For several weeks now Google (GOOG) has been testing a same day delivery service in the San Francisco Bay Area. The object is to create a service to connect local retail stores with consumers. But Google's e-commerce endeavors are not new. Google has been preparing for this move for a long time. The NY Times reported in December of 2011:
SAN FRANCISCO - In another foray into commerce, Google is working on a delivery service that would let people order items from local stores on the Web and receive them at their homes or offices within a day. The service is in an early testing phase, and it was described by three people briefed on the project who were not authorized to speak about it publicly before it was announced. It is part of a bigger, strategic effort by Google to move beyond its core search business by helping people buy things, not just find them.
Since then, Google has been quietly buying companies that will help it forge the business. It bought Bufferbox, a Canadian startup which sets up lockers to receive e-commerce shipments for $17 million. Just recently, Google bought Channel Intelligence Inc. for $125 million that helps retailers promote goods on Facebook's social network and it also picked up Incentive Targeting, a Cambridge, Mass.-based online coupons startup. In addition, Google Wallet that was launched in September of 2011 is meant to be the medium of exchange in this new online shopping platform.
Amazon (AMZN) already offers limited same day delivery service in several metro locations for limited items for a $3.99 delivery fee, for customers who are members of Amazon Prime. But in reality Amazon Prime has nothing to do with what Google is trying to do. Amazon delivers products from warehouses, Google is aiming to match customers with retail stores at the local level. While Amazon Prime is also offering limited same day delivery to limited metro areas, it's actually a nationwide service available to anyone. The main objective of this service is to offer two day delivery, not same day delivery.
So Google is not exactly copying Amazon's model as has been reported. Instead, Google is copying a service developed by eBay (EBAY) called eBay now, that is offered in San Francisco, New York and San Jose. According to eBay, if consumers are within the limited delivery zone, eBay says it can deliver things in about an hour from local merchants.
So according to reports, Google will launch a similar service called Google Shopping Express that will be an extension of Google's Shopping platform. The model is basically the same as eBay's model. In other words, the idea is to deliver products to consumers from local merchants.
If Google offers this as a subscription service, or instead decides to make money from each transaction, is not clear at the moment. It can actually do both, because it is already charging merchants to display their products on Google Shopping.
Will this put any pressure on Amazon as many people have suggested? I don't think so. Neither Google, Amazon or eBay are actually making much (if any) money from this business at the moment. What all these companies are currently doing is experimenting and fine tuning their models and the business. I doubt that they have market share at the current time. Besides, the competition is so limited and there is so much room for everyone to grow and make money, the last thing on Google's mind is to prevent Amazon or eBay from gaining momentum or market share in the space.
So don't expect any company to make enough profits that will be of any investment value for the time being. Unless this business extends beyond the current limited boundaries that each company has decided to play in, economies of scale and earnings will not materialize any time soon.
However, the whole idea of offering consumers same day delivery of products from local merchants is a game changer, and this is what we have to keep in mind.
The efficiencies of scale and the benefits to the economy as a whole is also something else to keep in mind. But I don't see the same day delivery business as something that has enough momentum to produce any meaningful profit for anyone at this point, especially for Google.
However, if Google or any of the above companies were to suddenly announce that they would offer same day delivery of local products on a nationwide scale, then that would be an eye-opener and a game-changer and that would be something that we would be able to translate to meaningful earnings and stock price action.