Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) stock is going from strength to strength. GOOGL stock is up by 33% from a year ago. But it is down 6% from its high of $1,186-per-share, achieved in late January, and it was under pressure as the market opened March 19.
The reason is Facebook Inc (NASDAQ:FB). There is an assumption that Facebook’s problems are Google’s, that governments worldwide are about to crack down on media companies that pretend they aren’t media companies and that advertising-supported internet services are ripe for disruption.
All that may be true, but Google has powers Facebook can’t even pretend to, and it’s rolling one of them out this week. The company will soon start taking a cut of retailers’ sales, when sales come from a Google Shopping link.
GOOGL Stock and Google Shopping
This is different from selling advertising. An ad is a billboard asking you to buy. What we’re talking about here is a commission, a payment in exchange for a sale.
This is not happening for regular Google searches, as Google executive Danny Sullivan quickly told his former colleagues at SearchEngineWatch.
This is happening only on Google Shopping, offered through mobile phones as Google Express. The program, when sold to retailers, is called Google Shopping Actions.
Google Shopping is aimed at Amazon.com, Inc. (NASDAQ:AMZN), designed to supplant it by giving users direct access to major retailers including Walmart Inc (NYSE:WMT), Target Corporation (NYSE:TGT) and Costco Wholesale Corporation (NASDAQ:COST). The offering is integrated with Google’s Voice assistant, so that shoppers can search for products, through Google, from major retailers as easily as they can shop Amazon.
This is an “asset light” way to compete with Amazon, because Google is only providing the front end of the shopping infrastructure and taking only a small royalty on purchases. But the costs, spread out over the entire company, are very low, and the benefits could be enormous, as major retailers start seeing Google as an effective way to compete with Amazon.
Amazon, which is up 75% over the last year, has barely reacted to the news, its loss of 1.07% being in-line with the market. But this could be big news, if it’s reported correctly.
What It’s Not
This is not Google taking money from organic searches. For Google to get a cut on product searches, you must use one of the Google Shopping links inside a “sponsored” box above search results on your desktop, or the Google Express app.
But it’s still financially powerful. All the stores allied with Google in this effort have an incentive to push customers toward using the Google Express product. The traffic they get from these links is that of people pushed way down the “sales funnel” — they’re not just walking into a store, they’re standing in it with a product in their hand. And the only cost of this to Google is software.
This is also not something Facebook can compete with easily. Google has spent several years building its shopping service, although until now, the market hasn’t seen most of that work.
The Bottom Line for GOOGL Stock
This is incremental revenue to Google that isn’t based on advertising, but final sales. If it can take 5% of Amazon’s e-commerce market share, when the efforts of all the major retailing partners are combined, you’re talking about a cut of $5 billion in revenue. Not enormous when you compare it with Google’s present run rate of $110 billion, or Amazon’s of $135 billion, but enough to make Google shares a buy after the latest downdraft in big tech runs its course.
Buy GOOGL stock here, not the GOOG. You get voting rights, and the two stocks are trading at virtually the same price.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.