1 Reason Google Inc (GOOG) Should Open Retail Stores

Page 1 of 2

Last week, rumors surfaced that Google Inc (NASDAQ:GOOG) may open retail stores in major metropolitan areas. Google has denied a retail store plan since December, but the company may not be able to push off a physical retail presence any longer. Google Inc (NASDAQ:GOOG)’s competitors are in the midst of a new wave of tech retail — and Google may be wise to follow suit.

Follow the leader
When it comes to tech companies diving into the retail space, we’re really talking about a game of “Follow the Leader” — that leader obviously being Apple Inc. (NASDAQ:AAPL). In Q1 2013, about 120 million people visited Apple stores and the company made $6.4 billion in revenue from them, with $1.6 billion in operating income. With almost 400 stores in its retail arsenal, Apple is light-years ahead its tech counterparts. Apple also entered the retail world more than a decade ago, so it’s had a bit of a head start.

Google Inc (NASDAQ:GOOG)Of course, Google Inc (NASDAQ:GOOG) is a different company than Apple, but the two are in a constant battle for mobile dominance. Apple currently has a greater-than-50% smartphone market share in the U.S., while Google’s Android has about 42%. Apple’s success in the retail space should show Google Inc (NASDAQ:GOOG) that entering the physical world does have its benefits.

The experience is the product
Apple has known for a long time that if it can control the experience of its products, it has a better chance at selling them. Most recently, CEO Tim Cook commented at the Goldman Sachs Group, Inc. (NYSE:GS) Technology and Internet Conference:

One thing that’s not well understood, I don’t think we would have been nearly as successful with iPad if it weren’t for our stores. The tablet was ingrained in their mind as this heavy thing the Hertz guy held. But our store is the place to go and discover and try it out and see what it can do. I don’t think the launch would have been nearly as successful without stores that welcome people in, at 10 million a week, and show this. It gives Apple an incredible competitive advantage.

What works for one company doesn’t always work for another, but it doesn’t mean Google Inc (NASDAQ:GOOG) shouldn’t try. Microsoft Corporation (NASDAQ:MSFT) is starting the see the value in selling products in its own stores and has about 51 locations, while it works its way to a goal of 75 by 2014. To compete against Apple, Microsoft and Google need to do much more than tell people about their great products — they need to show them. Microsoft will have a harder time doing this because the Surface tablet and Windows Phones don’t dominate any markets right now. Google may have a better chance because its Android OS is already one the dominant mobile platforms.

Page 1 of 2