Google should be very scared of what Amazon built, according to investor Bill Gurley
During the interview, he said he saw shades of 1999 in some companies getting millions of dollars in venture funding. Those comments, naturally, garnered a lot attention.
However, he had equally startling comments about Amazon and Google.
After listening to Gurley, it's hard not to be impressed by Amazon. It's equally hard not to be pessimistic about the future of Google.
In short, Gurley believes that Amazon, through Amazon Prime, has built a service that weakens Google's lucrative search business.
"Amazon is doing some aggressive things that are even challenging to Google," says Gurley.
He has a concept called "reversal of funnel." He says that Google sits at the top of the "funnel" right now. Consumers go to Google, do a search, then click into links to sites. Google collects money from those top links, which are ads.
At the bottom of the funnel are the companies fighting for those clicks. That company has to do a lot to make money. It has to convince you to buy what you've clicked into. That means designing an attractive website. It means having inventory, which means owning physical items.
"For many years, Google was considered to be the very best business model possible because they're top of funnel," says Gurley. "And the advantage of being top of funnel is you do the least amount of work and take the most amount of money."
But that could change with Amazon. Google could lose business.
Here's Gurley's full explanation of why:
Well, what happened is over many years, Amazon has built up this logistics framework and their one click feature and their Prime program to the point where the consumer has zero anxiety about the quality of the product, immense trust about the deliverability, down to a day and a half for most people, less than a day for some items. They trust on price. That doesn't mean they are the absolute lowest price, but people don't think Amazon's trying to get em.
So, now, for many of the people I know, they don't disclose Prime numbers, but someone was out saying, I think it may be 90 million? You start your searches with Amazon with Prime checked. And then the second thing you do if that doesn't work is you uncheck Prime. And then if that doesn't work, you go to Google.
This is what I call a 'reversal of funnel', Google has gone from being the starting point to the search of last resort and that's pretty powerful.
As companies can improve the bottom of the funnel that it's so much better, you go around Google.
As people go around Google, it loses out on a highly lucrative part of search, which is e-commerce. When you are looking to buy stuff, Google can charge more for ads.
Gurley continued, saying, "Challenge someone that's a Prime member to shop and then challenge someone to start on Google." It won't even be close. The Amazon experience is far superior to the Google experience.
Google's response to Amazon's success seems lame to Gurley.
"They got Google Express, which I view as a Quixotic response to this problem. We're going to make it possible to close the loop on a Google transaction, but it's not set up in a logistically optimal way," said Gurley. "I have a hard time believing that is optimized in a way that makes economic sense."
"There's no way that's the right model," says Gurley. Amazon, which has spent years, and invested millions in distribution centers around the world has a much better model. And, it's pretty hard for others to compete with Amazon.
You can watch a video of Gurley on Google and Amazon here.