Why Adding Buy Buttons to Search Results Could Be Huge for Google Inc.

By Evan Niu, CFAFool.com

Last week, The Wall Street Journal reported that search giant Google is preparing to display buy buttons next to search results when users search for products on mobile devices. The move could potentially put Google in direct competition with other e-commerce players like Amazon.com or eBay . This follows reports late last year that Google was considering a buy button.

Here's why investors should be excited for this possible new offering from Google. This could be huge.

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How it might workSponsored results on mobile devices would get the special treatment, while organic results would not. Notably, desktop searches will not be getting any buy buttons, underscoring Google's focus on the ongoing transition to mobile. The new feature will be rolled out for a small portion of search traffic at first.

Unlike its traditional ads, the buy button will take users to a checkout page on Google's own site where they will specify other details of the order -- and not to the actual merchant's site. That has important implications, since merchants prefer to own the relationship and collect data for future marketing purposes. Users will have the option to opt in to share their data for promotional purposes, according to the WSJ's sources.

Google becomes the middlemanThe company wants to take a larger role in mobile e-commerce, and will store payment information for future use in order to make the transaction more seamless for consumers. Google won't be taking a cut of sales like other e-commerce rivals do, instead collecting revenue under its existing advertising model.

In general, entering payment information is a huge hurdle for mobile e-commerce because people simply don't like inputting credit card numbers into their small smartphone screens. This is precisely why Apple Pay also has a lot of potential to spur mobile e-commerce with in-app transactions, since the Mac maker stores payment information and facilitates a smooth transaction that is secure thanks to Touch ID.

Despite some apprehension among retailers, this move could be very beneficial for everyone in e-commerce. Many retailers' mobile sites offer poor experiences, which reduces the chance of a user completing a purchase. If Google can present a better experience, including storing payment data, then the end result is higher conversions for merchants.

Mobile is a double-edged swordWhile Google has played an instrumental role in ushering in the mobile era thanks to its ubiquitous Android platform, the shift has weighed on its business in other ways. That's not to say that Google's business overall is suffering, as it posted a 12% jump in overall revenue last quarter to $17.3 billion. Rather, mobile presents unique challenges that Google must continue to navigate.

Specifically, mobile is harder to monetize due to the smaller display area and lower prices. Overall cost-per-click fell 7% last quarter as mobile growth continues to bring down ad prices.

Google's not the only oneOther competitors are also dabbling in expanding into e-commerce. Facebook announced its own intentions last summer to introduce a buy button, which has begun rolling out in recent months. Twitter is doing likewise.

Google could potentially solve some of the challenges of mobile e-commerce, and in doing so will get a piece of the action.

The article Why Adding Buy Buttons to Search Results Could Be Huge for Google Inc. originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple and Facebook. The Motley Fool recommends Amazon.com, Apple, eBay, Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Amazon.com, Apple, eBay, Facebook, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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