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Yes, there's a tech bubble: Google Shopping Express proves it

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Money-losing services like Google’s quick-delivery operation (and way too many others) are simply not sustainable.

1999 called and it wants its Internet bubble back. And it just might get it, delivered free in half an hour.

If you live and work in the tech industry in the San Francisco Bay Area (or many other high-tech epicenters) these days, you can’t help but wonder if we’re in the midst of a new bout of “irrational exuberance,” as Alan Greenspan famously described the dot-com bubble back in 1996.

It’s not that the current zeitgeist is a carbon copy of the dot-com boom from the late 1990s, but that many parts of the modern Internet economy are starting to bear an uncomfortable resemblance to the excesses of 15 years ago.

Over the rest of the summer, I plan to look into a variety of similarities and differences between 1999 and 2014, but nowhere are the warning signs of a bubble set to pop more clearly visible than in the urban fast-delivery arena.

Back in the dot-com boom, grocery delivery service Webvan was perhaps the most expensive flame-out of the era, burning through more than $1 billion trying to build a business and infrastructure around bringing the supermarket to your door.

Meanwhile, cute little Kozmo did the same thing on a smaller scale, using bright orange motor scooters to deliver videos and candy to urbanites holed up in their apartments. As I recall, Kozmo often charged something like $1 to deliver a $1 box of candy, losing money on every order and trying to make it up on volume.

Sounds crazy, right? That kind of thing led to the inevitable dot-com debacle in the early 2000s.

Well, it’s back, only now it’s Google leading the insanity.

According to a story this week in The Information (subscription required), the company’s 16-month-old Google Shopping Express service loses big money on every one of its same-day deliveries (it charges $5 per delivered order from one of its retail partners after a free six-month trial period). The story says Google spends “multiples” of that and tries to make it up on volume, or, more properly, by encouraging consumers to “to search for products on Google and thus boost revenue from retail advertisers.”

Google has plenty of money to subsidize its service as long as it cares to, but the story quotes one observer saying “There’s no line of sight” to making the service pay for itself. This is a money loser now, and it projects to be for the foreseeable future.

But at least GSX, as Google calls it, charges something for its service. The real riddle is companies like Seamless.com and WunWun, which offer free or almost free delivery from restaurants and other retailers in a number of cities. Instead of asking consumers to pay, they charge the retailers a commission and other fees that a recent BusinessWeek article said made Seamless unsustainable for many restaurants.

No duh. If restaurants and shops could make money subsidizing free delivery, they’d pretty much already do so.

Basically, all these services are trying to pay for their services with money generated elsewhere (either by taking it out of the vendors’ hide or from venture capital investments). But it’s hard to see how this kind of arrangement is anything but a bubble. While it’s great for consumers in the short run, it seems clear that soon enough you’ll be able to pick up the modern equivalent of those used Webvan trucks and Kozmo scooters that flooded eBay after their companies went bust a dozen years ago.

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