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Google and Amazon June 20, 2006

Posted by sdpurtill in Uncategorized.

I’ve been hearing some talk about Google buying a chunk of Amazon, or maybe buying the entire company outright.

There are creative ways to structure an investment that make sense for both Amazon and Google.

It doesn’t have to be an outright sale. Google paid $1 billion plus a bunch of free advertising for a 5% interest in AOL, that will give Google access to Time Warner content and the AOL user base. Those were big Google vulnerabilities (small user base, little content), that were partially addressed by the AOL deal.

Google could do something similar with Amazon – make a billion dollar investment, move much of the data processing into Google’s data centers, integrate Amazon content into Google search, and get access to Amazon’s user base. Amazon pays off their crippling debt load, gets cash to expand the business, and is relieved of much of the nonstop investment in information systems that’s hurting their results every quarter.

Users have one identity across AIM, Google and Amazon, and get the power of Google Search applied to product research. Advertisers can use one ad platform (Google’s) to reach users on Google, AOL, Amazon, and Google Network sites. Amazon solves its two biggest vulnerabilities and gets higher traffic and sales.

And everybody makes more money.

Google has the cash; currently they have $8 billion and another $2 billion extra coming in this year. But would making this move really be smart for them? Amazon has never been a profitable company; they’ve been in the red ever since their inception. Shoot, Craigslist makes more money than them. But this wouldn’t be a move to make more money for Google, it would be a move to expand their user base. The only thing that Google’s applications are all lacking right now is a strong user base. As stated above, that was the reason for their deal to 5% of AOL. But would a bigger user base increase Google’s revenue? If you look at their search engine market share shows Google with 42.7%. So let’s just say 42.7% of all amazon.com users used Google; if Google bought a chunk of them, that’s 57.3% of all amazon.com users that they now have in their hands. They can do all the marketing they want to these people, and surely, it would increase their market share. I don’t have the numbers of how many people use Amazon, but I’m sure it’s enough that it would add to Google’s market share of the search engine world. The bigger Google’s market share, the more advertisers are willing to pay. The more money Google gets.

But let’s not forget; this all comes at a big price to Google. Will they use their cash to do a major deal like this? We’ll just have to wait and see.



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