Facebook, Google dip their toes in sale of physical goods

December 27, 2012 by Brandon Bailey

Google and Facebook made their names by helping people find information or friends online. But in recent weeks the two rivals have made some surprising moves in a different direction - the business of selling and delivering goods.

Facebook is trumpeting its new Gifts service that lets users order a wide range of stuff, from wine and cupcakes to pet toys and children's clothes, and have them delivered to friends. Google, meanwhile, has been tight-lipped about its recent deal to buy a small company that operates temporary lockers where shoppers can take delivery of items they purchase online. But some believe Google will combine the startup's delivery expertise with other services to help merchants sell products through Google.

Each venture is new and faces challenges. But if today's e-commerce is dominated by well-known retailers like Amazon and .com, analysts say Google and Facebook may see these initiatives as both a potential source for new revenue and a strategy for keeping their users engaged - while giving people one less reason to visit Amazon or competing sites.

"These companies want to keep people from leaving. They would love to have a complete ecosystem where they own every part of the customer experience, from browsing to buying and repeat visits," said Sucharita Mulpuru, an e-commerce expert at the Forrester tech research firm.

Google in particular may have reason to be concerned. While it still dominates the business of selling advertising keyed to Internet , online shoppers today are more likely to start their quests on Amazon than Google, according to some studies. If that trend continues, analysts warn, it could make Google's site less attractive to retail advertisers.

Facebook also has good reasons to offer shopping on its site, as the social network seeks to broaden its business beyond selling advertising and games. Facebook made Gifts available to all U.S. users in December. But Sterne Agee investment analyst Arvind Bhatia estimated the program could become a significant revenue source, contributing "several hundred million dollars" of annual earnings.

Facebook isn't selling its own products; instead it partnered with big chains and independent merchants that sell items through the Gifts program and give Facebook a cut of the proceeds. Facebook won't say how much, although Bhatia believes the cut is 10 to 15 percent.

After a customer places an order on Facebook, most of the partners handle their own processing and delivery. But Facebook said it's operating a small warehouse to store and ship goods from smaller partners that don't have their own infrastructure.

While Facebook seems unlikely to match the size and scale of a retail giant like Amazon, Gartner tech analyst Brian Blau said the social network has a tremendous advantage in the information it has about each user's friends, their personal interests and important dates like birthdays and anniversaries, all of which can be used to nudge people into buying gifts.

"The act of gift-buying is a very social activity," said Blau, adding that Facebook could eventually sell other products, such as concert souvenirs or clothing, that people talk about with their friends.

Others are skeptical. People visit to interact with friends, not to buy things, said Mulpuru, who added that online companies like RedEnvelope have had little success in building a business around suggesting gifts for friends.

Google, meanwhile, has already waded into retail commerce. In addition to selling digital goods such as music and videos through its Google Play online store, the company has experimented with electronic payments through the Google Wallet service, launched a daily-deals program called Google Offers and revamped its shopping-search service by shifting to a model where merchants pay to have their products listed.

But the search giant has said little about its late-November purchase of the Canadian startup BufferBox, which operates lockers at locations such as transit stations and grocery stores. can have items shipped to a locker that's secured with a temporary PIN code, and pick them up later if they're not able to be home for delivery.

Google has also been quietly testing plans for same-day delivery service in San Francisco, according to reports citing unnamed sources. As described in The New York Times, Google may contract with courier companies to deliver merchandise that customers order from Google's retail partners.

A Google spokeswoman declined comment on those reports and wouldn't discuss plans for BufferBox, except to say, "We want to remove as much friction as possible from the shopping experience, while helping consumers save time and money."

But analysts say it makes sense to offer a fast-delivery service for people who purchase items through Google, since rivals such as Amazon, Walmart.com and eBay have similar programs. "It could be attractive for retailers who advertise on Google," said Kerry Rice, who follows Internet business for Needham & Company. "It's another thing that a company could use to highlight their listing in Google's results."

It's unclear if will offer delivery service on a broad scale. Amazon has experimented with delivery lockers, but Mulpuru said the concept has yet to catch on. "These tech companies throw a lot of stuff against the wall, just to see what works," she added.

Explore further: Google locks up deal for parcel firm


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