A question was asked in the TameBay forum “Are paypal afraid of google checkout?” This led me to thinking about Google’s business and just why Checkout is important to them. Many online retailers have welcomed them as an alternative to PayPal, but the truth is Google aren’t actually interested in competing.
Checkout was conceived for one reason alone – and that’s to build and protect 98% of Google’s revenue – Adwords!
Adwords allow retailers to purchase adverts triggered when a user searches Google. There are two sets of results, natural or organic results and paid for (Adwords) results. Google uses a number of algorithms to decide which retailers advert should appear at the top of the paid results, combining how much they’re paying with how many users click on and how relevant their advert is. The delightful part of adwords is that if no one clicks on your advert there is nothing to pay, you only pay when a prospective buyer is interested enough to click on your advert.
So how does that relate to Checkout? Well for every Â£100 you spend on Adwords Google with give you Â£1000 of free Checkout processing. Processing is free for retailers for 2007, but from then on the Adword incentive kicks in. It won’t actually cost Google that much, their charges are 1.5% + Â£0.15 per transaction. That means if you spend Â£100 on Adwords the Â£1000 of free processing will only cost them about Â£15. Retailers who already spend on adwords are incentivised to use Checkout and tied further into the Google brand by spending on Adword campaigns.
Adwords however are a two edged sword for Google. 98% of some $11bn pa revenue is under attack for trademark infringement, or in eBay parlance keyword spamming. A court date is set for November this year for allowing trademarks belonging to the American Blind & Wallpaper Factory to be purchased as Adwords by competitors. The case infers that Google has made profits by deliberately trading off trademarks – in reality it’s those that purchased the Adwords that are to blame. It’s simply not possible for Google to vet each and every keyword a retailer bids on to ensure it’s not a trademark. If Google lose the law suit (which will be tried by Jury) it could have a huge impact on their profitability.
I have some sympathy for Google, their situation is similar to that of eBay’s law suits with Louis Vuitton & Christian Dior in Europe and Tiffany in the US. It’s an impossible situation for eBay to verify that every article for sale on their site is not counterfeit. Similar difficulties arise for Google to verify each Adword purchased doesn’t infringe a trademark (but is still available for legitimate purchase by the manufacture and authorised retailers). Google have already been fined â‚¬300,000 for allegations that it had provided links to sites that sold counterfeit versions of Louis Vuitton products.
Adwords are the backbone of the Google brand, search is the companies strength but adwords provide their revenue. Anything that endangers this revenue will be strongly contested. Anything that can increase Adword revenue is vital to Google’s future profitability, and that’s where Checkout fits into their portfolio. Payment processing is not a goal as it is for PayPal, it’s simply a means to an end, and that end is higher Adwords spend from retailers.
Finally the two burning questions “Are PayPal afraid of Google?” and “Will Google Checkout be allowed on eBay?”:
Well the answer to the first is a resounding no! There are two sides to PayPal’s business – auction payments largely on eBay, and website payments. Google will only ever compete in the website payments arena, and PayPal have recently introduced PayPal Website Payments Pro which roughly acts as a full merchant account from the buyers perspective. It allows buyers to pay via phone, mail, fax and in person as well as online. PayPal also have worldwide coverage for buyers covering 190 countries whilst Google is still US and UK only.
Many sellers have called for Checkout to be allowed on eBay but it’s a moot point seeing as most won’t qualify anyway. Google are targeting retailers who will spend big money on Adwords. They’re set up to verify Limited companies only and many eBay sellers are Sole Traders or Partnerships and will struggle to open a Checkout account. Even if they do open an account many will not qualify for the promotions that make Checkout attractive. In addition Google themselves state Checkout is merely a “checkout flow” reliant on existing payment methods. It’s an “e-wallet” holding your credit card details. Checkout is simply not eBay friendly and according to Google themselves “not a form of payment“.