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Amazon vs Google: battle of the tech giants

Amazon and Google have grown from humble beginnings to become two of the biggest rivals on the markets. Discover the history of their competition, and its impact on both companies’ bottom lines.

All trading involves risk. Losses can exceed deposits.

Amazon vs Google: a brief history

In 1994, Jeff Bezos launched Amazon (AMZN) as an online bookseller. It listed on the NASDAQ in 1997 at $18 per share – raising $54 million. Google (GOOGL) was founded a year later by Stanford University students Sergey Brin and Larry Page.

Over the following years Amazon’s share price rode the euphoria of the dot-com boom, rising to highs of $106.69 in December 1999, before falling to an all-time low of $5.97 in September 2001.

Google held its IPO in 2004, raising $1.9 billion. Within five years its share price had risen by 161%; a sure sign that investors were regaining confidence in the technology industry.

Amazon and Google’s expanding empires

Both companies began expanding beyond their original business models fast. Amazon announced that it was adding 143 new product categories back in 1998, the same year Google was founded. Google, meanwhile, made its first acquisition just three years later, and by 2015 it had ventured so far beyond search engines that it was restructured as Alphabet Inc (GOOG).

As their offerings have multiplied, a fierce rivalry has emerged. Amazon and Google compete over a variety products, ranging from groceries to cloud computing, and many more. Here’s a rundown of some of the key battle lines.

Hardware

The largest competition between the two companies is over their smart-tech devices – including mobile phones, tablets, video streaming sticks and smart TVs.

In 2005, Google acquired the software start-up Android Inc. and the Google mobile division was born. From the release of the first Android phone in 2008, the acquisition has been a major success story – in 2016, the release of the Google Pixel saw Alphabet’s stock reach its then all-time high of $828.84.

Amazon, meanwhile, made its first foray into smartphones – the ‘Fire’ – in 2014. But in an already-saturated space, the phone quickly disappeared from the market. Amazon revealed the Fire phone had made a $170 million loss in October 2014, which caused its share price to drop by 8%.

Comparatively, Amazon’s tablets have been a success. The Fire tablet was released in 2011 and helped its market share to grow faster than any other vendor, taking Amazon to third place in the global market in 2016.

However, Amazon is one of more than 1000 brands that use the Android operating system on their devices, and though the software is free to use, Google makes billions through mobile advertising and ad sales.

The tensions between the two companies reached new heights in 2015, when – in an attempt to steer customers toward its own products – Amazon stopped selling Google’s Chromecast TV streaming stick. Two years later, Amazon also became the only major Android tablet maker outside of China that refused to offer Google Play and other Google services.

In retaliation to Amazon’s restrictions, Google announced in December 2017 that it would be removing access to YouTube from all Amazon devices.

Streaming

Before Netflix and Amazon launched their streaming services, Google took its first foray into online video platforms when it acquired the video-sharing site YouTube in 2006.

When Amazon moved into the streaming market with Prime Instant video in 2011, it was a huge success – generating approximately $2.5 billion in annual revenue by 2016. The threat was so great that in April 2017, Google launched a live TV and streaming service, YouTube TV, which would rival traditional cable TV packages as well as other internet streaming services.

Just two months after launch, Google’s stock price had risen over 19%. Within a year, YouTube TV had more than 300,000 subscribers.

Voice assistants

Amazon and Google are among a group of tech giants battling it out over artificially intelligent (AI) digital assitants

Amazon invested millions in start-ups that built voice-control apps for its smart speaker, the Amazon Echo, released in 2014. By 2017, it was estimated that over 10.7 million Echo speakers had been sold and that Amazon had a 70% share of the market.

Google released its own smart speaker called ‘Google Home’ in 2016 using the Google Assistant, which already came as standard on Android phones – by the final quarter of 2017, Google reported that its revenue was up 24%.

Digital advertising

Perhaps surprisingly, Amazon is one of Google’s main search engine competitors. In 2015, approximately 33% of online shoppers skipped Google altogether and started their search on Amazon, which has one very large impact: Google loses the chance to create advertising revenue.

In 2016, approximately 86% of Google’s revenue came from its advertising service, AdWords. Google has continued to enjoy dominance over the US digital advertising market, rivalled only by Facebook (FB), but its market share is predicted to decline as competition increases.

Amazon has been identified as one of the largest threats to the duopoly. Although Amazon’s share of digital advertising market does not come close to that of Google, it is growing rapidly – generating an estimated $2.8 billion in revenue in 2017.

Shopping

Amazon is the largest e-commerce company by market capitalisation, and accounts for 45% of the US market – more than four times its nearest competitor, Walmart (WMT). In 2012, Google decided it would launch its own service, Google Shopping.

The plan backfired in April 2017, when the European Commission (EC) brought antitrust charges over Google’s shopping service. It was fined $2.7 billion after the EC found the company was skewing search results to benefit its own shopping search service on Android devices. The fine saw the market value of Alphabet drop by 1.1% ($8.5 billion) overnight. Google disagreed with the claims, suggesting that Amazon had more influence over public spending habits.

Despite this setback, Google announced ‘Shopping Actions’ in 2018, which would create a partnership with some of Amazon’s largest competitors – including Walmart.

What does the future hold for Amazon and Google?

Amazon and Google have successfully embedded themselves into consumers’ everyday lives and become Wall Street favourites.

Both companies are part of FAANG – the acronym for the five most popular and best performing stocks in the market – alongside Facebook, Apple and Netflix. The spectacular growth of the FAANG stocks has been attributed to their extreme potential for growth and exploration of new markets.

In 2017, Alphabet’s $579.5 billion market capitalisation made it the second largest company in the world, while Amazon was in fourth with a market cap of $427 billion.

Company Market value in billion US dollars
Apple 752
Alphabet 579.2
Microsoft 507.5
Amazon.com 427

 

However, on 20 March 2018, Amazon’s market value overtook Google for the first time – shares closed 2.69% higher, giving the company a market capitalisation of $768 billion.

Amazon’s expansion into new and distinctive markets has caused investor optimism to rise, and led analysts to question whether it could even dethrone Apple from the top spot. 

How to trade Amazon and Google with IG

With IG, you can invest in Amazon and Google shares outright or trade on their price movements. Here is a quick introduction to the two services:

Trading Amazon and Google

  • Speculate on movements in Amazon and Google share prices with CFDs and spread betting
  • You don’t own the underlying shares, so do not receive voting rights
  • Deal on leverage to open a position for a fraction of the full value of the trade
  • Losses can exceed deposits
  • Go long or short

Investing in Amazon and Google

  • Buy and sell Amazon and Google shares through our share dealing service
  • Take ownership of shares, receive voting rights and dividend payments
  • Pay the full value of your shares upfront
  • You can only lose what you invest
  • Only open long positions

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