Should Amazon Be Worried By This Google Acquisition?

With the competition in the advertising arena heating up between Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN), the former is turning its attention to its shopping business as a means to shore up its position in the market.

ICG Group (NASDAQ:ICGE) announced on Wednesday that it had agreed to sell its Channel Intelligence unit to Google for $125 million in cash, a deal that is expected to be completed in the first quarter. Channel Intelligence works with brands to improve their performance in search engine results. Its website noted that the company “has developed a technology to help merchants maximize sales” and generate “qualified consumer visits and profitable product sales.”

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Google already makes use of Channel Intelligence’s services, so why does Google want to buy the company? Because Amazon also uses the the company to boost its sales performance.

Amazon, already the dominant player in Internet retailing, has expanded its business into online advertising and stepped on Google’s toes in the process. Amazon is serious about becoming its display ad rival. As AdAge reported in December, the company has created an ad-bidding platform that can tap into existing exchanges and supply platforms, and allow advertisers to target ads to consumers based on their browsing activity. This makes the platform competitive with Facebook’s (NASDAQ:FB) FBX Exchange as well…

But Google has begun a massive overhaul to its shopping business, in the face of Amazon’s increasing competition. On February 13, it will start phasing out free listings in its Google Shopping results and implement a pay-per click advertising model instead.

With these changes, Google is preparing to make its shopping business a formidable driver of revenue. It already is a strong source of profits as Chief Executive Officer Larry Page pointed out in the company’s fourth quarter conference call, but to stave off Amazon, more weapons were needed. These Shopping ads not only give the company valuable data about its user base, but they also appear to be bringing more advertising dollars to Google. The new format pushes Amazon’s natural search results below Google’s sponsored results and its own Google Shopping results, both of which make the company money.

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