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Originally published December 30, 2012 at 12:01 AM | Page modified December 30, 2012 at 8:11 AM

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Facebook, Google dip their toes in sale of physical goods

Google and Facebook have made surprising moves into the business of selling and delivering goods.

San Jose Mercury News

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Google and Facebook made their names by helping people find information or friends online. But in recent weeks the two rivals have made some surprising moves in a different direction — the business of selling and delivering goods.

Facebook is trumpeting its new Gifts service that lets users order a wide range of stuff, from wine and cupcakes to pet toys and children’s clothes, and have them delivered to friends.

Google, meanwhile, has been tight-lipped about its recent deal to buy a small company that operates lockers where shoppers can take delivery of items they purchase online. But some believe Google will combine the startup’s delivery expertise with other services to help merchants sell products through Google.

Each venture is new and faces challenges. But if today’s e-commerce is dominated by well-known retailers like Amazon and Walmart.com, analysts say Google and Facebook may see these initiatives as both a potential source for new revenue and a strategy for keeping their users engaged — while giving people one less reason to visit Amazon or competing sites.

“These companies want to keep people from leaving. They would love to have a complete ecosystem where they own every part of the customer experience, from browsing to buying and repeat visits,” said Sucharita Mulpuru, an e-commerce expert at the Forrester tech research firm.

Google in particular may have reason to be concerned. While it still dominates the business of selling advertising keyed to Internet search queries, online shoppers today are more likely to start their quests on Amazon than Google, according to some studies. If that trend continues, analysts warn, it could make Google’s site less attractive to retail advertisers.

Facebook also has good reasons to offer shopping on its site, as the social network seeks to broaden its business beyond selling advertising and games. Facebook made Gifts available to all U.S. users in December. But Sterne Agee investment analyst Arvind Bhatia estimated the program could become a significant revenue source, contributing “several hundred million dollars” of annual earnings.

Facebook isn’t selling its own products; instead it partnered with big chains and independent merchants that sell items through the Gifts program and give Facebook a cut of the proceeds. Facebook won’t say how much, although Bhatia believes the cut is 10 to 15 percent.

After a customer places an order on Facebook, most of the partners handle their own processing and delivery. But Facebook said it’s operating a small warehouse to store and ship goods from smaller partners that don’t have the infrastructure.

While Facebook seems unlikely to match the size and scale of a retail giant like Amazon, Gartner tech analyst Brian Blau said the social network has a tremendous advantage in the information it has about each user’s friends, their personal interests and important dates like birthdays and anniversaries, all of which can nudge people into buying gifts.

“The act of gift-buying is a very social activity,” said Blau.

Others are skeptical. People visit Facebook to interact with friends, not to buy things, said Mulpuru, who added that online companies like RedEnvelope have had little success in building a business around suggesting gifts for friends.

Google, meanwhile, has already waded into retail commerce. In addition to selling digital goods such as music and videos through its Google Play online store, the company has experimented with electronic payments through the Google Wallet service, launched a daily-deals program called Google Offers.

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