The WSJ ($ubscription) is out with a piece today that is somewhat sparse on details, but seems to hint at a competive offer to Amazon Prime from Google.
The rumored service would allow shoppers to “go to Google, shop for goods and receive them within a day for a low fee.”
This sure sounds like Google trying to build a counter to Amazon Prime. This raises two questions: why and how.
Google Prime – Why?
Before we dig in, it’s important to remember that 40% of google’s revenue is from the ‘Retail’ vertical. For a long time, Google didn’t really seem to do much with e-commerce, they had fits and starts with Google Product Search, Froogle and Google Checkout (now rebranded Gwallet). Then in June 2011, they hired Stephanie Tilinius from Ebay and since then there has been a concerted new refocus on the category. For example, GPS went from stagnant to a complete facelift and new catalogueueue (product pages), GC became GW, and the company acquired Like.com, launched boutiques.com, etc.
With that background, you could make two arguments of why would Google want to have their own Prime:
- The consumer experience – Let’s face it shopping on Google is a mixed bag. Sometimes you look for the hot item and you find it. Other times you wander into a very dark alley of the internet, hitting the back button as quickly as possible. That’s just the ‘finding’ part of the experience, buying is even more mixed. Google could make the argument that they want to make shopping online easier, Google Prime is a step towards that end.
- FOA – Many retailers and pretty much everyone in the e-commerce ecosystem is experiencing what I call Fear of Amazon. Amazon continues to grow unabated, through the recession, into categories you would never have expected 3yrs ago and it has everyone concerned. If I’m google, I worry that once a consumer joins Amazon Prime, their searches for products at Google have to decrease precipitously. In fact, as a Primer user, I only look for products on Google and other channels if I can’t find it on Amazon. In other words, Amazon has created a lock-in AND they have the world’s best product search engine. That’s 40% of the internet that Google really can’t afford to lose serious share on.
How do you counter Amazon Prime? Come out with your own solution (leveraging overall FOA to get partners involved) and maybe you make it ‘better’. Economically, Google can probably afford to make the subscripiton lower because it would be essentially funded by AdWords revenue.
Google Prime -How?
The Why is easy – the How is hard. The article isn’t clear on how this will be implemented. I can see four options:
- Shoprunner system – Google builds a technology stack that each retailer has to adopt. Doubtful as this wouldn’t really solve the problem.
- Amazon-like system – Amazon has > 50 FCs and projects like FBA that allow Amazon to economically be both closer the consumer with goods and consolidate shipment+handling costs to get the best economics they pass on to consumers.
- Local stores – The article hints that there maybe a local store angle here. e.g. I see my local macys has this in stock and they ship it to me. That seems far fetched as local stores typically have a) terrible inventory systems and b) little to no outbound shipping capabilities.
- Leverage 3PLs – This is most likely. Someone like a Fedex/UPS is known for their shipping capabilities, but they all also run what are called 3PL (Third Party Logistics) – that’s a fancy name for a network of FCs.
Once you figure out the shipping piece, the real interesting debate is what the buyer-facing component looks like.
There are twoways the buyer part could work:
- Shoprunner approach – each merchant has to add the GPrime service to their site – very slow to get adoption and still not a great consumer experience.
- Marketplace approach – Products in the network are surfaced at a site outside of the retailers, the consumer checks out there. This allows the consumer to also have a multi-merchant cart and buy Gprime items from X merchants, etc. Other benefits that you get from a marketplace like eBay or Amazon apply such as:
- Integrated search/buy experience
- Integrated product reviews
- Integrated merchant reviews
- Integrated return policies and after the purchase mechanisms (very important if you want to really counter Prime).
My guess is that we are seeing the first clear signal that Google is going to become a true competitive marketplace to eBay and Amazon.
We’ve actually been forecasting this for years. Google has the hardest components of a marketplace already, they just haven’t put them together:
- Buyers (check)
- Sellers (check)
- catalogueueue (Google Product Search)
- Payment system (check)
Really all they have to do is put a buy box on the product pages inside of Google Product search. Here’s a mock-up of what that could look like:
You could even have a signal at the SERP (search engine results page) level or in organic that the merchant is part of Google Prime and their goods are available on the Google Marketplace.
On the back end, most merchants aren’t setup to take orders from Google so there would be some work needed there, but the gap is relatively small.
Obviously this has some serious implications for everyone in E-commerce:
- Marketplaces – Amazon, eBay and Buy – Amazon could have a new viable competitor. eBay is odd-man out without a Prime system and could face the worst fall-out. Buy.com would have to decide which camp they are in, or come up with their own system.
- Large retailers – Would need to figure out is partnering with Google less or more evil than going it alone or partnering with Amazon – or should you partner with both?
- Small retailers – The big winners as they could level the playing field somewhat by having a Prime-like offering put together for them and funded by Google essentially.
- Shoprunner – are they toast or a viable alternative?
Stay tuned for more news as we hear it….
Would love to hear your thoughts in comments.
SeekingAlpha disclosure – I am long Amazon and Google, eBay is an investor in ChannelAdvisor where I am CEO.