Google May Take a Whack at Same-Day Delivery
It's rumored that Google wants to embark on a same-day delivery service initiative -- something that no major e-commerce company, Amazon included, has figured out how to do at a profit. Why would Google go there? "What Google is hoping to achieve is what Amazon has already achieved with their Prime service -- a hyper-growth customer loyalty program," said Spruance Group founder Patrick Lefler.
Mar 6, 2013 11:54 AM PT
Google is planning to broaden its reach into the e-commerce space with Google Shopping Express, a service similar to Amazon Prime, according to TechCrunch.
The subscription fee would be US$10-$15 cheaper, and another draw would be same-day shipping from brick-and-mortar stores, an anonymous source told the publication.
Google neither confirmed nor denied the report.
"We are always working to build a delightful shopping experience for users, in close partnership with retailers, and to empower businesses of all sizes to compete effectively," the company said in a statement provided to the E-Commerce Times by spokesperson Sandra Heikkinen. "We will continue to work toward providing technology, tools and traffic to help power the retail ecosystem but have nothing to announce at this time."
It's not clear what Google stands to gain from such an initiative, assuming the report is accurate.
"Google Shopping, which this initiative sounds a lot like, has not really taken off," said Trip Chowdhry, managing director of equity research at Global Equities Research.
Google could have determined it needed to offer something e-commerce-related as defensive strategy, he suggested.
"I could see Google wanting to build an engagement strategy that can compete with Amazon in order to defend its core business, which is search," he told the E-Commerce Times.
It surely is not a revenue play, Chowdhry observed.
The Same-Day Delivery Mirage
It's hard to imagine Google propelling an e-commerce initiative within striking distance of Amazon, which inarguably owns the e-commerce sector. Even Google's supposed trump card -- same-day delivery -- could prove to be a bust.
Consumers are not particularly interested in the same-day delivery of goods ordered online, based on a study conducted by The Boston Consulting Group.
Only 9 percent of the 1,500 U.S. consumers surveyed cited same-day delivery as a top factor that would improve their online shopping experience, compared to the 74 percent and 50 percent who cited free delivery and lower prices, respectively.
This might come as a surprise to retailers, which have started to invest in same-day delivery in certain markets. Companies such as Walmart, Nordstrom, eBay -- and yes, Amazon -- are among those that consider it important. All currently offer some version of same-day service to impatient shoppers.
Same-day delivery comes at a high cost for these companies -- one that goes far beyond the delivery service itself.
Same-day delivery requires retooling of a retailer's supply chain and logistics operations, according to a report from Jones Lang LaSalle.
Real estate requirements alone could necessitate buildings with higher clearance than the typical industrial warehouse, along with two or even three levels of mezzanines for picking, packaging, gift wrapping, processing returns and performing other back-office tasks.
Life system and HVAC requirements would also increase to support the inevitable increase in workers.
Google's Real Goal
However, such considerations ignore what is likely Google's true goal with this initiative, said Patrick Lefler, founder of The Spruance Group.
"If you view Google's rumored new service simply through the lens of a same-day shipping product that hopes to compete with Amazon Prime, then I think you're missing the point," he told the E-Commerce Times.
"What Google is hoping to achieve is what Amazon has already achieved with their Prime service -- a hyper-growth customer loyalty program that its customers actually pay to belong to year after year."
By some estimates, Amazon Prime members typically increase their purchases 150 percent after joining the program, Lefler said, "and while these same Prime members account for only 4 percent of Amazon's users, they account for almost 20 percent of Amazon's overall sales."
These are the metrics that Google is eyeing, Lefler concluded, "not whether or not they break even on shipping costs."