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Is Google's newly expanded same-day delivery service worth the investment?

Posting in Technology
 
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The competition to get items you order online to your door the same day is once again heating up. 

After launching its Google Shopping Express service-- allowing same-day delivery from local retailers through Google's online marketplace -- in San Francisco last year, Google is now expanding that service to parts of Los Angeles and Manhattan. 

And just last week Amazon expanded its own same-day service, which has been running for the past four years in limited parts of the U.S. Other companies and startups are also getting into the same-day delivery business.

But Google is hoping it can attract consumers away from the competition by offering the service for free for six months in addition to $10 off your first purchase. 

That's a tempting offer, especially if you're living in Manhattan, without a car, and need to make a purchase that's too big or heavy to take on the subway. Or, of course, you need something as soon as possible. But how often is that the case for the average consumer? Is there a big enough market to justify the investment, and added worker stress, to deliver the same day? 

Is same-day delivery really the "holy grail of online commerce," as Forbes called it?

A report from the U.S. Postal Service earlier this year concluded: "Even if companies overcome the logistical and economic hurdles presented by same-day delivery, the service will not take off unless consumers are willing to pay for it." And the likelihood of that happening on a large scale seems low. 

According to a survey from The Boston Consulting Group, same-day delivery is low on consumers' lists of how to improve online shopping. Only nine percent of the consumers surveyed said same-day delivery was the number one way their online shopping experience could improve. Most consumers want free shipping (74 percent) or low prices (50 percent) before they want same-day delivery.

So why is Google (and other companies) still expanding same-day delivery despite a seemingly low market for the services? To reach the wallets of the coveted affluent millennial -- 18 to 34 year olds with a household income exceeding $150,000 -- living in urban areas. According to the survey, this very specific consumer only represents two percent of the market. But they're big spenders, doubling the online spending habits of the average average U.S. consumer. Plus, they're willing to pay as much as $10 for same-day delivery (Google will charge $5 per store after the free trial). 

That means anywhere from an estimated $425 million to $850 million in annual delivery revenues from same-day delivery is up for grabs. But those numbers mean it's not likely a game-changing innovation for any of the companies investing in the service. 

"Same-day delivery will be a niche service in the near future," said Rob Souza, a partner at BCG. "Retailers may choose to offer it to build customer loyalty, enhance brand awareness, or keep up with the competition. But it is unlikely to generate significant revenues for either retailers or carriers."

Photo: Google

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— By on May 5, 2014, 10:21 AM PST

Tyler Falk

Contributing Editor

Tyler Falk is a freelance journalist based in Washington, D.C. Previously, he was with Smart Growth America and Grist. He holds a degree from Goshen College. Follow him on Twitter. Disclosure