my mind:

  1. Vision and ambition that were orders of magnitude beyond those of other teams that I encountered (until, that is, I met Google);
  2. A cult-like dedication to customer experience / satisfaction that permeated every decision made by every person at the company; and,
  3. A business model that not only valued long-term cash flow and absolute profit potential, but also deemed near-term profits and profit margin largely irrelevant.

Individually, these characteristics have been powerful; in combination, they have been revolutionary.  Jeff Bezos’ worldview gave his entire team permission — in fact, it gave them the mandate — to think Big, with a capital “B.”  Customers’ pure delight with every interaction gave the company permission to sell (almost) anything to (almost) anyone.  And, finally, management’s clarity of financial intent (i.e., to perpetually focus on long-term potential) has, from day one, conditioned shareholders / Wall Street to expect a business that will forever be amorphous and unpredictable, with razor-thin margins.

Liberated from more typical corporate constraints, has evolved like few other companies in history — from its humble origins as an online bookstore into: Amazon Elastic Cloud Compute, Amazon Marketplace, Amazon Flexible Payments Service, state-of-the-art warehouses (~70) everywhere, Amazon Cloud Player, AmazonFresh, Amazon Mechanical Turk, Amazon Prime, A9, Amazon Simple Storage Service,, Silk, Amazon Cloud Drive, Zappos, Amazon CloudFront, Kindle...

Sound familiar?  It should, because this transformation mirrors that of Google, itself, which began as “just” a search engine company focused on “organizing the world’s information,” and has now become: Gmail, Maps, Apps, Drive, Chrome, Android, Motorola, YouTube, Wallet, Voice, Google Cloud Storage, Shopping, Chromebook, Google App Engine, Google+...

While not perfectly matching each other solution-for-solution, and Google now find themselves overlapping across, and competing within, most major categories of Internet-fueled technology and business.  SaaS.  Hardware.  e-Commerce.  IaaS.  Enterprise.  Media.  Consumer.  Applications.  Browsers.  Storage.  Payments.  Consumer.  Tablets...

And, yet, for all these evolutions and comparisons and similarities and overlaps, I actually think there’s one final aspect to’s business with which Google cannot (yet) directly compete, and which may prove to be the difference-maker in this faux-ish battle: Data.

With +17 years of history and hundreds of millions of transactions across almost every category of goods, now has massive quantities of data about the actual buying habits of tens, if not hundreds, of millions of consumers around the globe.  Not just what people are searching for (Google, though actually has it too).  Not just what people “like” (“like” that, Facebook).  Not just what people want (Pinterest, though actually has it too).  Not just what people tweet about (Twitter).  But, the items that people actually pay for with their own hard-earned dollars!

Armed with this unique transaction- and SKU-specific data, at scale, has the potential to become one of, if not the most signficant advertising platforms in the world, in my view — matching, if not besting, Google.

Look at it this way: if advertisers pay Google $44 billion per year for connecting them with consumers that it oftentimes thinks have interest in their product(s), what might those same advertisers be willing to pay for connecting them with people they know are interested in their products (or those of their competitors, or those in which they will soon have interest...)?

For instance, do you think Volvo, Toyota, Lexus, Ford, et al., might be willing to pay a small fortune to be introduced to an individual in Huntington Beach, CA, who suddenly begins buying newborn diapers by the pallet?  What about Gymboree?  Gerbers?  Whole Foods?  Safeway?  Fab?  Gap?  Pottery Barn?  Ross?  Home Depot?...

Similarly, how much interest might be generated among home decor vendors, local service providers (e.g., physicians, athletic clubs, veterinarians), home maintenance vendors, etc., by a change in shipping and billing information for one of’s long-time customers, whose pattern of purchases are highly suggestive (remember, has developed one of the best predictive commerce models in the world for its own e-commerce franchise) of a home with at least one child and one dog, an avid athlete / runner / yogini, with a taste for gourmet cooking and a passion for gardening, among other attributes?

And these hypotheticals say absolutely nothing of the extraodinary value could (theoretically) deliver to its customers / partners by sharing with them relevant online transaction activity that might follow said advertisements, effectively offering a closed loop marketing environment unlike any other.

By some accounts, has (finally) started focusing on the business potential of advertising.  For years, it has run ads on its own sites.  Then, in late-2010, the company also began serving advertisements on others’ sites, introducing what is, in effect, a full-fledged online advertising network.  But, these are just warm-ups in my mind — methodically experimenting (as is its custom) and purposefully tiptoeing around the edges of its potential.

I’m convinced the day will come — sooner rather than later — when unleashes its data and announces itself as an advertising powerhouse.  And, when it does, I think the gloves officially come off and the real battle with Google commences.

1 comment:

  1. Interesting chart of's revenue / net income that goes hand-in-hand with this piece: