Is Amazon.com, Inc. (AMZN) Becoming A Threat To Alphabet Inc (GOOGL)?

Is Amazon.com, Inc. (NASDAQ:AMZN) Stock A Better Bet Than Alphabet Inc (NASDAQ:GOOGL) Stock In 2017?

– In 2016, GOOGL stock only managed to deliver a return of 4.35%, whereas AMZN stock delivered a return of 17.72%.

– With its latest ventures, Amazon.com, Inc. (NASDAQ:AMZN) is eating into Alphabet Inc (NASDAQ:GOOG)’s territory, and things may get worse for Google.

– Can Alphabet Inc fend off Amazon and deliver better returns to shareholders in 2017?

2016 was not a great year for Alphabet Inc (NASDAQ:GOOGL), and the company’s stock price has not moved much in the last twelve months. Although the company generated $17.1B in operating income and $64.2B in revenue through the first nine months of its current fiscal year, the stock only managed to deliver a return of 4.35%, compared to the NASDAQ’s 9.79%. That’s nowhere near the kind of returns the stock has generated in the past. Amazon.com, Inc. (NASDAQ:AMZN)’s latest initiatives with Alexa are eating into Google’s territory and it appears as if AMZN stock could be a better investment in 2017 than GOOGL Stock. Can Amazon.com, Inc. really dent Alphabet Inc?

Google Losing Out To Amazon In E-Commerce Search

According to a report by BusinessInsider (1), Amazon is slowly taking a sizeable chunk of Google’s search business by becoming the go-to place for e-commerce search. As per the report, “more than half of people start their search for online shopping on Amazon now, while only 26% use search engines like Google as the starting point”. Google is a search company, which makes more money when a larger number of people use its search engine. Now by losing market share in e-commerce search, Google is taking a hit on its revenue, as it is primarily dependent on search-advertising to generate revenue. The report gives more details about the trend, but what is more worrying for Google is that its e-commerce search-share has halved in last two years, whereas Amazon has gained drastically in the same period ( see image below). This is a serious concern for Google, and it appears as if things are not going to get any better in future. (See Also: Alphabet Inc’s (GOOGL) Next Growth Cycle Is Closer Than You Think).

Source: Business Insider

Alexa To Conquer Google?

Amazon’s Alexa, the personal assistant that was launched with the Amazon Echo smart speaker, was a huge hit at CES 2017. This post (2) describes how delightful Alexa is, and how Echo combined with Alexa is designed to make it easier for you to give more of your money to Amazon. At CES 2017 companies like Ford Motor Company (NYSE:F), Huawei, LG, as well as a number of startups, all unveiled home appliances, phones, cars, and more gadgets with Alexa integration. Alexa even made an unexpected appearance on Google’s Android ecosystem. Chinese smartphone manufacturer Huawei announced that its flagship handset running on Alphabet Inc’s Android operating system will come with an app that gives users access to Alexa in the United States.

Amazon Echo has an early lead and plenty of buzz to go with it. The problem here is not that Amazon Echo is the smart speaker to beat for Google Home. There’s more to this. There is a belief in the technology industry that such voice-powered digital assistants will replace keyboards and touch-screens as the primary way consumers interact with devices. In the report stated above, analyst Jan Dawson of Jackdaw Research considers that this shift is still in its initial stages, and that Google must move swiftly to make its presence felt in this space, to maintain its dominance in internet search, particularly on Android devices. Quoting him from the above report:

“To the extent that voice becomes more important and something other than Google’s voice assistant becomes the most popular voice interface on Android phones, that’s a huge loss for Google in terms of data gathering, training its AI (artificial intelligence), and ultimately the ability to drive advertising revenue”.

Also Read: Amazon.com, Inc Wins Big, But AMZN Stock Is Facing Strong Resistance.

The thing is that the bad part doesn’t end here for Google. The more Alexa devices that Amazon and its partners sell, the better Amazon.com, Inc. (NASDAQ:AMZN) does at its core retail business. It is believed that every Echo owner is a customer who is more likely to spend more on books, groceries, music, and movies on Amazon. But that is not the case with Google. Google can sell as many Google Home devices as it wants, but at the end of the day, Google is a search advertising company, not a retail company, and those Google Home devices aren’t delivering ads. We all know Google is better at search than Amazon by a huge margin, and the company can still do a lot more with the data gathered on Home devices. The point is that consumers will be spending less time in front of screens and looking at Google’s search ads. No matter how good Google’s search ads are, it doesn’t matter if people aren’t seeing them.

Considering the first point stated in the article too, things are not looking any better for Google, going by the direction things are heading in, in computing space. It seems that Google’s vulnerability is becoming Amazon’s strength. Alexa’s swift rise is making life difficult for Google.

In Summary

Putting all the above factors together it is evident Amazon is gaining in Google’s territory. Analysts believe Alphabet Inc (NASDAQ:GOOGL)’s decision to debut its voice assistant exclusively on its own hardware might not have gone well with manufacturers. Given Google’s plans to scale it across all other devices, the company needs to rethink its strategy. Sergei Burkov, CEO of Alterra.ai, an artificial intelligence company said ” Huge part of an assistant is search. Google is a search company. Amazon is not.” All is not lost for Google, yet, given the strength of its internet search technology, it can certainly catch up with the leader Amazon here. However, a growth investor would be tempted to invest in AMZN stock rather than GOOGL stock in 2017, since Amazon has many things going its way, where as Google has mainly its double-digit revenue growth to boast of. It is also to be noted that Google’s Other Bet’s have largely shown disappointing results until now which is not the case with Amazon.

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Additional Links:

(1) http://www.businessinsider.in/new-data-shows-amazon-is-eating-into-googles-territory-and-its-only-going-to-get-worse/articleshow/56382361.cms

(2) http://www.businessinsider.in/amazons-echo-is-building-a-coffin-thats-custom-made-for-google/articleshow/56394428.cms