Google’s Amazon Threat

It was with great interest I read a speech given by  Google’s Eric Schmidt in Berlin at the headquarters of Native Instruments.  The subject was really about innovation and the disruption it has caused and continues to cause.  A large part of the text was simply a history of Google and how it has improved search along the way and how search has led Google into new markets.  But what I found most interesting and what caught my attention is when it came to the subject  of competition.  Towards the end of his speech, Eric said the biggest threat to Google was not Yahoo or Microsoft Bing but Amazon. At its core, though mostly focused on commerce, Amazon was answering questions based on end users search criteria.  Collecting people s likes and dislikes.  What their interests are.  Literally customizing search to meet their customers needs.  This is the essence of what Google does.  Amazon like many of the upstarts in the industry is not afraid to dare into new territories dominated by others.  It says a lot about the industry and the nature on the internet as a disruptive force in industry and society.   But it is always interesting and newsworthy when two industrys giants begin to collide.  It is worth discussing ad trying to foresee how this will play out in the industry.

Living in Seattle it is easy to see the impact that Amazon is having in the local northwest economy.  Driving south on Interstate 5 you can see the multitude of cranes rising up  to the greying clouds that cover the Seattle sky.   The construction business in Seattle is building new structures for Amazon and anyone wanting to live downtown, primarily Amazon employees. Amazon has had the biggest impact of any company in the city since the nineties and the rise of the Microsoft empire.  What is a little different is Microsoft’s empire rose to the east of Seattle in Redmond, where Amazon has grown within the city limits of Seattle.  What has been impressive about Amazon’s rise and what I admire about Amazon  is their indifference to the establishment, primarily Wall St.  They invest whenever and wherever they can. At the top Jeff Bezos has understood very well that in the technology sector you are just one missed investment away from being irrelevant.  To be afraid is to die.  They have also brought a renewed interest in the venture capital community in the northwest.

In technology to succeed you often have to change the battle field, in an Art of War manoeuver.  Google did this to Microsoft when it used search to indirectly fund projects like Google Docs to compete with Microsoft.  Amazon is doing two things: One, it does not care about profits it reinvests any and all money it can.  It understands the nature of technology sets the rules, not Wall Street.  Hoarding cash like Microsoft, Apple and Google do may get the finance guys excited, but at some point you need to place big bets to secure future success in new fields. The Second is using the retail channel to create the Amazon channel.  Amazon has done a phenomenal job of making channel partners, like bookstores become AWS customers.  Not to mention these are companies actively using those cloud services, not just signing up. Amazon also did a great job of turning all those book publishers into suppliers of digital content for the Kindle Device. Amazon not only built a channel when they started to ship books they have helped guide these partners into the future while helping them and Amazon make more money.

There are others that are a threat to Google, I often think of Twitter and Facebook.  To the latter I remember a few years ago that Facebook founder and CEO Mark Zuckerberg saying during an interview that Facebook was able to generate over $1 billion in search revenues and that they were not really trying.  Wouldn’t we all like to generate a billion dollars without really trying.  Twitter so far is not really about being a search engine, but they are the pulse of the internet.  If you want to know what is happening on the  internet you can just go to your Twitter account and discover what is going on based on your preferences.  Both these companies will be competition to Google, but in the near term the biggest battle for Google will be Amazon.

Eric Schmidt is smart (Bill Gates even said that at a meeting I was in attendance), he probably deserves more notice than he has received.  I think he is in the same class as Jobs and Gates.  Maybe because in between SUN Microsystems and Google he had the ill-fated stop over at Novell.  With Jobs deceased and Bill only involved on the perimeter of the industry Eric may be at the forefront of the industry but he just does not seem to get the same rock star treatment that Jobs and Gates received.  At times it seemed the media waited on every word that the two former said.  Now Eric is unfortunately relegated to that of relic of a by gone era, leaving the young guns like Brin, Paige, and Zuckerberg to speak for the industry.  Or is he?  He still garners a lot of attention when he talks and he continues to push the future with initiative such as Googles robotic vehicle technology.  If he were a general he would have 4 stars and a lot of bars.

Then there is Bezos.  When Amazon first started he did not seem to be such a visionary.  They were the book guys.  What is so exciting about selling books over the internet?  But like many, myself included, we all underestimated him.  When he said that Amazon had so much excess computing capacity that Amazon needed to harness that power and deliver new cloud services, it seemed like he was encroaching on the domain of the more established players like Microsoft, Oracle, SAP etc.. except none of the aforementioned was doing anything like the cloud.  Next thing that you knew was Amazon Web Services was a billion dollar business and everyone was chasing Amazon into the cloud.  Along the way Kindle was launched.  They are getting into the tablet business and smartphones.  Bezos has become somewhat  of a visionary in the industry, though his misses (phone & tablet) sometimes cloud his successes (Kindle and Cloud)..

As Amazon encroaches on Google’s business, they are right to be concerned in Silicon Valley.  Just like Google used what was initially search to stretch into mapping, mobile and vertical business, one can see Amazon doing much the same.  If you follow the flow of Eric Schmidt’s talk in Berlin, start replacing all you learn about Google and see if you could start replacing the word Google with Amazon.  It turns out not to be that difficult.  Go a step further and look at big bets both companies are making and you start to see overlaps in areas like drone technology.  In the end it is inevitable as both are trying to be the launch destination for people getting onto the internet, similar to how Windows was the launch site for people using a PC.  It will be a typical ferocious battle in the technology industry.  Some areas we are still very early on in the industry, robotics coming to mind, and upstarts will challenge the industry giants, they always do.  As of today the battle of titans is between Amazon and Google, but then, in technology, there is always someone lurking around the corner

Good Night and Good Luck

Hans Henrik Hoffmann October 24, 2014

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