Grand Junction - Local Delivery Reinvented

Google Express Is Dying. (If It Can’t Evolve to Better Compete with Amazon)

Amazon is increasingly eating Google’s lunch when it comes to eCommerce. Amazon and Google compete in a number of areas, but it is their battle in eCommerce and last mile logistics that potentially has the highest stakes.

Google is reliant on ads with 90% of its revenue coming from advertising sales, therefore, search traffic is critical to Google. But when it comes to online and mobile retail, Amazon has become the dominant brand to the point that consumers are skipping a Google search, and going right to Amazon every time they want to buy, or even research, a product. In fact, according to Retail Dive, 39% of consumers go directly to Amazon vs. 11% starting with a Google search– a complete reversal from 5 years ago, representing billions in lost revenue for Google.

In response, Google launched Google Express, which picks up from retailers and delivers directly to consumers. Google’s goal is to add value to as many steps of a typical retail transaction as possible: search for the product with Google; checkout with Google Buy Button; process the payment with Google Wallet; and, get the order delivered with Google Express. Google’s eCommerce strategy is to provide services around eCommerce that will keep consumers coming back, and generate enough business for retail partners so that they help support Google (e.g., provide access to real-time inventory data). If you’ve ever used Google Express, it is terrific– it is consistently on time, vehicles are branded, the drivers are in uniforms and orders are nicely packaged. Unfortunately, Google has a service cost that is 3 or 4 times higher than Amazon’s same day delivery program.

Amazon has a nearly insurmountable cost advantage on Google. They have incredibly efficient, and increasingly automated, distribution centers, whereas Google must “shop” for orders, no differently than I do, at their retail partners’ stores; they have product margin with which to subsidize their value-add services, whereas Google doesn’t markup it’s retail partners’ products (and it is not clear if they ask for a sales “commission”); and, they have huge daily order volumes, which dramatically lowers delivery cost. I estimate that Amazon’s cost for a same-day delivery to be below $4 per package, while Google’s current cost is closer to $14.

Google’s high cost basis will improve by as much as 30% as retailers start to pick up the cost of “picking” from their own stores, and as their density and volumes grow. Google also has the ability to monetize eCommerce buyers through Google Wallet and ad sales so they do not need to exactly meet Amazon’s cost basis. However, Google Express still needs to lower costs significantly and there a few fundamental flaws that need to be fixed before they can become sustainable. 

To date, Google is using a dedicated delivery model, using local delivery and courier companies to run branded vehicles for them that contain only their deliveries. This approach produces a high quality consumer experience, but it prevents Google from driving costs down by comingling their shipments with the 2 billion annual shipments the local delivery industry already does per year. By comingling, Google Express will reduce their tight grip on dictating every element of the service offering, but they will get to a much more sustainable cost basis.

Comingling with existing volume in the local delivery industry will also allow them to expand more quickly and cost effectively. Instead of opening up new operations and building density (i.e., deliveries within a tight geography), Google Express would work with existing couriers to perform their deliveries and share the burden of the infrastructure and the benefits of density. For confirmation of the effectiveness of this comingling strategy, look no further than Amazon itself, who uses a network of local carriers and comingles over 100 million packages a year.

If Google Express does not evolve, they run the risk of abandoning a key battle due to unsustainable costs, delaying roll-outs to new markets and even worse, losing the underlying retailers who are increasingly innovating in the last mile on their own. Without their underlying retail partners, they will not only lose the battle in the last mile but also the overall war on eCommerce.

Comments are closed