Is Google a threat to Amazon’s product search dominance?

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When looking to find a product online, your first stop is most likely Amazon (AMZN -0.82%). The majority of online product searches start with the e-commerce giant, followed by a regular old search engine like Alphabetit is (GOOG 0.06%) (GOOGL 0.02%) Google.

But Amazon’s dominance over product searches appears to be fading while search engines like Google remain resilient.

Is Google gaining ground?

Jungle Scout, a company that develops software for online marketplace merchants, recently asked consumers where to start looking for products online.

While 61% of respondents said they started on Amazon in the second quarter, that’s down from 74% in the first quarter of 2021. Meanwhile, search engines remained flat at 49%. (Respondents could select more than one option.)

This could suggest that Google is becoming a better discovery platform for online shopping. It’s been an area of ​​focus for Google for years, even before former CEO and executive chairman Eric Schmidt called Amazon its biggest competitor.

Current CEO Sundar Pichai says investments in e-commerce are paying off. On Alphabet’s second quarter earnings call, Pichai said, “People shop on Google more than a billion times a day. We see hundreds of millions of shopping searches on Google Images every month.”

Interestingly, Amazon wasn’t the only site or app that saw fewer respondents in 2022 compared to 2021. In fact, virtually every other potential response was selected less often, with the exception of search engines. Including walmart and social media applications. This is despite heavy investments from competitors, including Alphabet’s YouTube, to develop e-commerce on their platforms.

The survey shows that Amazon still dominates other retailers in the product search space and pushes back social media growth. Overall, consumers may be using fewer sources to research products online, but Amazon remains the best option for more people than anything else.

Amazon built a business as a search engine

The reason investors should pay attention to Amazon’s position as a product search engine is that it now runs a very large product search-based business. Most of its advertising revenue comes from sponsored products and brands in its search results.

In the last quarter, ad revenue increased 18% to $8.76 billion. That’s a $35 billion run rate. And that revenue is a very high margin compared to its market, third-party vendor services, and even its cloud computing business. Notably, this ad revenue growth has slowed significantly after monster increases in 2020 and 2021.

Amazon dominates advertising on e-commerce channels even more than e-commerce. While its strong user base and meaningful user data helps attract more valuable ads, it’s search traffic that has led to this dominance.

As e-commerce growth continues to outpace in-store sales growth, Amazon is poised to see the benefit of shifting advertising budgets from things like end caps in store aisles to banner ads on Amazon and d other online retail websites.

But Google also sees this opportunity, and it could pose a bigger threat to the growth of Amazon’s advertising business than any of its retail competitors. While the latest Jungle Scout survey indicates that Google is making progress in e-commerce, Amazon remains at the top of the rankings. For now, it looks like there’s still plenty of growth in Amazon’s advertising business, but Amazon investors should keep an eye on Google’s progress in e-commerce advertising.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Adam Levy has positions in Alphabet (C-shares) and Amazon. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon and Walmart Inc. The Motley Fool has a disclosure policy.

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