Bengaluru: Flipkart Pvt. Ltd and Amazon India, the country’s largest online retailers, have both slashed advertising spending on Google, ahead of an e-commerce launch by the web-search company, which they now view as a serious threat, two people familiar with the matter said.
Until last year, the two online retailers used to spend hundreds of crores of rupees buying ads on Google. Over the past few months, however, both companies have shifted some of that ad spending to other platforms, the two people quoted above said. Over the past three months, both Flipkart and Amazon have reduced spending on Google by more than 30% compared with the months before, the people said.
It is not clear what form Google’s e-commerce push will finally take. However, its tech expertise, dominance of the internet and deep pockets could make the company a serious rival to Flipkart and Amazon.
In a related development, Flipkart has also called off talks to raise fresh capital from Google, the two people said, on condition of anonymity.
A new rivalry brews as Flipkart, Amazon cut Google ad spends
Google was keen on investing in Flipkart because it wanted a strategic partner to help it with its e-commerce push. However, Google wanted much closer collaboration than Flipkart and its new owner, Walmart, were willing to offer, the people said.
Google’s interest in e-commerce stems from its worry that some shoppers are going straight to Amazon to search for products rather than using Google. If this trend continues, it could threaten Google’s core business of digital advertising. Amazon is already generating billions of dollars in ad revenues in the US.
As such, in the US, Google has been reworking and aggressively expanding its e-commerce business, a move the firm wants to replicate in India.
Google is the clear market leader in digital ads in India, but Flipkart has already become the No. 3 player after Facebook. Flipkart expects to generate annualized ad revenues of $200 million next March, Mint reported last week. Amazon, too, is aggressively expanding its ad team here.
Google’s e-commerce push and the rising importance of Flipkart and Amazon in digital ads are the latest examples of how intertwined the tech business has become and how internet firms are increasingly encroaching on each other’s turf. A few years ago, it was unthinkable that Google would enter e-commerce or that Amazon could ever threaten Google’s dominance in search and online advertising.
However, the low entry barriers in the digital space, the large cash reserves of internet behemoths and their unending appetite for growth mean that no niche is off limits.
Google’s retail entry may result in higher losses for existing e-commerce firms. The e-commerce market grew 23% to $18 billion in 2017, according to RedSeer Consulting. India’s e-commerce market is a fraction of the size of China’s or the US. Yet, Flipkart, Amazon India and Paytm Mall bear huge losses while specialty e-commerce firms are struggling to grow sales quickly.
A new serious entrant with deep pockets like Google will strengthen the view that India’s e-commerce market is overcrowded.
An Amazon spokeswoman declined to comment for this story. A Google spokeswoman said that the company did not want to comment on what it called “speculation.” Flipkart did not respond to emails seeking comment.