Google Inc. Is a Threat to Almost Every Internet Company

By Markets Fool.com


Source: Google.

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A couple of months ago, Eric Schmidt said he considers Amazon.com to be Google's biggest competitor. The company views the e-tailer as a search engine for products, and oftentimes Amazon's search engine offers better and more detailed results for product searches than Google does.

What makes Amazon so dangerous for Google is that it has already reached a critical mass of customers. Indeed, Schmidt noted that more than one-third of people looking to buy something start their searches on Amazon. And while they don't always buy the product they're searching for from the Web store, its search traffic that isn't going to Google.

That's why Amazon was largely able to avoid paying for Google's product listing ads, which it started inserting into the top of search results for product-related searches. While Amazon paid for those ads for some subsidiaries, its flagship online store has enough pull that if people really want to buy something from Amazon.com, they'll find it in Google's search results no matter where it ends up.

Not everyone's so lucky
Not every Internet company is as strong as Amazon. For example, coupon company RetailMeNot.com was negatively affected by Google's search algorithm update in May, causing its organic search traffic to decline significantly.

From the second quarter to the third, RetailMeNot's search traffic fell from 64% of total traffic to 60%. Search traffic is particularly valuable for RetailMeNot, because searchers are generally looking to use its product immediately, as opposed to a direct visitor who may just be browsing to see what deals are available.

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As a result of the algorithm change, the company lowered its full-year guidance in the second quarter and narrowed it with a lower mid-point in the third quarter. The stock price has responded accordingly, falling over 50% since the Google algorithm update.

RetailMeNot's business is fairly simple to replicate, which is why we've seen a plethora of competitors pop up over the past few years -- at least one of which, Coupons.com, has gone public. Google could easily replicate RetailMeNot's business, considering its existing relationships with retailers for advertising and other various projects. If Google shoved its own product at the top of search results for "Gap coupons," it would surely hit RetailMeNot's income statements.

It's done it before
That's the situation in which Yelp finds itself. Google tried to buy Yelp in 2009, but Yelp turned down its offer. Now Google is attempting to overtake Yelp by placing its own product at the top of the page for location-based searches -- a carousel of local options.

Yelp has also found that Google is attaching its own content to links to restaurant and hotel websites, which makes them more attractive, and makes it more likely users will click on a link to a Google product. Either way, Yelp believes this move cost it as much as 19% of search traffic.

On the most recent earnings call, Yelp CEO Jeremy Stoppelmann noted that Google's strategic and algorithmic changes negatively affected traffic, particularly internationally.

Recent developments
Most recently, Google started disrupting the lyrics aggregation sites by placing the first portion of song lyrics at the top of search results for searches like "Nelly Ride Wit Me lyrics." The lyrics card contains a link to Google Play to see the full lyrics.

While this will negatively affect all of those lyrics database websites that rely on page views for income, Google hopes to attract more customers to its digital download store and music streaming service. After all, there are a lot more searches for song lyrics than for streaming services. Google's ability to insert its product into quasi-related search results is an advantage none of the other streaming services have.

Google's impact on the Web and any company that relies on traffic is absolutely huge. If Google tries to buy a company you're invested in and it spurns Google's offer, it could signal the start of a rivalry between the company and the search giant. And while Google might not necessarily win, it can easily have a negative impact on almost any Internet company.

The article Google Inc. Is a Threat to Almost Every Internet Company originally appeared on Fool.com.

Adam Levy owns shares of Amazon.com. The Motley Fool recommends Amazon.com, Google (A and C shares), RetailMeNot, and Yelp and owns shares of Amazon.com and Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.