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Google's YouTube Still Wants to Challenge Amazon

Leo Sun, The Motley Fool

Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google has repeatedly tried to challenge Amazon (NASDAQ: AMZN) in the e-commerce market, but none of its efforts have gained much steam. But it still isn't giving up yet -- it's now testing out a new YouTube feature that shows product recommendations and prices under videos.

These links, which are being tested out by several brands like Nike, redirect YouTube viewers to complete their purchases on Google Express. It's an interesting strategy, but will this effort matter any more than Google's prior e-commerce efforts?

Tiny parcels in a small shopping cart on a laptop keyboard.

Image source: Getty Images.

Turning YouTube into a shopping network

YouTube has over a billion users and it streams over a billion hours of videos daily. This makes it a great platform for reaching potential shoppers. Four years ago, YouTube introduced a feature called "TrueView", which let brands advertise products under their video ads with buy buttons. These buttons let shoppers complete their transactions on third-party sites.

At the time, Google claimed that Wayfair's revenue per TrueView ad impression tripled compared to previous ad campaigns. It also stated that another early adopter, LVMH's Sephora, saw an 80% increase in consideration and a 54% jump in ad recall, with an average ad view time of nearly two minutes.

YouTube currently runs two types of TrueView ads: in-stream ads, which run before, during, and after videos; and video discovery ads, which pop up in search results, suggested videos, and on YouTube's homepage. The new YouTube shopping links represent an evolution of that strategy.

Instead of running under video ads like TrueView, brands can display their product links under full-length videos. And instead of having users complete purchases on third-party sites, the links could strengthen Google's own e-commerce ecosystem by leading shoppers to Google Express, which fulfills digital orders for retailers.

The Information claims that Google will rebrand Google Express as "Google Shopping" in the near future, and that the revamped platform will be more tightly integrated with YouTube. These new shopping links could pave the way toward that upcoming launch.

Catching up to Amazon and Facebook

Integrating shoppable Google Express links into YouTube could also counter Amazon's recent introduction of Amazon Live, a live streaming video platform that lets shoppers sell products directly to viewers.

A laptop user views a streaming video.

Image source: Getty Images.

It could also widen Google's moat against Facebook (NASDAQ: FB), which launched shoppable posts and in-app checkout features on Instagram, and a live video platform that lets merchants sell their products and accept payments on Facebook Messenger. Instagram claims that 130 million people click its shoppable posts every month.

In other words, YouTube is already late to the party. The number of retailers on Google Express also steadily declined as larger retailers launched their own delivery and pick-up services, and it's reportedly struggling to keep its fragmented fleet of third-party couriers on the same page.

This foundation looks wobbly, but Google could potentially leverage YouTube's popularity to convince brands to offer more products on Google Express. However, Google Express is still tiny compared to Amazon -- the platform generated less than $1 billion in North American sales in 2018, compared to Amazon's $141 billion in revenue from its North American business last year.

Google still has some other irons in the fire too. It let content creators add links to their own merchandise under their videos last year, and it tested shoppable ads in its image search results earlier this year.

Is Amazon's ad business making Google nervous?

Google and Facebook still dominate the digital ad market, but Amazon became the market's third largest player last year according to eMarketer. The firm estimated that Amazon's ad unit -- which sells ads across its websites and hardware devices -- controlled 4.1% of the U.S. market for online ads.

The firm estimates that Amazon's U.S. ad revenue will rise over 50% to $11 billion this year, and that its market share will jump to 8.8% as Google's share slips from 38.2% to 37.2%. That forecast suggests that Amazon's expansion into Google's backyard is much more successful than Google's forays into the e-commerce market.

Therefore Google's attempt to transform YouTube into a shopping channel can be considered both an offensive move, chasing Amazon in the e-commerce and product search market; and a defensive one, widening its moat against Amazon and Facebook's ads.

The bottom line

I don't think integrating shoppable links into YouTube videos can help Google gain much ground in the e-commerce market. However, Google might reveal more details at its upcoming I/O conference or Google Marketing Live events this month, so investors should wait to see its official plans instead of jumping to conclusions.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon, Facebook, and LVMH Moet Hennessy L.V. (ADR). The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.