Amazon, Google on collision course
When Amazon.com Inc CEO Jeff Bezos got word of a project at Google Inc to scan and digitize 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 realized that scanning catalogs was interesting for Google, but the real win for Google would be to get all the books scanned and digi- tized" and then sell electronic editions, the former executive said.
Thus began a rivalry that will escalate 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, Amazon's decision to use a stripped down version of Google's Android system in its new Kindle Fire tablet, coupled with Google's 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.
"Amazon wants to be the one place where you buy everything. Google wants to be the one place where you find everything, of which buying things is a subset," said ChiHua Chien, a partner at venture capital firm Kleiner Perkins Caufield & Byers. "So when you marry those facts I think you're going to see a natural collision."
Both companies have a lot at stake. Google's market capitalization of $235 billion is about double Amazon's, largely because Google makes massive net earnings, expected by analysts to be $13.2 billion this year, based on a huge 32 percent 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. Google's share price, on the other hand, is vulnerable to signs of slowing margin growth.
Not long after Bezos learned of Google's 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 Google's main search website.
Amazon's fledgling ad business is still a fraction of Google's, 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 percent of Google's $38 billion in 2011 sales came from advertising.