Disintermediation, The Sequel — Like Dot.Com All Over Again
Until the Dot Com bubble, disintermediation was an obscure term used by bankers and economists to describe cash bypassing banks in search of higher yields. Ever since, it’s been used by anyone to describe consumers bypassing middlemen like stockbrokers, travel agents, and traditional retailers, in search of better deals. Smart speakers are leading a wave of new devices replacing browsers and mobile apps, starting a new wave of disruption. This time, it’s the entrenched incumbents who are disrupting everyone’s business — including their own — to win the next round.
Amazon, the biggest disruptor of all, began life as a layer on top of traditional intermediaries (book wholesalers and publishers), before its unprecedented explosion of breadth, depth and vertical integration. An uneasy mix of retail, private label products, and 3rd party marketplace, Amazon controls 47% (!) of US e-commerce sales. This week, that mix got uneasier, as the Wall Street Journal reported that Amazon’s product-search system now favors its own branded and higher margin products, following algorithmic changes last year. According to the WSJ, Amazon’s own A9 search engineering team argued with the retail team that surfacing Amazon products first isn’t in customers’ best interest.
The retail team won.
When Amazon first launched its marketplace (as zShops), Jeff Bezos said:
"We don’t consider our business to be selling things to people…our business is to try and have universal selection and provide tools so people can find and discover the right products for them. So in a very important way our core business is helping people make purchase decisions.”
Twenty years later, in search of higher margin, Amazon now wants people to find and discover the right products for Amazon.
This temptation is understandable: relative to other businesses, Amazon makes famously little money selling other peoples stuff. Last holiday season, $141 Billion in US retail sales and $25 Billion in AWS revenue each delivered $7 Billion in income. Yet, even this healthy cloud services margin can’t compare to the highest margin business of all: selling attention. So Amazon is ramping up its advertising business, and ramping up competition with Google in the process.
Already, more online product searches are initiated on Amazon than Google, and Amazon’s ads also run on Google and the web. Of the Google/Facebook duopoly, Amazon’s product-focused ads impact Google most. And, while Google, Apple and Amazon all have popular digital assistants, Amazon has the most to gain — and Google the most to lose — in the emerging space that’s most disrupting Big Tech: voice.
Because it bypasses web browsers and apps, voice can completely rearrange the Big Tech world order. Siri, Alexa and Google Assistant are in a full-on voice-enablement arms race. So far, Amazon is winning. Recapping last years holiday performance, Bezos said: “Alexa was very busy during her holiday season…….Echo Dot was the best-selling item across all products on Amazon globally, and customers purchased millions more devices from the Echo family compared to last year.” Since then, customers have purchased many millions more, including the Echo Auto, through which Alexa gets to ride shotgun next to cell phones and in-dash navigation systems.
While Google also sells plenty of smart speakers, for them, winning in voice search is a hollow victory — even on Google Assistant searches, advertising opportunities are limited compared to browser-based search. Unlike the web, voice is single-threaded, and the tendency is winner-take-all for the top result. For Amazon on the other hand, voice is pure opportunity: each Alexa search is one more chance to serve up Amazon product listings, and one less revenue opportunity for Google (Bing is Alexa’s default search engine).
Voice is also pure opportunity for Apple. Google paid an estimated $12 Billion in 2019 — nearly 10% of its’ total revenue — to be Apple’s default search engine. Via Siri voice search, Apple controls that traffic — and isn’t letting go. You can install Alexa on an iPhone, and invoke it via the microphone, but you can’t replace Siri as your default voice assistant (unlike Android, where you can). It makes sense for Apple to keep a tight rein on voice-based assistance — in essence, voice is the new browser.
Augmented Reality (AR) will soon raise the voice stakes even higher. Sometime — perhaps even later this year — Apple will release AR glasses, providing one more microphone-enabled endpoint to invoke Siri, and one more screen for Siri to control. In the coming AR war between Apple’s headset, Google Glass and Microsoft Hololens, voice assistants will play a pivotal role.
Google’s Chrome browser loses relevance in a voice-first world. To help compensate, Google launched Reserve With Google (RwG), an AI-powered reservation service attached to search listings. Targeting SMBs along with multi-location businesses like banks, RwG transcends search and lets Google mediate transactions. Since Google charges no fees (for now, and its implementation partners do), it seems like one more charitably free Google service. But — as Amazon showed by downgrading products in favor of its own brands — what the hegemony gives, the hegemony can take away. In fact, Google demonstrated that even more vividly than Amazon, with Project Sunroof.
Starting as an engineers “20% Project,” Sunroof calculates the energy potential of a rooftop based on Google satellite data. It was a nice value-add for consumers and installers — in Jeff Bezos words, helping people make purchase decisions — until Google decided to help even more: by enrolling installers to receive lead referrals.
Receiving turn-key Sunroof leads was great news for the handful of installers Google curated into the program. For other installers, not so much.And it was downright terrible news for the content providers and aggregators (most of them Google keyword advertisers) that Google disintermediated overnight. Thankfully for them, Google made a quick exit from the lead generation business. While Sunroof is still up, its “Find Installer” button now leads to a regular Google search.
It was 2012 when Forbes quoted Jeff Bezos saying “your margin is my opportunity,” so it’s time for the 7 year itch. While no business has ever been immune to Amazon, the odds of collateral damage increase as the giants try to disrupt teach other. How to mitigate this risk?
Voice optimizing, and deploying conversational AI agents (like Vocinity’s) to interface with — or bypass — Siri, Alexa and Assistant, may provide competitive advantage in the near term and protection in the long term. For Enterprises with established brands, a golden window is just now opening to earn “voice share,” along with premium position for their digital agents in the consumer contact lists that span these new devices. This is exactly what BMW is doing: instead of using Amazon Lex or Google Dialogflow for its in-car digital assistant, BMW developed its own.
Google’s former CEO Eric Schmidt once said: “There is what I call the creepy line. The Google policy on a lot of things is to get right up to the creepy line and not cross it.” In this new phase of disintermediation, Google and the rest of the hegemony is much more likely to cross that line.
Beware of getting “Sunroof’d.”
