Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) want a piece of the massive market still served by local retailers and are in an escalating war to offer the same-day delivery that's required to make that happen.
Google's Shopping Express service partners with local stores to offer delivery "in a matter of hours," according to the company. It launched in the San Francisco Bay Area last year and just expanded into West Los Angeles and Manhattan with further L.A. neighborhoods planned for later this year. Current partners include Costco, Guitar Center, L'Occitane, Staples, Target, Toys"R"Us/Babies"R"Us, and Walgreen on the West Coast with Fairway Market (a high-end supermarket) also being on board in New York. Google's service seeks to compete with Amazon's website (and its potential future expanded same-day delivery service) by offering a wide-range of items -- everything from food to household staples, toys, office supplies, and more.
Amazon has been looking at expanding its AmazonFresh grocery ordering and delivery service to allow it to piggyback non-grocery orders on its trucks as a way to justify the cost of building out its own trucking network. Amazon's grocery service is currently offered in the Seattle region as well as in San Francisco and Los Angeles -- markets it entered last year. The company is expected to expand to New York City next.
Google, on the Shopping Express website, promised that items would cost exactly what they would in-store. Customers will also be able to use in-store discounts and accrue loyalty points by providing their store rewards card information. The service can be used online or through an Android or an Apple (NASDAQ: AAPL) iOS app. Google is also offering six months of free, unlimited deliveries, though the company says that's for a limited time.
Google had to partner
Amazon already stocks millions of items in its warehouses and fulfillment centers around the country and offering faster delivery through those locations seems like a logical extension of it brand. Amazon is a giant store that sells everything from gum to lawn mowers so attempting to win more market share by increasing how quickly customers get something makes sense.
Google on the other hand is not a retailer -- online or otherwise. Selling anything -- let alone trying to compete with Amazon's store, which sells virtually everything -- feels less natural. But unlike Amazon, which is looking to replace traditional retailers (or at least take a lot of their customers), Google needs thriving retailers to make its service work.
This might be a good arrangement for Google and its partners as any smart retailer is looking for an answer to the looming threat of an Amazon same-day delivery service that offers more than just groceries. Staples probably could not offer same-day delivery on its own, but if Google provides the trucks it's probably worth it to the office supply retailer to cut the online giant in on the action. If Amazon takes the order than Staples gets nothing and loses a customer. If Google Shopping Express gets the order, Staples still makes the sale. It lowers the margin, but it's better to make less money than no money at all.
Amazon may have a pricing advantage
By partnering with traditional retailers and offering same-as-store prices, Google is pushing name brands, fast delivery, and fair pricing. Amazon, which would be selling goods from its own warehouses and fulfillment centers, often has lower prices than traditional stores partially because the company does not have the expense of maintaining stores.
Google's partners won't want to undersell their own physical stores (which has held back the online efforts of many traditional retailers) so in markets where Google and Amazon offer similar services -- should that happen one day -- Amazon may enjoy an inherent price advantage that Google can't answer.
Neither company has a lead
Amazon's existing same-day offering is built around groceries but it also offers 500,000 items from Amazon including the categories offered in Google's service. It's very early in the game but neither company has shown that it has an offering that's different in any important way from the other. We are clearly a long time away from declaring a winner or even knowing if the market wants this type of service.
The market the two companies are competing for however is huge. According to the latest annual report released by the U.S. Commerce Department in 2013, total retail sales in 2011 were $4.7 trillion, which represents an 8% increase over 2010 total retail sales (including food service and automotive). Of course Amazon and Google are not likely to offer same-day delivery of cars and other parts of that $4.7 trillion won't be in play either, but basically these services give Google and Amazon a way to go after an awful lot of that business.
Amazon is looking to disrupt traditional retail while Google is looking to piggyback its infrastructure. Both approaches could work, but both could also fail as it has not yet been proven that people want more deliveries and less actual shopping. If I had to pick a winner today I would assume Amazon has a better shot because it already has a strong sales relationship with its customer while Google is new to that space and would be acting as a third-party facilitator. That's not counting Google out -- it will certainly have traditional retail on its side, which offers in-store marketing opportunities that Amazon can not match.
Either way for a long while as the battle ranges on, consumers are likely to benefit as the two side use deals, free offers, and other pricing tactics to encourage customers to pick their service.
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Daniel Kline has no position in any stocks mentioned. He does not mind driving to the store most of the time. The Motley Fool recommends Amazon.com and Google (C shares). The Motley Fool owns shares of Amazon.com and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.