Google Shopping Express will be Google's (NASDAQ:GOOG) answer to Amazon.com's (NASDAQ:AMZN) marketplace. It should instantly represent a new revenue stream for Google and also bring grief towards a particular competitor who somehow abused Google's Android initiative by forking the OS in the Kindle Fire series of tablets.
The service will connect retailers with their customers through Google, which will not only offer search results, but will also be ready to handle the transaction itself and delivery.
Google Shopping Express will tie up several of Google's advantages into a seamless retailing experience. The relevant pieces will be:
- Google's massive search volume, much of which is looking to buy something;
- Google Wallet, which could grow into being a competitor for eBay's (NASDAQ:EBAY) PayPal, to handle the payments;
- Google's geo knowledge, from its Google Maps initiative, allowing it to estimate the most efficient routes from participating retailers' shops.
This initiative allows Google to not only take a cut of each ad, as it does today, but also take a cut of each transaction and payment.
It's also rumored that Google will implement a program similar to Amazon.com's Prime membership, but at a $10-$15 discount, hence $64-$69 per year instead of Amazon.com's $79. This will give customers free shipping on supposedly unlimited deliveries. It's also relevant that this shipping will be same-day, instead of Amazon.com's free 2-day shipping. In a way, Amazon.com won't be able to compete, since Amazon.com will be offering free shipping from less than 100 nationwide distribution centers, versus Google's distributed "thousands of shops" locations.
If and when Google launches this service, it's predictable that Amazon.com will match its price, even though Amazon.com Prime includes free video and book lending. Amazon.com can't stand to be seen as the more expensive option.
Due to Amazon.com's lack of transparency, we don't know the exact number of Prime members it has. Estimates are all over the place, but if we are to believe the 7-10 million estimates, then such a move to match Google's pricing would mean an immediate $70-$150 million impact to Amazon.com's bottom line. Using 460 million shares, that would be a $0.15 to $0.32 impact on per share earnings just from matching Google's pricing, or 10-22% of Amazon.com's estimated 2013 earnings.
Also certain to happen will be Amazon.com's reluctance to acknowledge or quantify both the earnings impact and the revenue growth impact from Google's initiative.
Google's Shopping Express initiative has a good chance of leveraging Google's strengths, allowing it to enter a new and attractive market. Google stands to make commissions not only from product ads, but also from product transactions and payments.
On the other hand, both Amazon.com and eBay will see a new competitor rising, hitting precisely in their most attractive segments.
Furthermore, if Google is to replicate Amazon.com's Prime membership, this will certainly compel Amazon.com to respond, with an immediate earnings impact even before the revenue growth impact is felt as Google takes market share.
The move is a positive for Google, mild negative for eBay and strong negative for Amazon.com. Worse still, while Google and eBay trade for reasonable valuations, Amazon.com - the biggest loser in this scenario, is also the company trading for the most stretched valuation multiples. This makes it double worrisome for Amazon.com.
Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.