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Summary

  • Shopping Express is as much a data mining effort as a delivery service.
  • Google has identified same-day delivery customers as a new source of data it can tap for profits.
  • Shopping Express could enable Google to exploit brick and mortar retailers much as it already exploits online advertisers.
  • Some of the biggest names in retail have already signed up for Shopping Express.
  • Fear of Amazon.com and others will drive retailers to Shopping Express.

On the surface, starting a same-day delivery service for retailers seems like a very strange move for Google Inc. (NASDAQ:GOOG)
(NASDAQ:GOOGL).

After all, most of us know Google as a provider of searches, advertising, and other online services. So it is hard to figure out why the company has decided to launch Google Shopping Express. For those of you who don't know, Shopping Express is a service that allows customers order items from local retailers that are picked up and delivered by a courier in a Google-branded vehicle.

Delivery and brick and mortar retail seem far outside Google's core business and closer to Amazon.com's (NASDAQ:AMZN) or even UPS's (NYSE:UPS) areas of expertise. Starting a delivery service involves numerous logical challenges with which Google has little or no experience. It will have to hire drivers, buy and maintain vehicles, and deal with face-to-face customer service.

Potential Logistical and Operational Delivery Nightmares for Google

Operating a service that uses cars and human delivery people to pick up and drop off retail orders is a far cry from selling online advertising. Rolling out Shopping Express will present Google all manner of logistical and legal challenges including disputes with subcontractors, fuel costs, lawsuits, labor laws, and possibly even unions.

It could also be very expensive - some observers have noted that rolling out Shopping Express could cost Google $500 million. Okay, Google can easily afford to spend that kind of money - it reported a TTM revenue of $63.13 billion, a market capitalization of $402.39 billion, and a cash from operations figure of $20.34 billion on June 30, 2014.

The extent of the challenges and costs facing Shopping Express is hard to gauge because it is currently only available in San Francisco and its suburbs, San Jose, Manhattan and West Los Angeles. Retail options are fairly limited too - the only grocery choices available to LA and Manhattan Shopping Express customers right now are Costco (NASDAQ:COST) and Target (tgt). Only San Francisco customers have access to a full service grocer: Whole Foods Market (NASDAQ:WFM).

Judging from its website and the lack of information available there, Shopping Express looks more like a beta test than a service about to roll out nationwide. I have to wonder if it isn't just a data-collection effort or an experiment similar to Google's self-driving car rather than a full scale delivery service.

Is Google Shopping Express a Data Collection Effort or an Amazon Killer?

Google certainly has money to spend, but why is it spending that money on a delivery business? The most likely answer to that question is both simple and interesting: Google Shopping Express isn't just a delivery service. Instead, it is a data collection or data mining effort. As I noted above its primary goal might be gathering data rather than creating a new service.

What Google really wants to do with Shopping Express is to gather data about retailers and their customers much like it gathers data about net surfers through its search engine. One of Google's core businesses is to sell the data it gathers through its searches to advertisers.

Google is going to use Shopping Express to gather information about consumer behavior much as it uses its search engine and advertisements to gather information about web users. The hope, of course, is that information could be easily monetized or sold in some fashion or at least used to improve Shopping Express.

Examples of the kind of data Google could gather through Shopping Express include: the size of orders, the location of customers, and the nature of their purchases. Google could also gather a great deal of information about traffic and travel in communities through Shopping Express by examining such numbers as the length of trips.

The service also is designed to make retailers into Google clients by making them dependent upon Google for part of their customer base. Another hope is that the retailers will become customers for the data gathered through Shopping Express.

Google also is betting that retailers want a means of competing with Amazon.com without setting up their own delivery services. Retailers need such a service because Amazon.com takes away many of their best customers: those with the most discretionary income.

Even Profitable Retailers Are Interested in Google Shopping Express

So far that bet has paid off; Target Corp, Staples (NASDAQ:SPLS), Costco Wholesale, Whole Foods Market, Toys R'Us and Walgreen (WAG) have been among the retailers that have signed on for tests of Google Shopping Express in the San Francisco Bay area. It is no coincidence that struggling retailers like Staples, Target, and Toys R'Us are interested in Shopping Express.

What's more interesting is that some retail success stories have signed on. Costco Wholesale saw its TTM revenue increase by nearly $5 billion between May 2013 and May 2014. For the record, Costco's TTM revenue rose from $104.89 billion to $109.6 billion in just a year. Whole Foods saw its TTM rise by more than $1 billion from March 2013 to March 2014, increasing from $12.52 billion to $13.6 billion. Walgreen saw its revenue increase by nearly $4 billion between May 2013 and May 2014, rising from $71.35 billion to $75.28 billion.

Even very successful retailers like Costco, Whole Foods and Walgreen are scared of aggressive online delivery efforts such as Amazon Prime, Wal-Mart to Go, and Kroger (NYSE:K) Shop at Home. They understand that these efforts are an attempt to poach some of their best customers.

That will make Google Shopping Express an easy sell and give Google a huge new pool of data that it can exploit. At the end of the day, Google's area of expertise is data analysis and exploitation. Once again, Google has shown that there are almost unlimited amounts of data out there for it to mine and exploit, even in the delivery business.

Disclosure: The author is long KR. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The author uses Ad Words and other Google marketing tools in some of his business ventures.

Source: What's The Real Purpose Of Google Shopping Express?