Sometimes I think that Amazon secretly wants to get out of the physical retailing business. It gets much higher margins from selling digital goods, or from collecting an affiliate fee from any sales it directs to an third-party Amazon Merchant. Any time it can avoid shipping something, it makes more money (proportionately) than if it sold you the item itself.
Now Amazon is making a move in the direction of becoming a shopping search engine. This week, it launched a program called Product Ads, which lets any Web merchant buy cost-per-click ads on Amazon linked to specific product searches. No announcement was made other than a blast e-mail to product marketers and the addition of a paragraph at the bottom of this page describing how you can advertise with Amazon. Although it is a limited test for now (in the Electronics & Computers, Home & Garden, Tools, and Toys, Kids & Baby categories), Product Ads is a direct response to the encroachment of Google and product search engines like eBay’s Shopping.com.
More people probably start their online shopping at Google than at Amazon.com these days. With Product Ads, Amazon is fighting back. Anyone who searches for a product on Amazon today will find either products that Amazon sells or ones that its merchant affiliates sell. Now Amazon is saying that any Websites that is selling something related to its product categories can buy an ad that will show up as a highly targeted product search result, along with all the items on Amazon and its merchant sites. What’s more, Websites won’t need to pay Amazon an affiliate fee or register as a merchant. They won’t even need to pay for the ad unless someone clicks on it.
Each click might bring only pennies, but search is a volume game. For Amazon, it is all gravy that could help boost the company’s overall margins if it takes off. It is also a smart defensive move against Google, which still does not do product search particularly well. If shoppers could find anything they want to buy across the Web on Amazon, it might once again become the first place to look when they shop online.
(via Josh Kopelman).