By Tim Brugger, The Motley Fool
Filed under: Investing
In addition to its outstanding financials, part of what makes Google such an attractive investment alternative is its unending drive to innovate. From space age glasses to playing with the notion of a self-driving car, Google has quickly differentiated itself from every company out there — and that’s good. But its latest initiative — bringing home delivery of food and other goodies to Silicon Valley via its Shopping Express experiment — is just plain wrong.
The latest foray
In addition to the challenge of taking on established industry leaders Amazon and eBay , Google’s Shopping Express seems more like cockiness than a genuine, long-term revenue opportunity. At this point, shopping express is in a test phase, according to Tom Fellows, Google’s product management director. For the next six months, consumers in the San Francisco area will enjoy free, same-day delivery of products from the likes of Target, Wal-Mart, and several Bay Area food and specialty shops, among others.
You don’t have to be a CFO to recognize that margins in the home-delivery business are razor-thin, which raises the question: What’s the point of Shopping Express? Some have speculated that Google wants to drive more traffic to its site, generating additional advertising revenue. As it stands, shoppers can access Amazon.com or eBay either directly or using any search engine they choose. Users of Google’s Shopping Express, so the line of reasoning goes, would boost its site activity and, ostensibly, the amount of ad revenue.
Amazon’s Prime delivery service is viable primarily because of its widespread — and growing — distribution system. eBay’s model doesn’t allow for distribution centers, but it’s not trying to generate revenue with fast, home delivery. That’s simply a carrot eBay dangles to drive more sales.
Google hasn’t said what the service might eventually cost, only that “We’re still working out our long-term pricing plan but early testers will get six months of free, unlimited same-day delivery. The pilot will expand as we work out the kinks, so please stay tuned.”
Perhaps Google plans to work out some kind of deal with the retailers associated with Shopping Express, taking a bit off the top for each item sold. Or perhaps, when the testing phase is over, Google thinks consumers will be so enamored with the idea of sitting at home, waiting on their groceries, that they’ll fork over enough to cover costs and possibly even produce a slight profit.
The future of shopping express
The history of failed home-delivery efforts is replete with such names as Kozmo, Urbanfetch, and Webvan. They all died a mercifully fast and unprofitable death, after sucking venture capital firms dry. Retail’s a tough industry, as Target, Wal-Mart, and others like them will attest. Acting as a third-party delivery service by piggybacking on other retailers, as Google Shopping Express does, just adds another layer of expense on top of margins that are already too thin. According to Value Line data compiled by New York University, retail …read more
Source: FULL ARTICLE at DailyFinance
