Google is rumoured to be opening retail stores later this year. Alistair Fairweather looks at why the search engine business needs retail presence.
Remember the late '90s, when everyone was predicting the end of "bricks and mortar" businesses? The internet was going to make all that tedious infrastructure redundant, according to web prophets. Pity they didn't see the dotcom crash coming. And now, in a delicious piece of irony, Google is rumoured to be opening retail stores later this year.
But why does a search engine business need a retail presence? Part of the reason is that Google is no longer just a search engine business. It has been slowly but surely edging into physical markets for the past decade.
For instance you can now buy Google Nexus tablets or smart phones powered, naturally, by Google's Android operating system, now the world's most popular mobile platform. You can also buy Chromebooks, lightweight "netbook" laptops powered by Google's other operating system, Chrome (which grew out of the popular web browser).
Google has seen the phenomenal success of Apple's retail stores, many of which have broken records for profitability, and is clearly keen to emulate it. But Google's executives also understand that retail is about more than just sales; it gives a face to your company – a physical connection a web page will never offer.
This will be particularly important as Google tries to market products like Google Glass. This "augmented reality head-mounted display" is like a pair of glasses on which useful information can be displayed – like walking directions to a restaurant, or how much the product you're looking at should cost.
If that sounds hard to imagine, you now understand why Google needs a retail presence. Google Glass is likely to cost between $500 and $1 000. No one spends that kind of money without seeing the gadget in action first.
Google is actually fairly late to the retail party. Microsoft began opening retail stores in 2009 and now has nearly 100 of them, with more on the way. Like the search engine giant, Microsoft has realised that it needs a physical presence run by fanatical Microsoft staff if it's ever going to make a dent in the Apple juggernaut.
But Google and Microsoft have learned an even more fundamental lesson from Apple. Only by controlling and perfecting as much of your customers' experiences as possible – including both retail and after sales support – can you build a fanatical customer base.
Once you have them, these customers can be a force of nature, willing to queue overnight for new releases and wax lyrical about your brand to anyone who will listen. It's no surprise Apple spends so little on marketing by comparison to its competitors – its customers essentially market the products on its behalf.
And this thinking is part of an even bigger shift in the world economy. For decades the trend has been towards specialisation and away from owning the entire value chain. Now "vertical integration" is firmly back in fashion, with technology giants expanding out of software and into hardware (Microsoft) or out of online retail and into cloud computing (Amazon). Facebook has even begun designing its own hardware to power its data centres.
This is bad news for specialists and middle men. Large electronic stores, for instance, are already feeling the pinch from Apple's retail presence, the last thing they want is Microsoft, Samsung, Google and goodness knows who else on their turf.
The real danger for the middle men is that none of these new players really care about your niche, whether it be retail, wholesale or raw materials. They are all playing a larger, more global game. So while you're worrying about your margins, they're thinking about their global app platforms and their expansion into China.
To these tech giants a retail presence or distribution hub is just a means to a much more profitable end – owning a global ecosystem of customers and software developers – and that makes competing with them extremely tricky.
And so the internet has finally begun to invade the "real world", just as those prophets from the '90s said it would. Except instead of a online marketplace, Google will now have a gleaming store in your local mall. Who could have predicted that?