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Google Inc vs. Inc: Who Will Win the Home Delivery Wars?

By Leo Sun - Oct 20, 2014 at 12:00PM

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Can Google take down Amazon Prime with Google Express?

Google (GOOG -3.47%) (GOOGL -3.30%) recently introduced a $95 annual membership for its same-day delivery service, Google Express.

The service, previously known as Google Shopping Express during its trial run, delivers products from Costco, Target, Walgreens, and other brick-and-mortar stores to homes in several areas of California, Manhattan, Chicago, Boston, and Washington, D.C. For annual subscribers, Google offers free delivery for purchases over $15. There is also a $10 per month option, while nonmembers can use the service for $5 per order. Google is also offering a free three month trial for the service.

Google Express is a clear declaration of war against Amazon (AMZN -5.14%). Amazon offers free two-day delivery and $5.99 same-day delivery (in select metro areas) for a wide array of products with its $99 per year Prime membership, which also includes unlimited music, videos, and one free e-book per month. It also offers a same-day grocery delivery service, Prime Fresh, for $299 per year (which includes Prime benefits) in California and Seattle. Prime Fresh members get free deliveries on orders over $35.

Source: Wikimedia Commons

Google Express clearly represents the tech giant's biggest push into e-commerce to date. Will it succeed in stealing market share away from Amazon, or will it get crushed by the e-commerce titan?

How Google plans to take down Amazon
Amazon and eBay (EBAY -3.90%) have consistently dominated product searches, the one search market that has always been out of Google's reach. Google previously incorporated product searches into its search results with Google Shopping, previously known as Froogle and Google Product Search.

At first, Google Shopping simply listed prices submitted by merchants, but Google started charging merchants in late 2012 to list their products on the service. For most merchants, paying Google wasn't worth it, since it lagged behind Amazon and eBay in terms of overall product searches. At the time Google Shopping became a paid service, Google Shopping only handled around 80 million product searches, compared to 900 million on eBay and 335 million on Amazon. As a result, the platform was never able to compete against either e-commerce giant.

Google then reconsidered its options. Amazon and eBay disrupted plenty of brick-and-mortar retailers with their showrooming ways. Therefore, Google offered these scorned brick-and-mortar retailers, like Barnes & Noble and Staples, an opportunity -- to team up under Google's banner to challenge Amazon. This was a win-win situation for both parties -- Google wouldn't need to build distribution centers like Amazon, and its partners get a viable same-day e-commerce solution to retaliate against Amazon.

Why Amazon still has the upper hand
Although Google's plan is clever, Amazon still has the advantage because it rules e-commerce with an iron fist. Amazon finished 2013 as the top dog with $67.9 billion in worldwide online sales, according to research firm Internet Retailer. Its closest competitor was Apple, which generated $18.3 billion.

Amazon isn't shy about investing in anything that could tether more users to its ecosystem. It sells its Kindle Fire tablets at a loss to generate digital revenue from e-books and apps -- a strategy it expanded to the Fire TV. Amazon envisions a future where it dominates a person's daily routine by controlling exactly how products are purchased and how media is consumed. That's why it released Dash, a barcode scanner which lets users order groceries by simply scanning products in the refrigerator.

Amazon's Dash. Source: Amazon

Amazon Prime is the backbone to this effort. In September, RBC analyst Mark Mahaney estimated that Amazon could have around 50 million Prime members worldwide. That's up from 20 million confirmed members in January. Considering how Amazon more than doubled its Prime numbers in eight months, it would be easy for the company to expand into other cities and crush Google, which currently provides same-day delivery to around 7 million customers.

Foolish thoughts
Amazon has already laid out the foundations for a same-day delivery network with media-filled Prime memberships. Google, by comparison, only offers same-day delivery of products from brick-and-mortar retailers. Google Express also suffers from a lack of variety in retailers. Whereas Amazon connects shoppers to small online-only retailers, Google Express only offers products from local stores, which makes same-day delivery for those who live within walking or driving distance from a brick-and-mortar location.

Therefore, I think Google Express is an ambitious idea, but I doubt that it can challenge Amazon without bundling in more media freebies (from Google Play) and the backing of smaller online retailers.

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