Amazon, Google and The Vampire Squid Wars

The Economist, among others, has wondered how long we will tolerate the monopolising effect of Google, Facebook and others in our daily commerce. Some of us have marvelled at Google’s ability to sustain its position based effectively on an algorithm increasingly corrupted by paid search results.

In a parallel universe, Amazon — once the unlovely murderer of our favourite corner bookstore — has lately been scaring the pants off the deeply unloved Walmart, hoovering the value of cloud from the usual suspects like Microsoft and threatening to get into the business dominated by giants like UPS and DHL.

Well, Amazon might turn out to be the giant vampire squid that ate the giant vampire squid.

According to a leading consumer research firm, Amazon Prime subscribers grew by almost 50 per cent in the year to June — to a staggering 63 million Americans. This is a remarkable development, because members have to pay to join Amazon. Sure, they get good value — HBO and other movies and entertainment, photo storage, home delivery priority and music. But they also spend an average US$1200 a year — more than twice what non-Prime users toss around.

Amazon is clearly in a sticky relationship with a very big cohort of affluent consumers. And Amazon, typically, has identified value beyond the transaction and beyond the subscription for Prime. It’s into advertising and search.

According to a Bloomberg survey, more than half of US consumers begin their product search with Amazon’s search tools — a whopping 44 per cent increase on last year.

Jeff Bezos is famous for his resolute focus on investment ahead of earnings. In the space of less than a year his strategies have shown up in surprisingly solid revenue and growth in a variety of areas — while he continues to plough ahead with diversification and global step outs.

Google and Walmart are now looking like they’re reacting — both have added online shopping ventures, and they’re far from the only ones. But if Bezos keeps up his momentum, the war might already be lost.

One very clear message in this story so far: today’s consumer is the focus. Bezos gets that and adds value that consumers can see at every step. Google, you might say, hooked us to its algorithm and then punctured our commercial veins. In a world where consumers are king, Google’s old-fashioned model might well be trumped by Amazon’s transparent value.

Game on.

By Michael Gill, counsellor with global advisory firm Dragoman and former CEO of the Financial Review Group and chairman of AAP.