The Reason Amazon Now Poses A Structural Threat To Google

70% of Amazon Prime members begin their searches on Amazon, not Google. And while Facebook is considered a threat, analysts increasingly believe the boycott against it may stick.

Google search ads are losing market share and the biggest beneficiary is Amazon because of the specificity of search outcomes it offers, combined with its delivery capability. And when walls fall...JL

Hugh Langley reports in Business Insider:

Amazon presents a “structural” threat to Google’s key money-making business right now and is a big reason Google’s search ads are losing market share. "International ad revs are down more than in the US.” While Facebook still has a greater share of the digital ad market than Amazon, the ongoing Facebook advertising boycott, combined with the loss of small businesses to the pandemic, makes Amazon the bigger problem for Google. [It] represents a structural attack (on) Google search, not just a COVID-19 related problem. 70% of Amazon Prime members begin their searches on Amazon rather than Google.

Investment bank Needham has lowered its Google Q2 revenue estimate to down 7% year-over-year, a downgrade from the 5% they previously predicted.
“Our sources suggest that international ad revs are down more than in the US,” they said.
They also believe Amazon presents a “structural” threat to Google’s key money-making business right now and is a big reason Google’s search ads are losing market share.
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Google will announced its second-quarter results later this month, and one Wall Street firm has just lowered its expectations.

Needham analysts have lowered their Q2 revenue estimate for the company to a year-over-year drop of 7%, a downgrade from the 5% they had originally projected.

Google’s search and advertising business is being hit hard by the COVID-19 pandemic, driven “by material declines in travel, auto, entertainment, media and retail ads – both search and video ads,” according to the Needham note shared with Business Insider.

The analyst note follows an earlier report from eMarketer which projected that Google’s search revenues would decline in Q2 for the very first time in history. RBC’s Mark Mahaney told Business Insider back in March that he predicted the same.

“Our sources suggest that international ad revs are down more than in the US,” said Needham analysts in the note, which projects flat revenue for Google’s full 2020 year.

Based on eMarketer data, travel made up about 11% of Google’s search ad revenue in 2019, representing a big hit to the company’s key moneymaking business.

Alongside these losses, the analysts note that “rising unemployment levels and GDP declines” are driving lower consumer spending right now.

And as the COVID-19 pandemic hammers Google hard, Needham’s analysts believe Amazon now has the opportunity to benefit.

While Facebook still has a greater share of the digital ad market than Amazon right now, Needham analysts believe that the ongoing Facebook advertising boycott, combined with the loss of small businesses to the pandemic, makes Amazon the bigger problem for Google.

“[Amazon] is the better reason Google-search ads are losing market share, in our view,” said the analysts. “[Amazon] represents a structural attack against Google’s-search product, not just a COVID-19 related problem, in our view.”

To back that up, the analysts cites statistics that 70% of Amazon Prime members begin their searches on Amazon rather than Google, and that Prime members also spend an average of $1,400 a year.

Google is clearly aware of that threat too: just last week, the company announced it would allow merchants to promote their products at the top of Google’s search pages for free.

Google is trying to lure more sellers onto its platform and away from Amazon, which has seen a huge boost in online shopping during the pandemic. Financial services firm Cowen predicts Amazon’s ad business will make $17.6 billion this year.