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June 29, 2006

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.

Additional materials:

- Powerpoint presentation with screenshots of Google Checkout Download google_checkout_screenshots.ppt .

- Buyer demo and merchant demo

Update: Google Blog's official post on Checkout is available.

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Listed below are links to weblogs that reference Google Checkout Supports Its Core Search Business:

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Comments

Christian Cadeo

Charlene,

Thanks for the info. Do you by any chance have the full presentation vs. just the 5 screenshots? If so can you email it to me. Thank you.

Sumit Chachra

Checkout + GBuy + jellyfish.com model ..... see something cooking there ?

Dave

you know, i think i'm actually changing my mind on this one.

i used to be a skeptic that Google would pick up decent market share against PayPal, just because of the time necessary to build buyer adoption behavior (even with a major brand like Google, could take time as a payment option), and also the experience needed to build up fraud prevention.

however, now that i've spent some time thinking about it, i'm pretty sure Google's real goal is CPA-based costing for Adwords.

and if that's the lever, combined with the current no-fee incentives & Adword discounts, there could be significant merchant adoption very quickly.

more important than the fees & incentives, if Google starts collecting transaction info using Google Checkout & connects that with the search traffic analytics, they can begin to provide sales-based (CPA) costing for AdWords -- which essentially means "free" advertising for merchants (or more accurately, advertising gets paid out of a share of the actual sale).

this is no small thing to merchants, and could be a huge opportunity to get a behavioral change from merchants -- tying choice of payment option to advertising costs and business profitability is absolutely monumental.

so they might still have a 'long hard slog' to get adoption, but now i'm thinking they have a key selling point to move merchants over to their camp.

eBay, Yahoo, and Amazon better figure out CPA-based advertising fast... before Google figures out payments & ties it into their overall advertising dominance.

strangely, this was really eBay, Yahoo, and Amazon's game to lose. those 3 have controlled huge amounts of transaction data & know the point of transaction, and they could very easily create a CPA-based advertising system that has significant advantages over Google's CPC-based system.

if they wait much longer, and they'll lose this game too...

- dave mcclure
http://500hats.typepad.com

Stu

Ya know, I always like to play around with the new toys, take 'em for a test drive, but then the reality hit me when I entered my Google password into the checkout.google.com: Google actually wants me to give them my credit card number and leave it in their system.

I thought about the usual sloppiness and disregard for security of Google's normal Beta products (and Google Checkout is Beta whether they put the Beta tag on it or not), such as the Google Web Accelerator and Google Sitemaps, and realized that I really don't trust them very much.

So instead of finding out first-hand, I'm gonna sit this one out for now and let someone else be the guinea pig with their credit cards.

PaulSweeney

With regards "all my data in one place" I am reminded of John Hagel's prediction that customers would "sell their profile" to companies so that companies can make you their best offer. Google may have to "share" some of the revenues it makes from you... as one of your commentators pointed out "a la jellyfish"....

Mack D. Male

PayPal's got them licked right now, for one simple reason. PayPal supports Canada! It's so stupid that I can have an AdWords account, but not a Google Checkout account!

Zoli Erdos

Charlene, It's really amazing that while the whole world is buzzing about the attack on Paypal/eBay, only you and OM got the full picture about this reinforcing Google's core search / ad business. With clickfraud, bots clicking through thousands of ads ..etc, the cost-per-click model is in trouble, and OM rightly sees it as a way to getting closer to a cost-per-transaction model.

On a different note, you being a Web 2.0 advocate, don't you think attaching a Powerpoint file to download is sooooo very 1.0? :-) I took the liberty of getting it imported into Zoho Show, and here's a link to the online version of the presentation: http://snipurl.com/Gcheckout

Isn't it more 2.0-style? :-)

Charlene Li

OK Zoli - you've got me! It does show up very nicely in Zoho - thanks for doing that. But I think these ol' "Web 1.0" technologies still have a lot of gas in them. One of the major reasons I put the screenshots in a presentation is so that others who want to use it *their* presentations can easily do so. As a frequent presenter, it's a royal pain to do screen captures, cut, paste, etc. to get these darn things into Powerpoint.

But thanks for introducing me to Zoho Show -- I'm going to have to use try it as an alternative to Webex soon.

Sridhar Vembu

Charlene, thanks for the kind words about Zoho. I would be happy to give you a demo if you would like!

Thanks,
Sridhar Vembu

Anil

One of your statements is a bit misleading - Bill Me Later is not really a "wallet service" at all -- unlike Google, PayDirect or QuickCheckout, Bill Me Later is actually a credit card alternative -- a completely new virtual credit card for the customer with real-time transaction-level credit approvals. This provides a completely different set of incentives for the retailer.

Cristopher

Well, Google is coming up with all sorts of services and products. Looks as if it does not want any competitors to stand in front of him.

It is good that Google has been offering so much goodies. We all have trust in Google..

But what about a site http://www.organicspam.com that has openly raised sword against Google. Will have to say that this is definitely a bold move.

I am not totally in support of the site but it is a good step to say your concerns.Perhaps these webmasters have suffered because of "possible Google manipulations".. Worth visiting because I found some serious "behind the scenes" information about Google..I am a bit skeptical about Google now..

www.altaitravel.ru

I am not totally in support of the google in some things but however I like it

Vovan

Charlene, thanks for so useful post!
http://www.vovan.biz

Rob


Google Checkout integration is a no brainer if you're already an active AdWords advertiser.

The free transaction processing is basically free money.

The shopping cart icon that appears next to your ad makes it stand out against your competitors' ads. This is a huge benefit to small merchants, who have a hard time establishing trust with potential shoppers. This icon should increase their click through rates and "browser to buyer" conversion rate.

Just my $.02.

pro

if Google starts collecting transaction info using Google Checkout & connects that with the search traffic analytics, they can begin to provide sales-based (CPA) costing for AdWords -- which essentially means "free" advertising for merchants (or more accurately, advertising gets paid out of a share of the actual sale)

Matt

Love the post, but I have to disagree with the premise that it is a boon to merchants. Google Checkout and Google Analytics provide a staggering amount of formerly proprietary information on the value of keywords to Google.

Given that Google needs to grow revenue now at a rate exceeding the growth of searches online, this means that Google will inevitably incorporate this data into their "quality score", resulting in far higher minimum bids for merchants.

Back in the 90s, when Microsoft was the juggernaut, the cable companies were offered Windows as a cable box OS for a very compelling price. They declined, recognizing that it would cede important control. They took a short-term loss and ended up in a far stronger position than they would have.

From the position of the consumer the quick checkout has always been compelling, but from the position of the merchant, google checkout may be suicidal to margins.

Erdbeere

I checked out “Google-checkout”.
The overall process seems to be very easy but exactly that makes this solution very vulnerable. During checkout there was no security question to make sure that I’m indeed the owner of the Google account or the associated Credit Cards in that account. Of course I used my username and password but because there are so many Google sites, using the same username and password, it is very easy to loose your login information on a hijacking page as you might not check the url for Ad-Words or Gmail every time you log on as those services never had the possibility to shop with your Credit Card.
Now because you have one account and login information for all it is quite possible that hackers will try to get your login information from any Google service out there! Even worth is the fact that the hacker can change the password without any problem. The owner of the account might not even get any information about the password change as the e-mail is sent to the according and hijacked Gmail account.
Because of this HUGE security risk I would not recommend using Google checkout!
Please checkout the http://www.thebilliondollarpatent.com as s-registration solution that Google should have implemented in their service to make it solid and secure. This solution is requiring a third credential called TAN to make sure that ONLY the owner of that account is able to shop online even in case the account is hijacked.
I hope that everybody is aware of the security issue with Google checkout and will inform Google of a better solution!
Thanks and be safe;-)))!!

charlie

the link below is the comment referring to Google Checkout Supports Its Core Search Business

vance

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Martin

Hello,

It might be that Google is supporting it's core search business but at the end there is no value at all for the end user. Those users that didn't shop online due to security concerns will still have those concerns, meaning overall Google might just shift a couple of sales in their dircetion to make a bit more money till hacker's will take over!
Google should search and in case of Google Checkout they have not understood what users want!
SECURITY!!! Exactly that is what you DO NOT get!
Martin

Ron Wilson

I just dont think they can compete with eBay and PayPal on this one.

hoodia

I really doubt that google rnadomization do actually suport the search paraments and site with better googel check ut around will earn a better position.as an example here is my site http://www.offshelf.net with high number of google check ups n a daily basis and it is not moving upword a bit.

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