Henry Blodget | Mar. 5, 2012, 8:50 AM | 14, 270 | 14
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One big threat to Google's core search business is the potential for Amazon to usurp Google's position as the "start point" for many product searches and skim off the revenue that goes along with it.
Google makes an overwhelming percentage of its revenue from a relatively small percentage of its search queries, especially search queries for specific products.
As long as consumers start their product searches at Google, Google can be ambivalent about which merchant ultimately sells the product, because Google will get paid regardless.
Over the last decade, however, Amazon has been quietly expanding its web site to sell not only its own merchandise and the merchandise of third-party merchant partners, but to sell links and advertising to other third-party merchants that Amazon may have no other affiliation with.
Amazon places these links and ads at the bottom of product pages, and they are much more visual and targeted than some Google search results.
Here, for example, are some product links and ads at the bottom of an Amazon Dell laptop product page (click for larger):
Amazon
These links and ads are better targeted and more informative than many Google ads. They also appear on pages that are viewed by people in the midst of a detailed and highly-relevant shopping search.
Any dollar of ad spending that Amazon captures, needless to say, is a dollar that Google has potentially lost.
Over the past year, we've heard industry folks say that Google is increasingly worried about the competitive threat from Amazon.
Amazon, for its part, is now hiring aggressively to build up its advertising business, which, according to one industry source, already does more than $1 billion of ad revenue a year.
That's small potatoes relative to Google's ~$40 billion, but Amazon's ad revenue stream is probably growing very fast. And given Amazon's position as the dominant global ecommerce site, the growth potential is likely enormous.
For Amazon, meanwhile, the value of the advertising revenue is clear:
First, it's super-high margin relative to Amazon's core commerce business (It costs almost nothing to place links and ads on pre-existing pages).
Second, to the extent that the ads and links make Amazon's pages more useful for shoppers, they make Amazon's site an even more useful destination.
In the "old days" of ecommerce, some people used to go to Amazon's site to research products and then go to Google to figure out where to buy them cheaply. Now, all of that can be done at Amazon.
Disclosure: I've owned Amazon's stock for more than a decade. The first 7 or so years of that decade were a nightmare. The last several have been more rewarding.
SEE ALSO: APPLE'S TV DREAM REVEALED: Embarrass Hardware Makers, Stiff Content Providers, Destroy Cable Companies
Read more: http://www.businessinsider.com/amazon-ad-revenue-2012-3#ixzz1orrPCwXj