Google Chips Away at Amazon’s Delivery Service Dominance

Source: Thinkstock

Source: Thinkstock

Google (NASDAQ:GOOG) (NASDAQ:GOOGL) has long dominated the search business and the advertising that goes with it. But in one category, Google is losing out to someone else: Amazon (NASDAQ:AMZN), which dominates product searches for everything from books to electronics to regular household items. The two have now begun what some term the “grocery war” in earnest, pitting its respective delivery services, Amazon Fresh and Google Shopping Express, against each other to win over searchers and shoppers.

Under the Amazon Fresh program, Amazon delivers fresh groceries, ordered online, to the customer’s door. Google’s Shopping Express enables customers to buy goods from local businesses through Google, which then delivers the order to the customer. Shopping Express seems to have grown out of Google Wallet and Google Checkout, and Re/Code’s Jason Del Ray reports that Google executives have set aside up to $500 million to expand Shopping Express nationally. Del Ray explains that Google is looking not only to gain a piece of the grocery market, but also to improve its advertising business:

“The service gives Google a crack at the $600 billion grocery market. Also at stake is a large piece of the $3.5 billion in so-called direct-response digital ads that research firm eMarketer expects consumer package goods companies and electronics brands to spend in the U.S. in 2014. This category of ads, which includes search ads, is meant to influence online shoppers to perform specific tasks, such as signing up for email newsletters or making an online purchase.”

“Google can’t give up on product search and this is another pathway to closing the loop for advertisers,” said Keith Anderson, a vice president at the consulting firm RetailNet Group. ‘They failed on the payments side in stores, but if they can use expedited delivery as a way to get it then they’ll keep on being willing to spend.’”

One of Google’s objectives will be to improve the utility of product advertisements on search results. Enabling customers to buy a product immediately upon searching for it has traditionally been the realm of Amazon, not Google, and now the company will look to fix that. Instead of just showing listings for products available locally, Google will provide a Google Shopping Express website — available now in San Francisco, Los Angeles, and New York City — which enables shoppers to choose items from partner retailers, including Target (NYSE:TGT), Costco (NASDAQ:COST), and Whole Foods (NASDAQ:WFM).

Once the order is placed, Google sends a courier to each store from which the customer ordered an item, who used an app to pick up the goods, and then they’re taken to a warehouse, where multiple orders are packed into a vehicle and delivered either the same day or the next day, using software to optimize the delivery route. Google’s commission fee is “usually in the single-digit percentages,” and the company charges shoppers $4.99 for each store that the courier has to visit. A flat membership fee, like Amazon’s Prime subscription, is expected to replace the current pricing model.