Can Google Get Chains To Solve The $10 Delivery Ceiling?

Google's same-day delivery service for retailers will reportedly have an Amazon (NASDAQ:AMZN) Prime-like twist: a fixed annual price. That could open up a wide range of options for chains, including retailers paying the yearly fee (expected to be between $65 and $70) for favored loyalty customers. That, in turn, might make the delivery service financially viable for Google (NASDAQ:GOOG) and retailers.

Google has been testing a same-day delivery service since last fall with several chains, limited to employees and a small number of other testers. The big problem is the one that all same-day efforts in the U.S. have faced: Even affluent customers won't pay more than $10 per delivery.

A study of 1,500 consumers released on Tuesday (March 5) by the Boston Consulting Group found that all but the most affluent consumers are only willing to pay $6 at most for same-day delivery of an order. Young, urban consumers with household incomes over $150,000 will go as high as $10.

That closely matches what delivery company Shutl, which just started doing deliveries in the U.S., has found in the U.K.: London retailers subsidize a typical £10 delivery and only charge customers £6, or about $10. The main difference: Most U.S. consumers appear to be even less willing to pay. That pretty well guts the business model most chains were hoping for.

But Google reportedly plans to try a different tack. TechCrunch reported on Monday (March 4) that Google will charge an annual fee, like the $79 charge for Amazon's Prime service for presumably unlimited deliveries from major retailers it has partnered with. No specific chains were identified by TechCrunch as being signed up, but the site speculates that Google could use an expanded version of the Toronto-based BufferBox service that Google acquired in November to cut the cost of deliveries.

Yes, that makes sense—or it would, if Google's delivery service had enough customers to make its knockoff of Amazon Lockers worth the cost. But Google doesn't, and installing all those lockers would be highly speculative even for Google.

On the other hand, a membership-type service with a fixed annual fee would make possible a steady revenue stream for Google. And with a low-enough fee, chains might be willing to cough up for memberships for large numbers of its loyalty customers as a membership benefit (and also a way to compete with the dreaded Amazon, even though the E-tail goliath claims its own same-day delivery trials aren't aimed at stores).

Is that Google's plan? We don't know, but it certainly sounds more interesting than yet another pay-by-the-delivery service. As everyone from eBay (NASDAQ:EBAY) and Amazon to Walmart (NYSE:WMT) and the U.S. Postal Service has discovered, same-day delivery is either very expensive or very hard or both—and it's going to take a lot more trial and error before anyone figures it out.

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