Ahead of earnings, Google's rivalry with Amazon heats up

The two companies have collided on everything from drones to acquisitions to search. And the competition between the tech titans isn't slowing down.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
4 min read

Google executive chairman Eric Schmidt said Amazon was Google's "biggest search competitor." Christian Marquardt/Getty Images

Even as it makes headlines by investing in fanciful projects including driverless cars and high-altitude balloons beaming out Wi-Fi service, Google can't turn attention away from its ever-growing rivalry with Amazon.

In fact, earlier this week Google executive chairman Eric Schmidt shone the spotlight directly on it -- he called Amazon, one of the world's largest e-commerce providers, Google's "biggest search competitor." And on Tuesday, Google announced new pricing for its e-commerce delivery service Google Express.

"People don't think of Amazon as search, but if you are looking for something to buy, you are more often than not looking for it on Amazon," Schmidt said in a speech in Berlin.

Those are telling comments given that search is Google's biggest moneymaker -- turning Google into an almost $60 billion a year company. Wall Street will focus on Google's core business when the company announces financial results on Thursday. Google is expected to announce third-quarter sales of $13.22 billion and profit of $6.33 a share, according to the average estimate of financial analysts polled by Thomson Reuters.

Today, Google Express, formerly known as Google Shopping Express, represents such a small part of Google's sales that analysts don't even call it out. The service lets shoppers buy things like clothes and packaged groceries from stores including Costco and Target, with Google delivering the good either the same or next day.

The offering is a clear strike at Amazon and its $99 Prime service, which offers members free two-day shipping on many items, along with other perks like free music and movie streaming. Google's $95 a year price undercuts Amazon, with Google Express really being a chance to capitalize on the ads it displays to online. Having them leave Google's website to shop at Amazon is an opportunity lost for Google.

Amazon, for its part, is treading on Google's turf as well. The Seattle-based company is reportedly readying its own advertising network to compete with Google's juggernaut ad business. The first step, according to the Wall Street Journal, is ridding Amazon's website of the ads that Google currently provides.

"These are big, aggressive, visionary companies," said Scott Kessler, an analyst at S&P Capital IQ. "They are category leaders that will continue to collide."

Amazon reportedly beat out Google in acquiring the online game-streaming site Twitch. James Martin/CNET

Amazon didn't respond to a request for comment. When reached for comment, Google only pointed to the transcript of Schmidt's speech.

The companies' jostling isn't limited to advertising. Both Amazon and Google have announced projects focusing on drones. Last December, Amazon CEO Jeff Bezos unveiled Prime Air, a project that aims to deliver consumer goods via drone. Bezos had wanted them to be in use by by 2015, though regulatory delays have made a launch date uncertain. In August, Google announced Project Wing, a drone delivery service being developed by Google X, the Mountain View, California-based company's ambitious research and development lab.

For now, Google says the focus for its drones is on delivering disaster relief, though it hasn't ruled out offering a commercial delivery service in the future.

The companies also reportedly fought over the game-streaming service Twitch. In August, Amazon announced it was buying Twitch for nearly $1 billion, snatching the company from Google, which had reportedly been in late-stage acquisition talks.

Amazon uses its own variation of Google's Android operating system for its phones and tablets, along with a separate app store.

Google: Trillion-dollar company?

In its battle with Amazon, Google is aiming to increase its supremacy over the ad market -- though some observers are more than happy with Google's progress thus far.

Last week, Colin Gillis, an analyst at BGC Partners, predicted that by 2020, Google could be the first company in the world with a market value of $1 trillion. Jim Breyer, a partner at the venture capital firm Accel, made a similar claim in July, saying Google could be a trillion-dollar company in 10 years.

On Tuesday, Google had a market capitalization of $363.8 billion.

Gillis' exuberance is based partly on Google's investments in robotics. The effort, part of Google X, is led by Andy Rubin, co-founder of Google Android, the most widely used mobile operating system in the world. The company has bought, by BGC's count, 10 robotics-related companies, though Google has been mum about what it wants to do with them.

Google is careful to avoid talking about profit when it comes to Google X. On an earnings conference call in July, Google CFO Patrick Pichette did talk about some of the expectations when it comes to different initiatives: self-driving cars are a "multiyear" effort, and another project, which he didn't name, would take "half a decade." He wouldn't go into specifics on any one project, though.

Still, Schmidt earlier this month trumpeted the business potential of Google X. He pointed to the development of a "smart" contact lens that reads glucose levels to help people with diabetes. The company in June partnered with the pharmaceutical giant Novartis to produce the lenses. "The financials from the royalties will far outweigh the costs," he said earlier this month, at a fireside chat in Santa Clara, Calif., hosted by the Commonwealth Club.

"Google X isn't good business?" he added. "Google X is great business."

As for the fight with Amazon, for now it will be less about out-there projects like self-driving cars, and more about regular old delivery vans.