Google Checkout Supports Its Core Search Business
Google unveiled its long-awaited wallet service, codenamed “GBuy” and officially called “Google Checkout”. While frequently described as an “eBay killer”, I believe that it’s actually positioned to solve a perplexing and core problem at Google – how to drive more search ad revenues, especially in the retail sector where search spending is plateauing for top keywords.
Here are the basics of Google Checkout:
- Increase conversions with a better checkout process. The goal is to make it easier for buyers to checkout with retailers. Retailers today often see users abandon their shopping carts, so anything they can do to help potential buyers finish the transaction will increase their conversion rates. Google Checkout stores billing, shipping, and credit card information to enable speedier checkouts. Better conversion rates mean that retailers will be able to spend more money on advertising and marketing – for example, search ads – which is great for Google.
- Build trust for merchants. AdWords advertisers using Google Checkout will have a “badge” (which looks like a shopping cart) appear in their search ads. Over time, Google hopes that consumers will see this as a signal that the transaction will be safe and secure. Why does it matter? Think about the last time you bought something from a no-name retailer – did you hesitate when it came time to enter your credit card? For many consumers, concern about security and privacy are major reasons why they didn’t buy with a specific retailer. Smaller, less established retailers in particular will benefit from using Google Checkout.
- Provides a discount for AdWord advertisers. And AdWords advertisers will get some of their transactions processed for free. The standard flat rate for Google Checkout will be 2% of transaction value plus 20 cents per transaction. Compare that to PayPal’s lowest rate of 1.9% plus 30 cents per transaction for monthly payments over $100K and PayPal’s standard rate of 2.9% plus 30 cents per transaction for up to $3k in monthly payments received. So not only will Google’s rate be lower for most retailers, but participating merchants also get 10 times the value of their AdWords spending for free transaction processing. So if you spent $100 last month on AdWords, you’d get $1000 worth of transaction processing (which translates into $20) for free. Do the math, and that’s a 20% effective discount on your AdWords buy. And yes, Google hopes that retailers will plow that savings back into more search spending.
So hopefully you’re beginning to see the virtuous circle that Google is building with Checkout and how it supports the core search business. It’s brilliant – by tying the wallet service to search, Google creates a huge incentive for its retail advertisers to participate. This is what differentiates Google Checkout from other wallet services like Yahoo’s now defunct PayDirect, AOL’s Quick Checkout, or
Chase’s I4 Commerce's Bill Me Later.
While smaller merchants are the natural targets for Google Checkout, don’t count the larger retailers out. While some may be reluctant to “turn over” the customer relationship to Google, in the end, I think they will try and stick with anything that will result in better conversions.
What It Means For eBay
Poor eBay – its stock took a beating today on the anticipated news of Checkout's launch. The money on the street is that eBay/PayPal will be the losers in this, but I’m not so sure. PayPal is a payment method which fills a big needs in P2P transactions, especially for auctions. Will some eBay sellers defect and start using Google Checkout instead? Not if they want to remain fully integrated with eBay AND also offer non-credit card options (which Google Checkout currently does not offer). The battle will be with the merchants – PayPal will have to step up its efforts to get retailers to accept PayPal as a payment system along side traditional payments like credit cards – and hope that they can do this before Google launches its own payment system (more on that later). If eBay can convince enough merchants to accept PayPal, those merchants will eventually push Google Checkout to accept PayPal as well.
And I fully expect that the current eBay/Yahoo! partnership will launch a competing product to Google Checkout that mirrors the search advertising tie-in. So this battle is far from over – stay tuned.
One of the side “benefits” of Google Checkout is that consumers will be able to see their full transaction history. This isn’t a problem as long as you’re comfortable having all of that information reside with one player, which I anticipate will be the case. But now we have Google tracking our search history with personalized search, email with Gmail, and online spending with Checkout. At what point do consumers get that squishy feeling in their gut that Google knows too much? Our research shows that while consumers have a great concern about privacy, they aren’t willing to do very much and in many cases, willingly provide personal data as a fair exchange for a valued product or service.
All of this would be honky-dory for Google given its strong brand and trust it's built with consumers. But what happens when the inevitable phishing attacks begin, or payment problems ensue? In the pre-briefing of this announcement, Google did not discuss customer service issues, but clearly, it’s one thing to serve several hundred thousand advertisers paying for their search ads, and quite another to serve potentially millions of consumers.
I suspect that “all things Google” will soon start to wear at the edges, in much the same way that “all things Microsoft” came to be seen as a monopoly of the desktop. But instead of dominating operating systems and software, Google is instead dominating our information. So at what point does Google step over the line and extend its products and services too far?
I’m eager to get reactions to Google Checkout, if you would use it as a consumer and especially, if you take payments, if you’d use it as an alternative checkout solution.
- Powerpoint presentation with screenshots of Google Checkout Download google_checkout_screenshots.ppt .
Update: Google Blog's official post on Checkout is available.