Can Google become an online retailer?
The company reportedly is considering an online marketplace and fast-shipping service that may compete with Amazon.
The search giant is reportedly in negotiations with major retailers and shippers to create an online marketplace, taking Amazon (AMZN) head on. If Google's service manages to launch, it would directly compete against Amazon Prime, which provides customers free and quick shipping for a fixed annual fee.
Given the spate of new initiatives at Google, we believe the fast-shipping service will be a little more difficult to tackle, and question whether the company has the stomach for a business that could be very difficult.
See our full analysis for Google's stock
An Amazon-like model is a challenge
After launching its mobile-payment platform Google Wallet, as well as its daily-deals product Google Offers, it is not a big surprise that Google has jumped into online shopping -- the remaining major segment in the e-commerce market.
However, a company like Amazon runs on razor-thin margins. Amazon's operating margin for the third quarter was less than 2%. The e-commerce giant has taken years to streamline its business model after being written off by many critics during its initial years.
Additionally, it seems that Google is in hurry to do almost everything on the Web. Its recent products have been more reactive than proactive, with Google Wallet chasing eBay's (EBAY) PayPal, and Google Offers following daily-deal sites like Groupon (GRPN) and LivingSocial.
While Google has a comfortable cash cushion to invest, these ventures go beyond just technology, with expertise required in managing retailer and customer relationships, as well as handling sales reps in a brick-and-mortar setup. With Google already competing fiercely with Apple (AAPL) and Facebook in the mobile and social space, it raises the question of whether the company should continue to invest in ventures beyond its forte.
We currently have a price estimate near $628 for Google's stock, which is in line with the current market price.
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