Why Are Google and Amazon Fighting?

Why Are Google and Amazon Fighting?
Why Are Google and Amazon Fighting?

Google (GOOG) and Amazon.com (AMZN) have to stop meeting like this.

The two tech darlings are growing into fierce competitors with every new chapter in their quests for consumer domination. The latest page of this low-key yet high-stakes saga finds Google potentially going after Amazon's Prime loyalty shopping program.

TheWall Street Journal reported earlier this month that Google is in talks with major retailers to launch a service where shoppers would pay a flat annual fee in exchange for subsidized shipping. If this sounds vaguely familiar, it's because Amazon has been perfecting that model for years.

Priming for Competition

Amazon Prime allows active online shoppers to pay $79 a year in exchange for free two-day shipping of any Amazon-warehoused merchandise. Hurried buyers can pay $3.99 for overnight deliveries. The leading Web-based retailer has never divulged the exact number of Prime members on its rolls, but it has referred to them in the "millions" earlier this year.

How can Google pull this off without centralized warehouses? Will the search engine titan face conflicts of interest by having a more direct hand in the fortunes of some of its advertisers? Why go after a model that Amazon seems to have all but cornered?

Let's answer the last question first. Amazon Prime shoppers are a loyal lot. When there's something they need to buy, they go directly to Amazon.com's homepage. Why not? If Amazon or one of its merchant partners is selling it through one of its fulfillment warehouses, they're already paying for unlimited access to free two-day shipping.

See the problem? Amazon Prime shoppers are no longer leaning on Google's search engine -- more specifically, its Google Product Search comparison shopping engine -- to scour cyberspace for better deals. Anything that circumvents Google.com as an Internet launching pad is a threat.

Google would actually be on to something here if this was an original idea.

It isn't.

Meet the Shy Disruptor

Google is reportedly trying to convince leading merchant brands to team up and take on Amazon. The problem here is that it's at least a year too late.

ShopRunner -- a site launched by e-commerce enabler GSI Commerce that was sold off when GSI was acquired by eBay (EBAY) -- hit the market last year as a worthy rival to Amazon Prime. For the same $79 a year as Amazon Prime, ShopRunner provides free two-day deliveries from leading retailers including Toys R Us, Sports Authority, and Lord & Taylor. Even Domino's Pizza (DPZ) is part of ShopRunner, though you won't have to wait two days for your deep dish. ShopRunner members simply get free delivery.

In an interview with Forbes last month, ShopRunner projected that it would be the intermediary in $100 million worth of sales transactions for its retail partners this year.

Isn't this exactly what Google wants to do? Why doesn't it just acquire ShopRunner to save it the hassle of going after the remaining merchants that have already told ShopRunner that they're just not interested?

Then again, speedy e-commerce fulfillment isn't the only place where Google and Amazon are locking horns these days.

They Used to be Friends

Amazon and Google used to have a healthy working relationship. Google needs advertisers bidding up keywords, and Amazon's popular affiliate marketing program rewards enterprising webmasters for successful sales leads.

Things have gotten complicated.

  • Google may be the company behind the Android mobile operating system, but its open-source nature finds both Google and Amazon running rival Android app stores.

  • Google Chrome is Big G's foray into Web browsers, realizing that controlling the online experience is a good way to keep Internet users close. Well, last month's Kindle Fire tablet introduced Silk, Amazon's in-house browser.

  • Google and Amazon introduced cloud-based music services this year.

Rumors are now swirling about Amazon introducing its own smartphone next year. It will be probably be Android-based, but you know it will take a page out of the Kindle Fire playbook by feeding right into Amazon's browser and digital media ecosystem.

Google and Amazon may still be friends to a certain extent, but they're also finding that they can't avoid one another as they expand into new areas. They are, quite frankly, the best of frenemies.

The competition is friendly and harmonious now, but just wait until things heat up. Sooner or later, one of them is going to land a punch. And that's when things will really get complicated.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Google, and eBay. Motley Fool newsletter services have recommended writing puts in eBay.

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