March 1, 2010, 12:00 AM

Google: The Retailer

The search behemoth sells phones on its own retail site, signaling a deeper commitment to e-commerce.

Think of it as an elephant eyeing another path. When Google Inc. in January began to sell its Nexus One mobile phone from its own web site, online retailers could be forgiven for worrying the search engine giant one day might stomp all over them.

Google, after all, reported net income of $1.97 billion in the fourth quarter on revenue that increased 17% year over year. The company owns probably the most valuable real estate on the Internet-Google attracted nearly 66% of the 14.7 billion searches U.S. consumers conducted in December, comScore says. And such Google sites and services as Google Maps, Gmail and the YouTube free video site are part of the daily lives of tens of millions of consumers worldwide.

What’s more, Google’s vast store of knowledge about consumer behavior, and about how that behavior is changing minute to minute, would give Google an extraordinary leg up as a web retailer. “They know what people want through search, they know what is hot. It’s almost an unfair advantage,” says Kevin Lee, CEO of search engine marketing firm Didit.com LLC.

More products

It’s not clear how far Google intends to press that advantage. But the company has said that its Nexus One e-commerce site, Google.com/phone, will not be its last venture into selling directly to consumers via the web. “It’s the first in what we expect to be a series of products which we will bring to market with our operator and hardware partners and sell through our online store,” Mario Queiroz, the company’s vice president of product management, wrote in a blog post as the phone went on sale.

While Google has declined to comment on its other e-retailing plans beyond its periodic blog posts, the company has disclosed plans for more online stores. Google will sell books through the upcoming Google Editions and business software through a web-based service that would compete with the software Microsoft Corp. sells that is stored on individual PCs, not the web.

Google may also distribute movies and other content consumers can rent and stream from YouTube, potentially taking away business from the likes of Netflix Inc., Blockbuster Inc. and Apple Inc.

Google dipped its toes into video rentals in January when it offered $3.99 rentals of independent movies affiliated with the Sundance film festival. Customers could stream the films from the YouTube site for 48 hours after purchases made through Google Checkout, Google’s online payment service.

The 10-day experiment attracted 2,684 paid rentals, which carried none of the ads consumers see when accessing the site’s free content. Google hopes to expand paid content on YouTube to include educational, fitness, anime and health-related videos, a YouTube spokesman says. Paid content could help Google finally figure out how to monetize YouTube. In a quarterly securities filing from November, Google said it had yet to earn significant revenue from the video channel, bought for $1.65 billion in 2006.

Google Editions, meanwhile, is set for launch in the first half of the year. Customers who buy e-books from this Google store will be able to access the works through most computer, phone or e-book readers. This device-agnostic approach sets it apart from Amazon, which uses a proprietary e-book format designed primarily for its own Kindle reader.

Dmitriy Molchanov, an e-book analyst with the Yankee Group, foresees a service that enables consumers to buy via Google books from various e-bookstores, including Amazon and Barnes & Noble Inc. “Google wants to be the glue that gels a lot of these bookstores together,” he says. “I think they are really pushing to be more of a wholesaler.”

The plans in the works suggest Google is likely to focus on selling digital goods, such as e-books and entertainment content, taking advantage of its vast web infrastructure and massive amounts of data about online shoppers. Moving further into hard goods would require Google to invest in warehouses and distribution networks, which would be a big departure for this web-centric company.

That said, Google in mid-February appointed Stephanie Tilenius, an eBay Inc. veteran, to the newly created post of vice president of commerce. She most recently served as head of global product and North America at eBay, where she worked for nine years in various executive positions, including as head of PayPal, eBay’s online payment service.

“It shows they actually have a serious plan in operation to become a retailer,” says Udayan Bose, founder and CEO of NetElixir Inc., a search engine marketing firm. “Given that Stephanie has so much experience at eBay, it seems likely Google ultimately wants to build an online retail platform that can compete with eBay as well as Amazon.com.”

Search advantage

Whatever direction Google takes, data from search will serve as a guide, and any moves into retail likely will boost Google’s core business. Every click a consumer makes when conducting a search, and every word used in a Gmail message, helps Google better understand what consumers are looking for, when they are looking for it and where that search comes from. Google can use that data to stay on top of trends and build ever more detailed pictures of various consumer types, advantages for any retailer.

Google could be looking for new worlds to conquer as growth slows in its core business. In the company’s quarterly securities filing from November, Google noted that its revenue growth rate generally has declined over time and likely will continue to fall as the online advertising market matures. “Google arguably is a one- or two-hit wonder,” says Sucharita Mulpuru, an e-business analyst at Forrester Research. “It’s been riding the paid search and sponsor links businesses for years.”

Google moved into new territory Jan 5. when it introduced a Google-branded mobile phone, the Nexus One. The handset was built by Taiwan’s HTC Corp. and uses Google’s Android operating system. The launch attracted a geyser of attention.

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