Amazon & Google on collision course in 2013

Written by Reuters | San Francisco | Updated: Dec 25 2012, 08:52am hrs
When CEO Jeff Bezos got word of a project at Google to scan and digitise product catalogs a decade ago, the seeds of a burgeoning rivalry were planted. The news was a wake-up call to Bezos, an early investor in Google. He saw it as a warning that the Web search engine could encroach upon his online retail empire, according to a former Amazon executive.

He realised that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digitised and then sell electronic editions, the former executive said. Thus began a rivalry that will escalate in 2013 as the two companies areas of rivalry grow, spanning online advertising and retail to mobile gadgets and cloud computing.

It could upend the last remaining areas of cooperation between the two companies. For instance, Amazons decision to use a stripped down version of Googles Android system in its new Kindle Fire tablet, coupled with Googles ambitious plans for its Motorola mobile devices unit, will only add to tensions.

The confrontation marks the latest front in a tech industry war in which many combatants are crowding onto each others turf. Lurking in the shadows for both Google and Amazon is Facebook with its own search and advertising ambitions.

Both companies have a lot at stake. Googles market capitalisation of $235 billion is about double Amazons, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32% net profit margin. By contrast, Amazon is seen reporting a small loss this year.

Amazon shareholders have been patient as the company has invested for growth but it will have to start producing strong earnings at some stage more likely if it grows in higher margin areas such as advertising. Googles share price, on the other hand, is vulnerable to signs of slowing margin growth.

Not long after Bezos learned of Googles catalog plans, Amazon began scanning books and providing searchable digital excerpts. Its Kindle e-reader, launched a few years later, owes much of its inspiration to the catalog news, the executive said.

Now, Amazon is pushing its online ad efforts, threatening to siphon revenue and users from Googles main search website. Amazons fledgling ad business is still a fraction of Googles, with Robert W Baird & Co. estimating Amazon is on track to generate about $500 million in annual advertising revenue tiny, given it recorded $48 billion of overall revenue in 2011. By contrast, 96% of Googles $38 billion in 2011 sales came from advertising.