Google and Facebook look to direct online retail for growth

Google gets more than 90 per cent of its revenue from advertisements. To keep that ad revenue flowing – it accounted for more than US$16 billion out of $17.7bn in total revenue in the second quarter – Google is slowly and steadily expanding into online shopping.

The company on July 15 announced the launch of a Google Buy Button, which allows users to buy an item they are looking for directly from the search results page. When the user clicks on the button, they are redirected to the merchant website to complete the purchase, which ideally would take only about two more clicks.

Google hosts the purchase process, while the merchant is responsible for fulfilling the sale.

Google does not charge any commission on sales completed through the button. Instead, companies have to pay top dollar to be listed in the search results with the button. The buy-button listings include detailed product features, reviews and ratings – making it all the more easier for users to make up their mind about buying a product.

For Google, the buy button adds a new dimension to its already successful advertising-based business model. For merchants who pay Google to place their ads, the button leads to direct sales and thus tightens the ad-clicked to sales-completed ratio. For users, it reduces the number of steps for completing a purchase.

The buy button is in a trial phase, and is initially available only on mobile phones in the United States. However, the initiative will most likely be extended to other platforms and regions in the coming one to two years if it proves to be successful.

The buy button is part of a nexus of related initiatives from Google. In May, the company launched the Android Pay service, allowing it to entrench itself in the mobile payments business.

Google has also been working on the delivery of physical products using drones under its Project Wing initiative, and last August it announced successful tests of delivering small packages using its drones.

When all these come together, Google users could search for the products they want on Google’s search engine, select them using the buy button, pay for them using Android Pay and have the items delivered by the Project Wing drones.

However, Google is not alone in its quest for retail dominance.

Facebook, Google’s key rival for companies’ advertising dollars, is also making waves in this domain. A day after Google’s buy-button announcement, Facebook unveiled its virtual storefronts initiative to build online stores on the business pages of its clients. That enables people to buy items directly from the merchants’ Facebook pages.

These virtual storefronts will allow Facebook to control the entire shopping experience of its users without them ever having to leave Facebook’s website or mobile app. Like Google, Facebook would not charge any commission on product sales – it would make money by creating the storefronts and from the ads that lead to them. And as with Google, Facebook’s initiative has been launched as a small trial in the US, and a large-scale roll-out might take a year or so.

In the past, Facebook allowed buy buttons to be embedded in the ads shown to users in their news feed. However, developing an entire storefront on the Facebook profile of a company is a new move that will intensify Facebook’s competition with Google for ad dollars.

The efforts of Google and Facebook seem to be geared towards getting users logged into their services for longer and inducing them to do more while logged in.

That will allow the tech giants more insights into their users’ behaviour – a ringside view to observe what users react to, and how. That in turn will fuel the data-hungry algorithms responsible for showing contextualised ads to the users. In a way, this becomes a self-sustaining cycle that assesses users’ online behaviour, serves them pertinent ads to stimulate purchases and generates more data to analyse.

Although both these initiatives started out small, their long-term success hinges on two factors.

First, as with any online transaction, there are security and fraud-detection concerns that both companies would have to address – and ensure that this is communicated to users. Online purchases are fraught with dangers of hacking, and even a slight breach of security could sideswipe the growth prospects of these services.

The other big issue is order fulfilment and delivery. Facebook and Google would have to work closely with their clients to ensure that purchases are delivered correctly and promptly. Any delays would taint users’ perception of these services, nipping their growth in the bud.

Abhinav Purohit is a UAE-based consultant specialising in telecommunications, smart-city and information and communications technology.

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