Google and Amazon's Business Competition

2993 words (12 pages) Business Assignment

5th Jun 2020 Business Assignment Reference this

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Abstract

In an oligopolistic market, where it can be challenging to enter the market due to difficult barriers, and where the goods and/or services being sold are relatively the same, there are generally very few companies that reign supreme.  Those companies are strong competitors against each other, each controlling much of the market. With an emphasis on market structure, pricing strategies and interdependence, this paper will analyze the relationship between to very strong competitors, Amazon and Google, their impact and influence on the market and how their business decisions impact one another as well as small competitors.

How Amazon and Google Compete

“Companies compete on more than specific products. They compete on overall leadership, prominence, brand value and hiring. On all of these fronts, Amazon and Google … are currently in direct competition” (Quora, 2017). These two giants, contrary to what many people think, compete on several different platforms, and they are both focused on selling goods and services (How Amazon Competes with Google (AMZN, GOOG, 2015).

One area where Amazon and Google fiercely compete is in cloud computing. This is one of the biggest up and coming technologies. In 2018, the market revenue for cloud storage, worldwide, was projected to reach almost $200 billion (How Amazon Competes With Google (AMZN, GOOG), 2015). Google Cloud Platform and Amazon Web Services both offer a cost efficient, and secure method of IT services to companies large and small. It is a steadily growing market where each is continually looking for, and investing in, innovative ways to stay ahead of their competitors (Jackson, 2019).

Outside of the cloud and other IT services, Amazon and google seem to be running neck to neck in most other markets as well, such as online shopping. Of course, Amazon is well known for their online shopping and leads the competition, but Google has a way of disrupting any area that Amazon touches. For example, Google shopping. Google Express works with other brick and mortar stores and facilitates the transaction for the consumers, as well as navigates the complete purchasing process (Pettijohn, 2018). Google Express works alongside big names such as target, Walmart, and Home Depot. They connect their catalog with Google in order for items to show up in searches. In turn, Google gets a commission on any purchases made (Cooper, 2018). With Amazon, when the consumer goes onto their site and clicks on a product, they not only have an opportunity to make a sale, but they also get in-depth data about the tastes and preferences of the consumer. This data can then be utilized to make money in the advertising sector (Pettijohn, 2018). Because the consumers tend to lean more heavily toward convenience over pricing, the online shopping market is growing rapidly.  Where Amazon cater to primarily the larger scale sellers, Google Express, though not as user friendly, offers an outlet for the smaller businesses to take part in e commerce as well (Pettijohn, 2018).

No matter the area, Amazon and Google seem to be continually challenging each other to reach a higher level. Their largest industries of competition may be cloud storage and online shopping, but they also compete in many other dimensions. A few of these other areas where they offer similar products and services are Amazon Prime and Google Play, Amazon Fire TV and Google Chromecast, and Amazon Echo and Google Home, (Cooper, 2018). The services that each of these companies offer may vary in details, but with their consistent rivalry, they are always finding innovative ways to pull themselves above the competition.

Amazon Winning

“According to analyst firm Canalys, Amazon shipped some 6.3 million Echo devices in 2018 – compared with Google’s 5.9 million Homes shipped” (Sraders, 2019). From the above quote, we can see that Amazon is leading in the smart speaker categories. In relation to market share, Google is currently gaining on Amazon, but Amazon has a massive lead over there competitor. They—Amazon, practically dominate the market at 61.9% versus Googles 29.6%. Since both company products can be connected with the various device in the home, with Amazon controlling the market, more products will be geared more toward their product. We see this at the Consumer Electronics Show (CES) when Amazon announced that their product can be used by over one hundred (100) million devices. “Amazon recently announced that more than 100 million Alexa-enabled devices have been sold” (Koetsier, 2019).

Another area that Amazon is dominating in is cloud computing. This is a new area in business, in the past, memory was very expensive but in this day and time memory became cheaper and more available. According to IBM cloud computing is defined as “Cloud computing… delivery of on-demand computing resources — everything from applications to data centers — over the internet on a pay-for-use basis” (IBM). Companies use this service to store their data and all information that is normally kept on a server. Amazon, as shared previously have dominated this market—controlling 51% of the market with Google only scraping a mere 6% (Jackson, 2019). This is a very big profit control for Amazon when the entire market total revenues are approximately $41.79 billion dollars.

Google Winning

Google has shown that it knows how to advertise, with most of their revenue coming in the form of advertising, with over 100 billion dollars in revenue in 2018 (Williams, 2019).  Comparing this with Amazon’s meager 10 billion dollars of revenue within the same year, Google is clearly out pacing Amazon in terms of advertising revenue (Williams, 2019). Google does this by acquiring data much better than Amazon. Google are able to do this because of how dominant they are in this area, by obtaining in excess of 90% of all searches on the internet, they are better able to tailor ads to the consumer, thus resulting in more clicks (Desjardins, 2018). Google is the obvious frontrunner when it comes to advertising, with Amazon nowhere near them, despite Amazon’s market share in product searches.

An area where Google is down but not out is in smart speakers. Amazon has around sixty percent and Google has around thirty percent of the United States’ smart speaker market (Sterling, 2018). However, when factoring in worldwide markets, some analysts even have Google and Amazon neck and neck in market share (Sterling, 2018). Google is also growing in this market, showing a 449% growth, compared to Amazon, at -14% from 2017 – 2018 (Sterling, 2018). Not only is Google growing within the market, they are actively trying to better their product. One example of that is offering free music through YouTube Music on their smart speaker, beating out Amazon that only offers some music if the consumer has a prime membership (Niu, 2019). Although Google may not currently be winning in total market share, they are providing a better product, and winning in growth within this ever-growing market.

Another area that Google is in the same boat as it is in smart speakers is cloud computing. Despite Amazon’s market share and seven-year head start, Google is working to penetrate this market by offering an extremely competitive product. Google’s cloud computing offers better security, less restrictions and more flexible tools for cloud architects to use, lower pricing, better networks, and has better, faster, hardware (CPU, RAM, & storage) (Ciabarra, 2018). Google does all this on the back of its tried and tested network that accounts for over one quarter of all internet traffic, which translates to it being bigger than Facebook, Netflix, and Twitter’s networks combined (Ciabarra, 2018). Google also has plenty of future growth it can acquire – firms have the ability to use more than one cloud, and only a small percentage of all firm’s onsite applications have been moved to the cloud (Ciabarra, 2018). Again, although they are not winning in market share, Google has a great network foundation to use to in order to offer a better product to firms in a market that has just begun to gain traction.

Google can advertise and knows how to make money from it, and although they are not winning in total market share in all areas, they are making up ground quickly and are poised to win in the long run with this competition.

Who Wins when Amazon and Google Compete?

As we have seen with both Google and Amazon, they compete on many product offering fronts from cloud services (Amazon Web Services vs. Google Cloud) to search advertising to smart homes (Amazon Echo vs. Google Home) to shopping and delivery service (Amazon basic and prime vs. Google Express) to subscription video on demand (Amazon Prime Video vs. YouTube and YouTube Red) and data analytics (Google Analytics versus Amazon’s Kinesis).  They go head to head against each other in an imperfectly competitive market environment ranging from oligopoly to monopolistic competition, depending upon product line, with Amazon being the category leader in some areas and Google leading in others. (Amit, 2017)

The major lessons for decision makers at both companies that affect and are effected by rival competitors are to continuously examine their business models with regards to advertising spending, marketing, product differentiation, placement, strategic partnerships and pricing levels (tiered, bundled or standalone).  On many fronts, Google is chasing or following the leader, employing variations of the Cournot and Bertrand strategic decision models. (Webster, 2015)  For example, Amazon is the clear leader in cloud services as well as subscription video on demand.  Also, Google cannot and does not compete substantially with Amazon on direct shopping and delivery services but they discovered, through business development, that with major strategic retail players who agree to offer their products through Google Express, they may be on their way to gaining market share in the online merchandising and delivery space.

Amazon’s decision makers are learning that their once dominant position for e-commerce companies desiring favorable advertising positioning is a dynamic market for both firms.  Their dominance has been challenged by Google’s learning which has led them to making it friendlier for smaller e-commerce companies to stand out.  Google is the clear leader in the search engine space and as such they command a higher price per click than any other competitor including Facebook, Instagram as well as Amazon.  However, the decision makers at Amazon are leveraging the fact that even though they can’t yet compete directly for the primary search option, they have maximized one key advantage: an ad click on their platform may lead to a page and then directly to a sale, which Amazon can record and attribute to the ad. Google does not have an easy time obtaining information about what occurred post click, and many times, is unable to obtain the information at all.  This has resulted in many brands, including some very large ones, increasingly using Amazon search marketing, with some of those marketing and advertising expenditures coming at the expense of more traditional search engine marketing. (Pettijohn, 2018)

With the ability to exert a fairly significant degree of market power given the relatively small number of firms and moderate to high barriers to entry characterized by oligopolies, depending upon the product space, pricing decisions are made in light of the fact that these rivals are able to price above their average cost.  This means that in the long run, economic profits are possible within their industries are possible.

Managers at both companies have learned that there is market share and competitive advantage to be gained in human capital both within leadership and technological innovators as well as in building specific brand recognition and value perception.  We perceive that as the competition in these and emerging product offerings continue, the decision makers at these rival firms will continue to learn and respond in kind to attempt to gain an advantage in the marketplace.

Conclusion

Within an oligopoly, and within all market structures for that matter, there is this cause and effect that occurs between competitors which impacts those directly and indirectly tied to the markets they operate within.   Amazon and Google, two incredibly large companies that are in direct competition which each other, have much of the control of the market.  Although they do not sell identical products, the business strategies that they each create and execute often trigger a response from the other, causing the competitor to re-think their processes and create a new plan of attack to remain relevant and retain and/or gain customers.

Amazon and Google find themselves in a constant state of change, discovering new ways to be innovative, disrupt the market, and provide better, faster, stronger services to their customers.  This level of forward thinking has served both companies well over the years allowing each company to earn billions in revenue each quarter.  While their power in the market has made it challenging for other competitors to infiltrate the market, the amount of influence that both Amazon and Google have over each other and the market as a whole has been and will likely continue to be astounding.

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