Why Alphabet Inc (GOOG) and Facebook Inc (FB) SHOULD Sweat AMZN’s Video Plans

YouTube, which is owned by Alphabet Inc (GOOG, GOOGL), and Facebook Inc (FB), which is working around the clock on its own ambitions in video, have a new competitor to worry about: Amazon.com, Inc. (AMZN).

Why Alphabet Inc (GOOG) and Facebook Inc (FB) SHOULD Sweat AMZN’s Video Plans

It’s a familiar competitor. The three tech giants have a lot of overlap, and the broad war that’s being waged is a fight over consumer eyeballs, engagement and time of engagement, all of which lead to major revenues in one way or another.

GOOG and FB have been publicly locked in a battle for advertiser dollars for years now, but Facebook Video, which rolled out last year, is the social network’s most serious attempt to dethrone Alphabet’s YouTube. It appears AMZN didn’t want to be left out.

The company is taking on both Google and Facebook with its new service, Amazon Video Direct, which courts content creators by offering them a share of resultant revenues — 50%, to be exact.

Why GOOG and FB Can’t Write Off AMZN

Taking a full inventory of the businesses that AMZN CEO Jeff Bezos has personally put out of business with his ambitious expansion plans would be a lengthy, masochistic exercise.

Suffice it to say that Borders and Circuit City are two of the most well-known victims, but Amazon.com is crushing the entire mall ecosystem as we know it, and we’re seeing companies like Sears Holdings Corp (SHLD), Macy’s, Inc. (M), Office Depot Inc (ODP) and many others slowly die.

GOOG and FB should at least keep this in mind. Admittedly, if either’s video businesses fell off a cliff, shareholders would still have excellent core businesses to fall back on. But AMZN’s entrance into the market still isn’t welcome news, since YouTube and Facebook Video likely account for upwards of $5.5 billion in combined revenue annually.

As for what Amazon Direct Video will look like, we don’t exactly know yet, but we do know that content creators can choose how to be reimbursed: For free content, you can take a 50% revenue share from advertisements, or for premium content you can take 50% of video rentals and sales.

You can also get paid out on monthly subscriptions, or hours streamed by Prime members if you choose to keep it walled off from non-Prime members.

While a 50% rev share is a little less than the 55% GOOG and FB give content creators, AMZN is sweetening the pot by offering a share of $1 million per month for the top 100 Prime titles — an average of $10,000 per title.

This highlights a more fundamental reason AMZN has debuted the new service: To increase the utility that Prime subscribers receive for paying the $99 annual subscription fee. Prime subscribers, who feel a vested interest in making the most of complementary services like free two-day shipping, spend far more on Amazon.com than non-Prime subscribers.

Over time, AMZN has managed to steal product search traffic from GOOG, with an increasing percentage of shoppers beginning their online shopping journey on Amazon.com, rather than a search engine. Like Netflix, Inc. (NFLX) CEO Reed Hastings, it’s clear that Bezos thinks of all entertainment (that means you, FB) as the competition.

At the end of the day, Amazon Video Direct, while incrementally negative for GOOG and FB’s video initiatives, is at its core another service that will pull users to Amazon’s website and increase Prime’s utility.

As always, Bezos is playing the long game. And with AMZN stock at all-time highs above $700 a share, it’s tough to argue with the results so far.

As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/alphabet-inc-goog-facebook-inc-fb-amzn/.

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