Analysis of Google's acquisition of Channel Intelligence
Yesterday (February 6, 2013), Google announced that they are acquiring Channel Intelligence (CI). In this post, we'll share some thoughts on 'why?', what we are hearing from retailers and what we think this means for Google long-term. Disclaimer: we historically have periodically competed with CI in the comparison shopping management space.
E-commerce is forecasted to be a $1T industry by 2017 and Google has publicly said that 40% of their revenue is in the retail/e-commerce vertical, so the stakes here are very high. Before we dive into what's behind this acquisition, it's important to look back at Google's historical efforts in e-commerce.
A brief history of Google's e-commerce efforts
Here are the headlines from the last ten years of Google's efforts in the e-commerce space:
- December 2002 - Google introduces Froogle (consumer facing front-end) and Google Base (back-end)
- June 2006 - Google announces Google Checkout
- April 2007 - Froogle is rebranded as Google Product Search (GPS for short) and the Google Base nomenclature is dropped.
- 2007-2012 - Google improved GPS with international rollouts, local features, Google Checkout integration, item pages, parent/child, attributes, images, product reviews, etc.
- November 2009 - Google introduces Product Listing Ads - a program that charges a CPC on top of GPS. This program did not receive much traffic/query exposure.
- May 2012 - Google announces the end of the free GPS in the US and merges in the PLA program renaming the combination as Google Shopping (GS).
- July 2012 - After lackluster adoption, Google renames Google Checkout to be part of the mobile-facing effort, Google Wallet
- October 2012 - Google moves 100% of queries away from GPS to GS in US.
- February 2012 - Google moves from GPS to GS in UK, DE, AU and 7 other regions.
The other bit of background we need to cover to understand what's driving this acquisition is the history of friction between Google and Amazon.
Google / Amazon friction
Industry lore suggests that 10+ yrs ago when Google first started their project to scan books, Amazon's Jeff Bezos realized the two firms were on a collision course. Since then there have been a number of friction points. This smoke became a fire in the last year as the mainstream press caught on, ignited by a spark from Forrester. Here are some highlights:
- July 2012 - Forrester releases study showing that 30% of consumers start their product searches at Amazon vs. 15% at Google - only 2yrs earlier, the trend was reversed.
- September 2012 - The NY Times publishes an article that proclaims: "Google Struggles to Unseat Amazon as the Web's Most Popular Mall."
- November 2012 - Amazon withdraws all products from Google Shopping, but does stay in the Adwords program. Shortly after, eBay follows suit, significantly hobbling Google Shopping's breadth of product selection.
- December 2012 - Google acquires Bufferbox, a Canadian startup that offers an Amazon Locker type service
- December 2012 - Amazon is widely known to be entering the advertising business that Google largely dominates today.
Why CI? (follow the data... and the revenue/ad spend)
Within the context of Google's mixed efforts in e-commerce and their increasing friction with Amazon, Channel Intelligence offers Google one strategic thing that it desperately needs to even hold its ground against Amazon: transactional data.
- Amazon sees every transaction in its ecosystem. Google sees no transaction data, just clicks unless Google Analytics is installed and even then, the data isn't tied to specific products (complete closed loop that Amazon has).
- Amazon has built a very deep and wide catalog of the entire World's product catalog. Google has scattered high-level data and lacks a robust product catalog.
- Google would like to know exactly what is happening (costs, conversions, etc..) at competing comparison shopping engines (shopping.com, shopzilla, pricegrabber, Nextag, etc.)
- Without visibility into the full transaction loop at a sku-level (e.g. what products are selling and what price), Google is partially blind to the value they are providing and maybe leaving click revenue on the table.
Acquiring CI gives Google access to pieces of this data for those customers currently using CI.
An interesting side note: eBay (with its marketplace and PayPal businesses) is the only other company that comes close to the level of transactional data that Amazon sees.
In addition to access to closed loop transaction data, Google's goal is to increase ad spend. If you know that someone is paying $.50/click (CPC) and it is converting at 4% for an ASP of $100, you can easily calculate that there is a lot of room to grow in the CPC and move the cost up based on that knowledge. With the lack of Amazon and eBay who are top adwords advertisers, not only is selection challenged, but it has a less robust competitive market than the similar adwords 'auction'.
In conclusion, CI gives Google transactional data that has numerous uses, the top use being increasing ad spend. Google has made a ton of revenue (our conservative estimate at the time of the announcement was $130m in the US alone) by turning a free program into a paid program and this acquisition will enable them to have access to transactional data that will keep the ad spend dollars flowing.
Historically, many retailers (especially larger top 200 retailers) have been reluctant to share their transactional data with their e-commerce channel partners. As Google folds in the CI business, it will be interesting to see if retailers are ok with Google having significant, deep new insights into the performance of their products at a detailed SKU-level and non-google channel performance details. Ironically, transactional data protection and control is the number one reason that retailers don't sell on Amazon.
I don't see retailers pulling the plug on Google Shopping, but we do recommend that retailers go into this with their eyes wide open and ask questions such as:
- Will Google use CI transactional data to source new sellers? "Wow, ProductX is really selling, let's go recruit 3 more retailers that carry ProductX..."
- Will Google build a product catalog that other retailers can utilize using your data?
- What will Google do with your sales data from other comparison shopping engines? You could picture someone saying: "I see you are spending $X/month over there, how can we move that to Google Shopping?"
- Will Google have access to your cost or margin data?
- Will Google use your performance data to increase prices and click costs?
- Will Google continue to support non-Google sites that CI currently supports, like Amazon Product Ads, Nextag, Shopping.com (owned by eBay), PriceGrabber, etc.? Or will Google's focus and efforts be biased towards Google owned-and-operated properties?
- CI's tag solution allows the company to see all of a retailers traffic and conversions - seo, sem, direct, email, etc. Will retailers be ok with this going forward?
Search Engine Land's Greg Sterling has an interesting take on Google's interest of supporting non-Google engines: "CI works with other product distribution channels and shopping engines. That’s probably unlikely to continue over the long term." A view we share, so most likely the concern over what Google does with sales data from other channels will be moot.
Longer-term Google speculation - building a marketplace?
The increasing speculation from Wall St. and other areas is that to really compete with Amazon, Google will need to build a marketplace, especially as mobile adoption continues to skyrocket. We have been suggesting for quite a while that Google has many of the pieces it would need to build a marketplace:
- Retailer relationships/advertisers
- A checkout system (Google Wallet)
- A monetization mechanism (PPC)
- Trust/safety program (Google Trusted Stores - launched last year, minimal retailer adoption over data-sharing concerns)
All that Google lacks to make this a reality is a product catalog, and a strategy to differentiate from eBay and Amazon. It's possible that long-term CI could help Google with the catalog missing puzzle piece.
Interestingly, Wall St. is starting to feel that Google needs to go down the marketplace path as shown in the following exchange from the Google Q4 earnings call:
Ben Schachter - Macquarie: ... Google Shopping, the PLAs and the interface changes, I think significantly improve the user experience, but the consumer still needs to leave the site to transact. Do you anticipate a mechanism whereas users can actually transact on Google Shopping without having to leave? You know, as you said sort of no extra work needed? Thanks.
Larry Page - Chief Executive Officer, Director: Google Shopping, I guess you are asking about Product Listing Ads I think that we are also in the early stages of that. We just rolled out Google Shopping. We’ve seen tremendous uptake from merchants and from users and I expect that quality of the site, the ease of buying things will improve over time and I am really excited about that. I am not going to comment on details about that, but we’re always focused on making our user experience better.
That's definitely not a yes, but it's also not a 'no', but only time will tell if Google feels enough pressure from marketplaces like Amazon and eBay that it feels it needs to dip its toes in the marketplace waters to improve the consumer experience to the levels delivered by eBay and Amazon.
Stay tuned and we'd love to hear your thoughts in comments.
Scot Wingo, CEO of ChannelAdvisor, wrote this blog post. eBay is an investor in ChannelAdvisor.