Google Raises $500 Million to Compete With AmazonFresh
Google's $500 million investment in Google Shopping Express--a same-day grocery delivery service--will be watched closely at Amazon, which runs a similar AmazonFresh delivery service.
And not just because the two services compete. Google has a habit of putting its search services in front of Amazon's on the web, so that customers have to go through Google to get Amazon. That gives Google a chance to slice off some of Amazon's customers for itself.
So Amazon's plan to do to lettuce what it already did to books just got a little bit more complicated now that Google Shopping Express is on the scene.
Amazon has famously transformed brick-and-mortar retail through "showrooming"--when shoppers browse the shelves of real stores and then check for cheaper prices on Amazon. It took a while for stores to realize they were competing with online sellers this way. Some analysts believe chains like Best Buy have seen revenues contract because of Amazon's showrooming effect.
But unless a shopper is searching Amazon directly, they're likely searching first on Google. And even though Amazon has highly ranked searches in Google, Google crams down those natural search results in favor of its own Amazon-like ads. Amazon pointedly refuses to buy Google's "product listing ads" (PLAs) to boost its visibility in Google, even though eBay and Zappos are huge investors in that media.
This has become a huge business for Google. It's not clear how big yet since we're just seeing the tip of the iceberg: Marin Software, one of the biggest search marketing agencies in the world, says that search marketers will switch one third of their budgets to PLAs by December 2014. Marin places $5 billion annually in search spending, while Google usually claims about 80 percent of all searches on the web. Using Marin's numbers and some back-of-the-envelope math, Google would be capturing $1.3 billion from PLAs, just from Marin's clients.
That business puts Google in direct competition with Amazon for those shopping dollars.
And now Google seems to be trying to do something similar with Amazon's grocery deliveries. Google Shopping Express will launch for free but eventually require a flat-fee membership, Re/code reports. That model is similar to Amazon Prime Fresh, which costs $299 a year and includes free shipping and a library of videos and music.
Grocery chains will no doubt be terrified that Amazon will do to supermarkets what it's already done to big-box retail: Destroy big chunks of it. In turn, Google appears to be poised to do to Amazon in groceries what it's already doing to Amazon in product search: slice off big chunks of its business.
So you can see why grocery chains might be more enthusiastic to get on board with Google than with Amazon. AmazonFresh does deliver some goods from local stores, but its core produce--fruits and veggies--come from Amazon's own warehouses. Any lettuce bought via AmazonFresh is a lettuce not being bought from Kroger or Stop & Shop.
Google Shopping Express, by contrast, sources all its groceries at stores near you. Google is not interested in getting into the warehouse and the refrigerated truck business the way Amazon is. A lettuce bought on Google Shopping Express will ultimately be bought from Kroger or Stop & Shop or their ilk. That's why this is the most interesting sentence in Re/code's report on Google Shopping Express:
Costco's CEO, for instance, flew out to Google's Mountain View, California campus to meet with Google CEO Larry Page before agreeing to participate in the Google Shopping Express program.
Supermarkets might end up being very afraid of Amazon and very enthusiastic about Google.
You can see how this might line up: In one corner, AmazonFresh. In the other corner, Google Shopping Express and every local supermarket chain in the country, all of whom now have a keen interest in preventing the showrooming of groceries.
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