By Heather Somerville
San Jose Mercury News
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 Inc. unveiled an experiment delivering everything from Target bedsheets to American Eagle blue jeans to parts of the San Francisco Bay Area, the company is preparing to expand same-day delivery to more shoppers across that region. Google Shopping Express will add pressure to companies like eBay Inc. that are growing 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 Inc., the retail colossus that 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.”
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 could become a lifeline, as more people opt to shop from desktops or smartphones instead of visiting stores.
Miguel Natario, general manager of Palo Alto Sport Shop and Toy World in California, 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.
For every sale that Amazon makes, Google is cut out of revenue and valuable consumer data. 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, Calif.
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 it’s in the third round of testing, and 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.
Other startups are also getting into the race.
San Francisco grocery-delivery company Instacart rolled out a subscription service similar to Amazon Prime, and U.K.-based Shutl opened a San Francisco office in February and will start same-day delivery this year.
But such startups have a history of costly failure, including dot-com busts Kozmo and Webvan, and Urbanfetch, which blew through millions of investor dollars before shutting down in 2000.
To get its program off the ground, Google offered retailers the service for free or for a nominal fee, retailers said.
“It’s not like we were clamoring for Google,” said James Freeman, president of Blue Bottle Coffee in Oakland, Calif. “They made it very financially and logistically easy for us.”
Google delivers less than 50 pounds of coffee each week for the company — about the equivalent of weekly sales at a small Blue Bottle store.
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.
Finances are just one of the reasons some analysts remain skeptical.
Fiona Dias, chief strategy officer at ShopRunner, an online service that coordinates shipping for retailers, said many merchants don’t keep track of their inventory throughout the day, making it difficult to know what’s available for delivery, and may not have enough staff to assemble the orders.
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.
EBay also hasn’t tackled groceries, but it has more retail partners than Google — a search for a guitar tuner turned up about a half-dozen results — and the two share some big brands, such as Target.
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.”