Silicon Valley tech companies like to move fast and sometimes break things. Now they are trying to bring that high-speed innovation to the retail world and break the tradition of failed same-day delivery services.
Five months after Google unveiled an experiment delivering everything from Target bed sheets to American Eagle bluejeans to parts of the San Francisco Bay Area, the company is preparing to expand same-day delivery to more shoppers across the region. Google Shopping Express will add pressure to companies like eBay that are expanding their own same-day delivery programs in what has become a fierce race between tech giants.
Google and eBay are jumping into the hypercompetitive brick-and-mortar retail industry to fend off Amazon.com, which is forging ahead with its own same-day delivery tests. By offering their services to struggling retailers and capturing shoppers who buy everything from cars to toilet paper online and want it delivered to their front door within hours, Google and eBay may corner one of the few retail markets Seattle-based Amazon hasn’t already taken.
“Amazon can get you almost anything under the sun in one or two days,” said Matt Nemer, a retail analyst with Wells Fargo. “But Amazon doesn’t have one- or two-hour delivery. This is an attempt to beat them to the punch.”
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Same-day delivery also opens the door to selling advertising and other technology to retailers, and building a loyal following of consumers who see Google or eBay as their daily shopping destination. For smaller merchants, the service may become a lifeline, as more people opt to shop from desktops or smartphones instead of visiting stores.
Miguel Natario, general manager of Palo Alto (Calif.) Sport Shop and Toy World, said the store was struggling to create its own delivery service when Google invited it in 2011 to join the Shopping Express pilot. He expects a 10 percent sales increase from Google delivery.
“This is going to be absolutely necessary for small businesses,” he said. “It’s what we need to do as small business to compete with Amazon.”
Google has spent months using its algorithm prowess and data horsepower to calculate the quickest delivery routes, predict product departure and arrival times, and track store inventory, said Tom Fallows, product-management director of Google Shopping Express.
Some retail experts expect the service will open up a trove of data for Google — what consumers like to buy, where they live and work, and even the hours they keep. Sebastian Cadenas has used the service five times to have tea and other small purchases delivered to his San Francisco apartment.
It’s “pretty spectacular,” he said. “Everything I have ordered on Amazon or eBay gets to the (building’s) management office. However, what I ordered on Google Shopping Express got to the front door of my apartment.”
The service, available by invitation only for now, delivers online purchases within a three- or five-hour window to 88 ZIP codes from San Francisco to San Jose.
At its peak, Google was “letting on a few thousand people” every day to test the service, which has slowly been offered to more and more shoppers. It has about 50 Priuses ready to make eco-friendly deliveries, Fallows said.
Google won’t say when the delivery service will move out of its pilot phase, but some retailers predict Shopping Express will make a public debut late this year.
EBay has been aggressively growing its one-hour delivery service since launching eBay Now in San Francisco last year. The service extends through parts of California and is in New York, with Dallas and Chicago in the works. EBay said it plans to add scheduled delivery service this year, allowing shoppers to choose the time they want packages to arrive.
“We have … a wide range of consumers who’ve ordered items for delivery to houses, workplaces, bars and parks, and anticipate strong user adoption in the coming weeks and months,” said Dane Glasgow, eBay vice president of mobile and local.
Amazon, too, is stepping on the gas, building huge distribution warehouses to extend its same-day service to more than the 11 areas that currently offer it. And the company recently brought its grocery-delivery service to California after years of testing in Seattle.
Analysts expect costs to increase for retailers and shoppers: “No one in this space is making any money right now,” Nemer said.
Google charges customers about $5 for each retail stop a driver makes, and eBay Now charges $5 per order with a minimum purchase of $25.
Google has a long way to go to match Amazon’s selection — try to order a battery for your laptop or a guitar tuner, and you may be out of luck. Ice cream and fresh fruits aren’t available either, because Google hasn’t yet figured out how to ship perishables and frozen foods.
Even if same-day delivery is unprofitable, analysts say the service will bring revenue to other parts of the companies. Google Shopping Express may revive Google Wallet, the company’s payment system that shoppers must use for a delivery, and which has just 8 percent of the digital payments market, according to comScore.
Similarly, eBay Now customers can pay for the delivery using PayPal, eBay’s payment service that collects a fee from most transactions.
“On its own, (same-day delivery) may not be a great endeavor,” said Gil Luria, an analyst with Wedbush Securities. “The reason eBay and Google can justify doing it is because it helps them expand other businesses, not because they have to make money doing it.”