Amazon is hitting Google

Don't look now, but the brainiacs at Google Inc (NASDAQ:GOOG) have made a big stinking mess out of their site's shopping search results.

Seriously. Don't look now, because they're working on it. But they've got their work cut out for them if they want to stop their company from continuing to lose share of the lucrative market for shopping-related searches to Amazon.com, Inc. (NASDAQ:AMZN). The 2012 holiday season ought to be a critical test for both companies.

This is a big hole in Google's dominance of the online search industry. Consumers increasingly are going straight to Amazon to search for products, on the pretty fair assumption that, whatever they want, Amazon's got it.

According to a report released by Forrester Research in late July, about 30% of shoppers at least started their last online purchase by searching on Amazon, compared with 13% who turned first to Google. Only three years before, just 18% started their searches on Amazon, while nearly 25% used Google first.

The financial implications are clear: Google is bleeding share of the audience its advertisers want most -- those who are actively looking to buy what they're selling.

In response, Google is again trying to improve its Google Shopping section. If you didn't know Google had a shopping section, you're not alone. This sad backwater, initially called Froogle and later Google Product Search, is buried under the "More" pull-down tab on the home page. The Forrester report does not distinguish between main page searches and searches within this sub-section, but it's a good bet that few people stumble into Google Shopping.

If they find it now, and look for the tiny gray type at the bottom of the page, they'll discover that "Google is compensated by some of these merchants."

Charging Merchants May Backfire

That's the only clue to the first big change: Google has decided to start charging merchants for inclusion in the search results. The company says it is doing so only to clear out low-quality matches poured in by merchants who were taking advantage of the free exposure but not taking responsibility for the quality of their entries.

That may be true, but it is seriously messing with Google's reputation for strict separation of search results and paid placement advertising. For that matter, how does a search engine justify limiting the breadth of its search?

Moreover, it means that the main Google Search page, which retains that editorial integrity, is a much better place to go shopping than the Google Shopping page. To understand that, you have to know that Amazon is among the companies that so far has declined to pay for exposure in Google Shopping.

For example, say you want to purchase a mundane item like a clothes brush. Tough to find in the real world these days, but there are a million of them online. If you enter "clothes brush" on the main Google Search page, the results are topped by an ad with an automated link to Amazon's selection, followed by a similar ad for a Google Shopping results page, followed by a number of direct links to Amazon product pages.

If you enter the same words on shopping.google.com, all of the Amazon listings are omitted, though you get a variety of matches including fancy silver designs and a cool art deco brush with a bulldog handle. But if you add the word Amazon to your search to try to force it to include Amazon listings, you'll get some weird stuff, like a documentary about exploring through the thick brush of the Amazon river basin.

The omission gets weirder if you search for the category that Amazon overwhelmingly dominates -- that is, books. If you want a quick comparison of prices and stock at online booksellers other than Amazon, try a search for any author's titles.

There's another reason for the difference in search results on the main page and the Shopping page, and it's logical without being intuitive. Google is featuring its own Google Shopping search on its own front page, as if it were a sponsored display.

Google Shopping has one attractive feature that Amazon lacks: a button labeled "In Stock Nearby," which filters results for matching products in and around the user's zip code. That's a great feature for Google local advertisers, and Amazon is unlikely to add it.

But otherwise, Google apparently created Google Shopping as a simple sub-set of Google Search. That is, it uses the usual Google criteria but restricts the search to retailers. There is little attempt to help the consumer narrow the results to a reasonable selection.

For a good illustration, try searching for a "shirt" in Google Shopping and on Amazon.com. The Google Shopping search result is probably an example of the limitations of a search algorithm. It takes human intervention at some point to consider that men, women, and children all wear shirts, and that T-shirts are different from dress shirts. Somebody at Amazon has already thought that one through.

The reworking of Google Shopping won't be completed until later this autumn, so it's too early to declare that it just can't compete with Amazon for shoppers' eyeballs.

But one other big segment of the retailing ecosystem already has reason to panic, and that is, all retailers that aren't on Amazon. They have depended on Google for exposure to customers. But even the biggest and healthiest retailers may balk at paying for all of their goods to be included in Google Shopping. Smaller retailers may have to give up on Google.

A Google executive told the New York Times that the company would offer retailers a choice in payment plans, including pay-per-click and payments based on actual purchases. The charges don't start taking effect until sometime in October.

Retailers may have to choose one of the above, or risk online oblivion. A blog post by Forrester Research analyst

Sarah Rotman Epps concludes that Amazon's introduction of a new line of Kindles this month will help it along its path to "an increasing share of consumers' wallets."