In the 1990s, when Amazon (NASDAQ:AMZN) began its operations, it had a revolutionary business model. For the first time, an online store was able to compete with the brick and mortar bookstores of the time by offering online an almost unlimited number of titles that could be shipped worldwide in a short time. Amazon used a central warehouse to store its inventory and ship orders worldwide. Amazon's selling point as an online store that competes with large physical bookstores brought in lawsuits from competitors like Barnes and Noble (NYSE:BKS) and Wal-Mart (NYSE:WMT). Amazon's model was so innovative and successful that it helped the company survive the dot com bubble burst and the world economic crisis with minimal impact to the company. Amazon's success in the book market allowed it to expand its inventory to offer CD and vinyl records in the beginning and offer for sale almost any item, from electrical appliances to groceries.
In 2005, Amazon revolutionized online shopping again by announcing Amazon Prime, a service that offers two-day delivery to registered members for a flat annual fee. Since then, Amazon had little online competitors in its scale, a few online competitors that specialize in a particular market and many brick and mortar competitors who try to defend their bread and butter. Amazon did not expect that its biggest competition would come from the Internet giant Google (NASDAQ:GOOG) (NASDAQ:GOOGL).
In the spring of 2013, Google introduced a same-day delivery service named Google Shopping Express. The service offers same-day delivery from local stores and merchants to San Francisco and Silicon Valley residents. Through the new service, Google can offer a different e-commerce business model from Amazon. Instead of using central warehouses or fulfillment centers like Amazon does, Google cooperates with local stores and retailers to deliver its products to its end customers.
Google does not offer anything new. Local initiatives already offer similar services in various cities, and retailers have their own websites where customers can log in and order for something to be delivered. If there are many competitors and not much innovation, why is Google investing the time and money to launch Google Shopping Express and scale it to a wide area in the country?
Google tries to penetrate the grocery market without competing with the stores and retailers, but instead, Google tries to work in collaboration with them and offer a better service to the end customer together. Google's strength is in its web presence, and technological innovation and retailers' strengths are in their trade experience and knowledge of the grocery market. Combining the strengths of the internet giant with the strength of the commerce and grocery giants yields a well-designed and well-operated shipping machine. Once established, this well-operated delivery machine by Google is going to compete with Amazon for the online shopping market. However, Google probably did not start Google Shopping Express for the delivery revenues or for the annual fee revenues, which are limited and small. Google is more interested in collaboration with major retailers, which could yield product search ads, either in the Google search engine or the Google Shopping Express service.
Each retailer that collaborates with Google on a new initiative wants its products to appear higher in the search results in the Google Shopping Express website or when searching a particular product in Google's search engine. In order to achieve a high ranking in the search results, retailers will agree to pay Google for the service, as well as for ads, similar to Google AdWords, to display its products.
If Google can gain substantial market share and collaborate with a number of large retailers, it will also be able to attract more traffic to the product search ads. Google has looked at the huge grocery market, which has almost $600B annual revenues, and is confident that it can increase ad revenues from this market by collaborating with retailers in Google Shopping Express. Retailers would prefer to collaborate with Google over Amazon, as Google has no aspirations to become an e-commerce player and only looks for ad revenue. Google knows perfectly how to monetize search words, and in Google Express Shopping, Google works with all its power to use its strengths to monetize grocery product searches.
Google expands its Google Shopping Express service to new areas outside of Silicon Valley. Through the service, Google enables customers to order and receive goods on the same day, competing directly with Amazon Prime. Unlike Amazon, Google is not interested in becoming an e-commerce giant but in creating a new revenue stream through product searches. Google collaborates with the largest retailers to make this initiative successful and doesn't try to compete with them; the internet giant is more interested in ad revenues and not in delivery or e-commerce revenues. Amazon launched Amazon Fresh in an attempt to compete with the new service, however, Google's collaborations with the largest retailers may give it an advantage in this market. Successfully monetizing product searches can drive Google ad revenues substantially higher.
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