NEW YORK (TheStreet) -- Google (GOOG) said Monday that it will be spreading its same day delivery service through Google Shopping Express outside of the San Francisco Bay Area to include Manhattan and West Los Angeles.
Google also announced that the service would remain free for six months as it hashes out a pricing plan that makes sense. Online shopping has always been a low margin business, so why might Google be interested in providing an online shopping platform with free delivery?
There are at least a few factors in play here, but anytime Google does anything the first place to look is in data. The bread and butter of Google?s business revolves around serving well targeted ads to consumers of its services, which are often given away for free. Google Search, Youtube, Gmail, and Google Drive all come to mind as services that are completely free to use. In exchange for the free services Google collects our data and uses the data to sell more valuable advertisements at higher prices. If online shoppers used other express delivery services like the one provided by Amazon.com (AMZN), Google would see valuable consumer data slip through its fingers.
Speaking of Amazon, they must be mentioned in any discussion of online shopping in the U.S. Amazon's stock has been getting hammered this year. Year to date shares fell from $398.8 to $310.05, or more than 22%. Amazon has now missed the market's earnings expectations as represented by the consensus from Estimize.com 2 quarters in a row with fourth quarter 2013 standing out as a particularly bad quarter. The e-commerce giant pulls in plenty of revenue but frankly its costs are too high. During the holiday quarter Amazon brought in more than $25 billion in sales and last quarter they were just shy of $20 billion. On the bright side though, the pressured profit margins are spurring innovation in delivery technology.
Amazon has a high cost structure and many of its expenses come from reliance on FedEx FDX, UPS (UPS) and US Postal Service. In December Amazon showcased its latest research and development project to delivery packages via octocopter drones. Amazon CEO Jeff Bezos guessed that the drone fleet might be ready for lift-off in four or five years. Dependence on FedEx, UPS, and USPS may thin margins, but it does give Amazon greater reach and allow the delivery of packages almost anywhere in the U.S.
In contrast Google uses its own delivery fleet. Providing the logistics of the deliveries themselves means that Google pays less, but they don?t have anywhere near the reach or capacity to take on volume that Amazon does. But Google could have a different strategy in mind for its delivery service, something less flashy than drones, but that has been flying under the radar hidden in plain sight. It's no secret that Google is working on driverless cars, but could they be planning on using driverless trucks to make same day deliveries? Why not? That might explain why they've been so slow to roll out out Google Shopping Express across the country.
Self driving cars from Google have now logged over 700,000 miles traveled and Google Maps is one of the best pieces of driving directions software out there. Together they could scale the whole project out horizontally and kill many birds with 1 stone. First of all having driverless delivery trucks on the road would create a media frenzy, it would be the ultimate advertisement if Google wanted to go commercial with their driverless technology, which by all indications they do. Secondly, this could be a real way for Google to compete with Amazon in online shopping. With all the cash that Google has, it's not outside the realm of possibility for them to build a fleet of autonomous delivery vehicles.
Reports have already surfaced that Google may be working on a driverless taxi system, so why not delivery trucks too? And finally, and perhaps most importantly, if Google were to become a major player in the delivery business, it would provide a massive data collection opportunity. Not only would Google be collecting consumer shopping data but having more driverless cars on the roads would help improve Google Maps. Google would learn more about which routes are most efficient and they would understand traffic patterns in an increasingly complex manner which could lower the logistical costs of deliveries. Additionally they would be free from dependence on UPS, FedEx, and USPS as they could own their own fleet.
So far Google's driverless cars have traveled 700,000 miles autonomously and only 1 accident has been reported when a Google car was allegedly being driven manually. In his interview with "60 Minutes" Jeff Bezos said he was an optimist in hoping to have his Amazon Prime Air drone fleet available in four to five years. Google is thinking that its driverless car technology will be ready in three years. Driverless delivery trucks could be real and they could be coming soon.
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At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Amazon chart used by permission from Estimize.com.