Google Shopping Express Goes After Amazon on Product Search

07/12/2014 12:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Why does this search engine goliath seem to be stepping on this online shopping giant's toes, according to MoneyShow's Jim Jubak, for the same reason it's also going after Android TV, it wants to reach everyone, everywhere.

About a month ago, an ad for something called Google Shopping Express showed up on a bus shelter near my office.

It offered free delivery from Google for online orders from all my favorite local stores: Whole Foods Market, Target, Costco, Blue Bottle, and more. When I went online to the Google Shopping Express site I found that Google Shopping Express was free for the first six months and would even give me $10 off on my first order.

My first reaction? This is Amazon.com's turf. If I want to buy something, I go to Amazon. If I want to search, or email, or map, I go to Google (GOOG). Why would Google want to go head to head with Amazon (AMZN) in an area that Amazon dominates and where margins aren't especially attractive?

For the same reason that Google has launched Android TV. Google wants to make sure that it taps into all the data available on what consumers buy so it can sell targeted ads at higher prices because the more targeted an ad is, the more valuable it is to an advertiser.

But while Google is King of the Mountain in many categories of search, it isn't when it comes to searching for products. In that particular category, Amazon leads. And one big reason it leads in that category is very simple: If you search on a product on Amazon, you can buy it on Amazon and get it delivered by Amazon. And if you search for a product on Amazon, it means you're not searching for it on Google and Google isn't selling ads opposite that search. (Researcher eMarketer forecasts that spending on digital direct response ads by consumer goods and electronics companies will total $3.5 billion in 2014.) Google Shopping Express is intended to close some of that gap.

Google's plans call for a $500 million national rollout of Shopping Express from its initial start in San Francisco, according to re/Code. That may seem like a lot of cash, but Google is actually trying to match Amazon's investment in its logistics system without having to spend on a network of warehouses and without having to invest in a network nearly as much. Shopping Express won't inventory and while it will own warehouses, it will own fewer of them. Shopping Express will pick up your online order from a local store, take orders to a warehouse for sorting, and then deliver it to you. And most of Google's investment will go to marketing, buying a fleet of delivery vehicles, and paying for drivers and packers to pick up goods in store and deliver them.

There's a reason that Amazon has spent so much money building inventory and warehouses, though: It's really hard to deliver orders reliably and quickly if you don't control the distribution system. On the first day of its May roll out in Manhattan, for example, Google Shopping Express collapsed under the weight of orders. By noon on that day, the Google Express site was saying that it couldn't accept any more orders for same day delivery. (You're supposed to be able to shop until 4:30 PM and still get same day delivery.)

Google isn't doing all this for free. It charges the store a single-digit commission on sales and—although it has waved the fee for six months in a new market such as Manhattan, eventually, shoppers will pay a $4.99 fee for each store Google has to visit to complete an order. (The company says it has plans to introduce a flat fee membership that resembles Amazon Prime at $99 a year.)

I certainly understand why Google feels it has to match Amazon on product searches to expand its share of the ad pie, but I wonder if the company isn't underestimating the challenge. That might go for Amazon, too. I'm seeing a steady stream of announcements of startups that have raised big money to tackle the online delivery market.

Amazon is certainly the biggest player but all that really means is that the company is the target that these newcomers are shooting at. It's not like the venture capitalists backing these startups don't know they're going against Amazon. They just think they've got an edge that will enable them to beat Amazon. To me, at the least, this suggests that Google is going to need to get a lot more serious than $500 million.

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