Google’s Brilliant Move

Google Shopping Express could unlock the massive marketing budgets of CPG companies and retailers

Google Shopping Express offers consumers same-day delivery from Target, Walgreens, and other popular retailers. The program, presently limited to San Francisco, Los Angeles, and Manhattan, is free for a user’s first six months. After the promotional period ends, shipments will cost a flat rate of $4.99 per store.

Skeptics challenge the profitability of the program, but this reasoning appears short sighted and overlooks the promise of self-driving cars, which could eventually reduce transportation costs by 88% according to a study by Columbia University.

Cost concerns aside, Google Shopping Express is brilliant for the advertising revenue it creates. Not only can Google collect richer data and display more tailored — meaning more lucrative — ads, the company can leverage the program to show more ads both within the app and on the web. Users also gain more leisure time. Assuming each trip to the store requires 30 min — 45 min on average, Shopping Express provides more time to spend online — and potentially more time on Google properties. Effectively, Google Shopping Express boosts two critical factors of ad revenue: number of impressions and price per ad.

More importantly, Shopping Express lets Google reach deeper into the massive coffers of retailers and consumer product goods (CPG) companies. In 2013, the retail and CPG sectors accounted for roughly $13 billion in digital advertising in the US. Assuming 25% of marketing dollars were spent online, these two industries taken together commanded marketing budgets worth $52 billion.

CPG companies will be particularly incentivized to advertise more online. Since they traditionally do not sell directly to consumers, relying instead on retailers like Target, CPG companies lack access to purchasing data and cannot easily trace how many sales, if any, came from a specific ad. These companies have unsurprisingly viewed marketing as a means to build brand awareness, not drive sales.

Shopping Express changes this. Clicking an ad from Colgate could drop a box of toothpaste into your digital shopping cart. Budweiser could offer digital coupons hours before the Super Bowl and observe how much those deals influenced sales. For the first time, brands will have an easy and reliable mechanism for measuring how well advertising drives actual sales.

Shopping Express coupled with YouTube presents an even more tantalizing prospect for CPG marketers. Compared to text, video provides a superior medium for emotionally connecting with consumers and generating demand, especially for visual products like food and beverages. Prices also encourage impulse buying in ways not possible with more expensive items like cars. It’s improbable people would spontaneously drop $100,000 on a new Mercedes even if commercials enabled the functionality, but what about $5 Jimmy Dean sausages for tomorrow morning? The power of Shopping Express means commercials can build brand awareness while driving sales at the same time.

If Shopping Express can help persuade CPG companies and retailers to shift another 10% — 25% of their budgets online, it means the service could potentially widen the digital advertising pie by $5 billion — $13 billion and contribute billions to Google’s top line, assuming the company maintains its 33% market share.

The program naturally needs a much broader footprint before luring more marketing money from CPG companies and retailers, and success is far from guaranteed. There are many ways the program could stumble and flame out. Yet despite its limited reach today, Shopping Express represents a very smart, very bold move by Google.