Online Retail: Google's Next Big Idea?

| About: Alphabet Inc. (GOOG)

Wall Street Journal recently reported that Google (NASDAQ:GOOG) may be planning to launch a service that will compete directly with Amazon Prime (NASDAQ:AMZN). Google plans to launch a one day delivery service for consumers that purchase goods through its online store. Google doesn't plan to sell the goods directly but instead partner with retailers that would complete the order fulfillment.

This could mean some tough competition for Amazon in the near future. Google is mainly interested in getting users to use its web services to increase traffic. Google makes money off online advertising and I don't see that focus changing. I envision Google using this business more as a tool to gain loyal traffic than trying to profit from the retail side. I wouldn't be surprised to see Google offer this new service for a very low cost or even for free. After all Google's main goal is to gain loyal traffic and what better way to do that than offer a service for free. Google has already given a majority of its services away for free and I don't see why this business would be any different.

Google is reportedly in talks with Macy's (NYSE:M), Gap (NYSE:GPS) and OfficeMax (NYSE:OMX) about the service. I believe that this service could turn into a very big profit generator for Google once its fully utilized. I expect Google to be successful if it could offer this service for a low fee. Amazon Prime is currently $79 for one year of service. This service has been popular for Amazon because many consumers would often check the price on Amazon first before searching elsewhere. The downside for Amazon is if the customer decided to buy elsewhere, Amazon would miss out on that revenue. Unlike Amazon, Google can make money off the advertising on its site, even if the customer decides to buy the product elsewhere. Google could also maximize this business further by utilizing its Android platform. Android currently has applications that allow users to check product prices by scanning a bar code.

I'm bullish on Google and believe that Google's new business may be a great way to grow ad revenue. Google has many more tools in its shed and could be a big threat to Amazon. Google always looks for ways to innovate itself and this new business is a good example of that. Last earnings showed that third-quarter gross revenue increased 33% year-over-year and 8% quarter-over-quarter. I look for this trend to continue and will use pullbacks as opportunities to buy. I will continue to monitor this story and wait for details of Google's strategy.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GOOG over the next 72 hours.