3 Reasons Google Inc. Fears Amazon.com Inc.

By Markets Fool.com

Google often seems like an invincible 800-pound gorilla destined to rule the Internet thanks to its ownership of the largest search engine and mobile OS in the world.

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But just like King Kong, overgrown gorillas can be taken down. In previous articles, I discussed how Microsoft and Facebookcould throttle Google's growth over the next few years. Today, we'll discuss three ways Amazon can do the same.

Source: Pixabay.

1. Google doesn't "get" shopping
Last year, Google chairman Eric Schmidt admitted that "almost a third of people looking to buy something started on Amazon... more than twice the number who went straight to Google."

Amazon's dominance of product searches is a big blind spot Google has failed to address. Its first effort, Google Shopping, listed merchant-submitted prices for free. By April 2012, Google Shopping handled around 80 million product searches monthly, compared to 335 million searches at Amazon. However, Google Shopping's growth stalled out later that year after it started charging merchants for listings.

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Last year, Google launched Google Express, a same-day delivery service for parts of California, Chicago, Boston, Manhattan, and Washington, D.C. Google hired drivers, who helped brick-and-mortar partners like Barnes & Noble, Target, and Costco deliver goods to customers.

Google Express costs $95 per year for unlimited free deliveries with $15 minimum orders. By comparison, Amazon Prime members, who pay $99 per year, get free two-day deliveries, access to streaming media, free e-books from the lending library, discounts, and other perks. Members of the AmazonFresh program in select cities get Prime benefits and free same-day deliveries for $299 per year.

Google Express gives Google a toehold in product searches, but it's still dwarfed by Amazon's global presence and wider selection of products.

2. Overlapping ecosystems
Just as Google is leveraging its strength in search to expand into e-commerce, Amazon is leveraging its strength in e-commerce to expand into other businesses, many of which overlap with Google's plans.

Amazon sells its Kindle and Fire TV devices at low margins, but uses them as anchors to generate digital revenue from e-books, music, and apps, and physical purchases via one-click orders from the Amazon store. Since Prime members get significant perks for digital and physical purchases, regular users are strongly encouraged to subscribe and tether themselves to Amazon's ecosystem.

Last year, Consumer Intelligence Research Partners (CIRP) found that Prime subscribers spend twice as much annually as regular customers, while Kindle owners spend 30% more than non-Kindle owners. CIRP also recently estimated that 45% of Amazon's U.S. customers, or 40 million people, are Prime members. Amazon claims that worldwide Prime membership, across nine countries, rose 53% year over year in 2014.

That growth gives Amazon a firm foundation from which to launch smart home initiatives like Echo, Dash, and Dash Buttons -- which interfere with Google's home automation plans for Nest. Amazon is also using its knowledge of users' shopping habits to launch its own ad network, which could eventually become a threat to Google's core business of targeted ads. Amazon is also expanding its presence in mobile payments, which overlaps Google's plans to expand Google Wallet.

Amazon's Dash Button. Source: Amazon.

3. The battle for the cloud
Prime could also help Amazon tether more users to its cloud storage service. In March, Amazon introduced two new unlimited storage plans. One plan for photos costs $11.99 per year, while another one designed for all types of files costs $59.99 per year.

By comparison, Google and Microsoft only offer unlimited storage plans to enterprise users. For regular customers, Google sells 1TB of storage for $99.99 per year, while Microsoft offers 1TB of space with an Office 365 subscription for around $84 per year. By undercutting both rivals, Amazon is better positioned to profit from the growth of the global cloud storage market, which research company Markets and Markets estimates could grow from $13.6 billion in 2014 to $56.6 billion in 2019.

Neither Amazon and Google disclose how much their cloud businesses are worth. However, Pacific Crest estimates that Amazon's AWS (Amazon Web Services) unit, which consists of its EC2 (cloud servers with software-as-a-service) and S3 (cloud storage) units, generated roughly $5 billion inrevenues last year. Research company TBR estimates that Google's cloud businesses generated $1.6 billion in revenues in 2014.

Those are admittedly just slivers of Amazon's $89 billion and Google's $66 billion in 2014 revenues, but their weight could increase considerably over the next few years.

Should Google investors be worried?
Put simply: Amazon represents a disruptive threat to Google, particularly in the realm of product searches.

As major sites dominate specific categories -- such as Amazon in e-commerce, Facebook in social networking, and Yelp in business reviews -- users will visit those sites directlyinstead of using Google's search box. As that fragmentation continues, the value of that search box could decline and adversely impact its search revenues.

The article 3 Reasons Google Inc. Fears Amazon.com Inc. originally appeared on Fool.com.

Leo Sun owns shares of Facebook. The Motley Fool recommends Amazon.com, Costco Wholesale, eBay, Facebook, Google (A shares), Google (C shares), and Yelp. The Motley Fool owns shares of Amazon.com, Barnes & Noble, Costco Wholesale, eBay, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.