Google and Amazon: The Cost Challenged Prepare to Squabble

July 7, 2014

I read “Inside Google’s Big Plan to Race Amazon to Your Door.” The US of A is a big place. Making money with to-my-door deliveries is an interesting business proposition. Amazon floated the idea of drones dropping boxes in my yard and has some United States Postal Service trucks putting Amazon boxes on my brick mailbox on Sunday.

Well, Google wants to “race” Amazon. Like an F 1 team, racing can be expensive, very expensive.

The write up does not dwell on costs, preferring to point out:

Google is the undisputed king of search in all but one lucrative and vital category: Product searches.

I also noticed this passage:

Unlike Amazon, Google does not operate its own giant warehouses or store inventory for more than a few hours. Instead, it fulfills customer orders by picking up items from nearby retail stores. So rather than compete directly against retailers like Amazon does, Google is attempting to position itself as an ally. Shoppers in cities where the service is available — mainly areas around San Francisco, Los Angeles and New York City for now — visit a dedicated Google Shopping Express website where they can choose to buy goods like groceries, cameras and clothing from a selection of retail partners.

How many of those partners are willing and able to provide same day delivery. In Harrod’s Creek, some of the “we deliver” pizza joints don’t deliver to some locations not on a paved road or in a specific zip code. Will merchants change their tune when the GOOG is involved?

I also underlined the “me too” approach of Google in its battle with Amazon:

Eventually, Google plans to launch a flat-fee membership model similar to Amazon Prime…

In addition to consolidation of shopping, Google wants to be just like Amazon. The innovation is difficult for me to spot. I recall the Google Catalog project. The idea was to scan pages of printed catalogs. Now that did not seem like a particularly useful service. Google killed it. Then there was Froogle, and it disappeared. Now I think there is Google shopping, but I don’t use the service because I browsed pages and pages of non store listings. I recall that the service was not helpful to me.

Google’s approach is to be a partner. Okay, sounds good. Here’s the passage I dog earred:

Google has assembled a respectable group of partners to the program. Several of them say participating in the Google Shopping Express program gives them a way to evaluate whether it’s more cost effective to offer same-day and next-day delivery themselves, through a partner or whether they should at all.

Google “assembled” a group of college and university partners. How has that worked out?

Several observations:

First, both Amazon and Google have a cost control problem. The massive spending is hoped to turn into piles of money. My hunch is that when the costs become greater than the income, both Amazon and Google will have to find a way to produce the returns investors want. The bubble economy in the US may put increased pressure on Amazon and Google to generate better returns. Someone has to pay for the rising investments both companies are making.

Second, Google is less diversified in terms of its revenue than Amazon. As Steve Ballmer said years ago, Google is a one trick revenue pony. Generating meaningful revenue streams from the Overture/GoTo/Yahoo pay to play model is not as interesting to me as search shifts from the desktop to mobile devices. Google has to amp up its revenue. Amazon does too; hence, Amazon is doing some interesting things to publishers, for example. The objective is money, not stroking the publishers.

Third, I am weary of spending more and more time working around ads, search engine optimization content, and plain old flawed information. The Google engine does me no favors when my alert for the phrase “enterprise search” returns a pointer to an SEO outfit that does business as TopSEO. Pure garbage in my opinion.

Net net: Innovation is now enshrined as imitation. That’s okay. We know how the Italian inventor Tesla ended up. Fascinating 21st century business creativity. Oh, by the way, I don’t need same day delivery. I like to go to the farmers’ market.

Converting Amazon and Google to a digital WalMart leaves me cold.

Stephen E Arnold, July 7, 2014

Comments

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