Google Checkout -- the Unofficial Blog

Wireless Moves the Cash Register Where You Are

When Michelle Dube, a golf instructor in Rancho Santa Margarita, Calif., finishes a lesson, she whips out her BlackBerry wireless device - to schedule the next appointment, sure, but also to swipe the student's credit card for payment right there on the driving range.

Link: Wireless Moves the Cash Register Where You Are - New York Times.

Google Offers Free Analytics

As its stock price flirts with $400, the search giant scraps the fee for its analytics product, and considers renting books. Meanwhile, MSN ties up with BitPass.

As Google shares danced about the $400 mark, the search giant said Monday it will start giving away its web analytics product as it becomes part of its advertising service, Google AdWords.

Link: RED HERRING | Google Offers Free Analytics.

MSN to Use BitPass to Sell Online Content

BitPass, a provider of a solution for selling online content has striked a deal with MSN. The deal covers 'international targeted MSN portals' specifically. In addition BitPass will be working with MSN to provide a cobranded payment service and a marketplace to MSN consumers.

Dell Adds PayPal as Payment Option

Dell has released a press release today saying that it will start accepting PayPal as a payment option on its Dell.com website. US consumers and small business owners. The move comes in advance of Black Friday, the traditional start of the holiday season

What's it worth? eBay lets users search prices

Online auctioneer eBay Inc. on Thursday introduced a new service that allows buyers and sellers to search the price history of any product on its electronic marketplace worldwide for up to 90 days.

Man buys virtual space station for $100,000

In one of the largest sales yet of property in an online game, a Miami resident has bought a virtual space station for $100,000 and wants to turn it into a cross between Jurassic Park and a disco.

Link: USATODAY.com - Man buys virtual space station for $100,000.

Google Wallet May Debut Soon

An analyst says the search giant could roll out its online payment service for the holidays. Google may launch its widely anticipated online payments system Google Wallet before the holidays, an analyst said Friday, giving the search giant yet another way to profit from its widening Web empire.

Payments News: Nearly Half of Consumers Worldwide Willing to Switch Banks for More Security

Unisys has announced the results of new research that polled more than 8,000 people around the world on identity fraud and bank security issues. The research, which may be the first-ever worldwide study on identity fraud, examined consumer views in the United States, United Kingdom, France, Germany, Brazil, Mexico, Australia and Hong Kong.

Study: Mondays key for Web holiday shopping

This story is from CNET:

Mondays are the busiest days for online holiday shopping during the season that runs from Thanksgiving weekend to year's end, and advertisers should plan their spending accordingly, a new study said.

 

Holiday shoppers tend to follow up their weekend store visits by researching comparative pricing and purchasing on Mondays, according to the study released Thursday by Atlas, an online marketing analysis division of aQuantive.

Internet analysts expect online holiday sales in the United States to
grow 20 percent to 30 percent this year as consumers are lured by free
shipping, convenience and holiday promotions.

Atlas forecast that Dec. 12 will be the peak Internet shopping day this year in what has become an estimated $26 billion business for online retailers like Amazon.com, as well as traditional store chains such as Gap Stores. Online shoppers also remain active after the holidays in January with the growing popularity of gift cards and Internet exchanges of merchandise.

"Online holiday shopping will be strong until about a week before Christmas because that's when people lose confidence they will get gifts or packages on time," said Young-Bean Song, director of analytics at Atlas.

Web shopping peaks during lunch, afternoon and late evening hours on work days, meaning advertisers would be well served targeting their messages during those time periods, Song said.

Google's Payment Strategy, November 2005

Introduction

On June 20, 2005 The Wall Street Journal[1] announced that Google is entering the online payment space. But the project had been in the company's sight long before that. As early as the fall of 2004, business development people at the GooglePlex were busy contacting other players in that space.

The announcement turned the technology industry abuzz. On Wall Street, Google's shares rose while eBay's went down[2].

Google Likes Free

Since its inception Google has went a long way in making information accessible to everyone in a useful way. Hundreds of millions of people use the Google search engine to find information. The site is offered in many languages - from Afrikaans to Zulu[3] . In addition Google lets you search anything from pictures to movies, to shopping products, to driving directions. But that is all common knowledge.

What is interesting to me is how Google is making paid services available for free.

A company called Keyhole sold access to its terabytes of satellite images through its keyhole software. Google purchased the company and dropped the price[4] of its software to $29.95/month. Soon after Google released is free version of the keyhole software under the name Google Earth.

A company called Urchin provided web analytics solutions to Fortune 500 companies. Google bought Urchin and dropped the price[5] of its hosted solution to $199/month. Recently Google made the Urchin software available for free under the name Google Analytics

Why would Google want to pay millions of dollars for a company and then make its product available for free? I think it makes sense to do so.

Free fends off competition

It's hard to compete against a free product.

Free creates synergy

Adding free products enhances the value proposition of existing products. As an example Google AdWords lets website owners display ads on Google's search engine. Google Analytics gives website a detailed view of how their customers use their site including who is buying what. With AdWords alone the website owner can only see which keywords are bringing in more users to the site. But he has no way of knowing which keywords are bringing the users who are making the highest value purchases. This is where Analytics comes in.

Free enhances Google's relationship with its existing customers

It's like Budweiser girls giving out free beer at a party. At the end of the party everyone is going to like Budweiser. All kids like Santa Claus.

Free is for profit

In many cases a product can make more money if it is free than if it is being sold.

Tidnings

AB

is a Swedish company that popularized the concept of handing out free newspapers to commuters every morning. The company started its experiments in

Sweden

's Tunnelbana (Swedish for subway) and now has 59 papers in 86 major cities in 19 countries[6]. This is thanks to ads of course. Although Google gives out Google Earth for free. Keyhole’s software does power Google Local – a tool to search for businesses, products, and services in your vicinity. And Google does earn money each time a searcher clicks on the ads that appear alongside the local search results.

Free is what consumers want

In a recent article[7], News.com quoted an internal Microsoft document as saying that the company is making only $2 for each copy of Works that is bundled with new computers and that the standard version of Money doesn't even break even. MSN workers were quoted as saying that “The outlook for the packaged consumer retail software market is poor," and that "The size of the market is shrinking, and consumers appear less willing than ever to buy software applications off the shelf.". Clearly it is getting less and less possible to sell software to consumers.

 

So how does Google Payments fit into the Picture?

If the pattern is to give everything away for free then why does Google need a payment system?

Some of the world’s information is not free

Google's mission[8] is to organize the world's information and make it universally accessible and useful. Some of that information is not free. And one way of making this information accessible is by giving publishers an easy way to sell that information and giving consumers an easy way to buy it.

A marketplace needs a payment method

It might be weird to think about it that way but Google is clearly a market in which hundreds of thousands of content owners sell advertising space to hundreds of thousands of advertisers. Supply and demand determines the price of a product. Some keywords sell for 5 cents while some can go up to more than $90 per click[9].

The New York Stock Exchange has a clearance system[10] for equity buyers and sellers to exchange money after the trade is done. EBay has PayPal for buyers and sellers to exchange money after the trade is done. But according to sources Google uses a third party payment processing system. With the big volume of money being exchanged it would make sense for Google to build its own payment system and operate it under its brand.

Buying content directly from Google’s search site

Patent number 20040122811 is titled ‘A method for searching media’[11]. The patent outlines a method for searchers to buy premium content such as magazine subscriptions or pay per view articles directly from the search page. Larry page is behind the patent and Google owns it.

Site cloaking technology has enabled publishers to feature their paid content on the Google search results, but redirects the user to a payment page when the user tries to access the content. The technology is based on detecting the type of browser as well as the IP number of the machine accessing the page and doing different things if the machine is a crawler or an computer.

One click buying would be convenient

Froogle is Google’s shopping search engine. Consumers use Froogle to search for products across multiple vendors and compare prices and models. Right now, the final purchase happens on the vendor’s site using this vendor’s payment system. Amazon has one-click buying. Can Froogle offer that convenience?

Consumers don’t buy software but professionals do

Although Google has offered free versions of its software to consumers it still charges money for some of it. To revisit the Keyhole example: Google Earth is free but Google Earth Plus adds ‘GPS device support, the ability to import spreadsheets, drawing tools and better printing’[12] and costs $20/year. Google Earth Pro is for businesses and professionals and sells for $400/year. How will businesses pay for those services?

 

The Strategic Value of Google Payments

Google needs to diversify its revenue sources

According to the Wall Street Journal[13], Google made 99% of its $3.2 billion revenue through advertisements in the 2004 fiscal year. The remaining 1% came from its corporate search products: the $3000 Google mini[14] and the $30,000 Google Search Appliance[15].

But relying on advertising revenue alone makes Google more vulnerable[16] in case of a financial downturn similar to what happened to Yahoo! in the late 90's when big advertisers suddenly cut their advertising spending.

Nothing explains that fact more than the recent surge in interest in AOL[17]. America Online is Google’s biggest affiliate partner in the AdSense network. It generates roughly 12% of Google’s revenue. Recently AOL’s contract with Google expired and MSN and Yahoo! have showed great interest in securing a contract with the company or maybe even buying it.

If such a deal is secured Google’s revenue would be greatly affected.

 

Defensively, stepping into online payments buffers the risks associated with a reduction in ad spending.

The internet is full of interesting business models. But they are all different variations of two basic models:

• Giving away a product for      free and monetize it with advertisements
• Selling a product for a price

Google already dominates the online advertising market with its AdWords and AdSense products. AdWords lets advertisers display advertisements on the Google search engine as well as other partner websites. AdSense lets online publishers and website owners to monetize their content by displaying ads on their sites. The publishers share the revenue with Google when a visitor clicks on an ad.

If Google Payments sees similar success, then the company will be in a sweet spot position. It will be the only internet company with control over the two gates that separate publishers from their profits. Gate 1: Ads. Gate 2: Payments. And that would be a leverage point for the company’s future aspirations.

 

 

The PayPal Connection

Soon after the WSJ article announcing Google's entry into the online payment space Eric Schmitt told the Associated Press: "We do not intend to offer a person-to-person, stored-value payments system".

Most people took this statement as a guarantee that Google will not be competing with PayPal. I think that interpretation is not quite right.

PayPal and Google Payments Intersect

 

According to MIT's Technology Review[18], 71% of PayPal's business came from eBay in Q1 of 2005. That constitutes most of the Person-to-person payments. But PayPal has a considerable chunk of revenue coming from its third party payment processing business – enabling other merchants on the web to sell items on their sites. This might very well be the scope of Google Payments.

 

In the best case for PayPal, Google would stick to its mission of organizing the world’s information and make it universally accessible and thus would stick to enable people to buy and sell content.

 

In the worst case Google would venture into business to consumer online payments including selling content as well as selling other types of goods. As we will see later Google is investing a lot in its payments project.

Google Wants a Big Piece of the Pie

 

In an announcement at the Arizona State Capitol[19] Google has said that it will open a new center in

Phoenix

Arizona

. The location will accommodate 600 engineering and support jobs. Douglas Merrill, a senior director at Google told the audience that

Arizona

was picked because of its high quality of life and its good universities. AuctionBytes quotes Mike Sunnucks, a reporter with The Business Journal in

Phoenix

, as saying that the location is a back office for many payment companies including Bank of America and American Express.

 

A six hundred people operation is way beyond what industry experts were expecting from the search company. This has sparked new rumors that Google might be attempting an eBay rival site. If this is true then this would go against Eric Schmitt's promise that his company is not interested in person to person payments. But Schmitt has until now been upfront about his company's ambitions. Like Google, PayPal is based in

California

but has its operations in

Omaha

,

Nebraska

- close to

Phoenix

.

Building defensive fences 

 

In a defensive move against payments incumbent Google, eBay has recently changed its payment policy[20] to include forbidding its users to use a new payment system unless it is approved by eBay itself. This does not include current non PayPal payment methods.

 

In another defensive move PayPal acquired VeriSign’s payment unit on the 10^th of October 2005[21]. In addition the two companies agreed on cooperating on issues like identity theft and two-factor authentication, a security technology.

 

PayPal’s acquisition of Verisign will fortify PayPal’s position as a leader in this space. First, PayPal increased its number of merchants by 100,000 merchants – mostly SMB’s (small and medium sized businesses) with high volume / low margin transactions.

 

It is also worth noting that according to Gartner research eBay’s market which is PayPal’s main source of revenue only constitutes 20% of overall ecommerce payments, VeriSign’s acquisition would give PayPal a better foothold in the remaining share of the market.

 

Gartner’s Avivah Litan argues that “PayPal could eventually replace credit/debit cards as the dominant online payment mechanism, if it can maintain low merchant rates while increasing customer service, responsiveness and chargeback ease so that its policies and practices are as consumer-friendly as are the card companies”.

 

If PayPal is in a position to threaten the credit card goliaths then it is definitely in a position to limit the effects of Google’s new payment product.

 

An ad-free subset of the internet 

 

Schmidt predicted there will always be ads on the Internet but that there may be an "ad-free subset" of the Internet[22] that might offer a different way for people to pay for things, such as using micro-payments.

PayPal’s importance to eBay

Since starting in 1999 with just 24 users, PayPal has grown to 72 million account holders. The service processed payments totaling $6.2 billion during the first quarter, with 71 percent of the activity occurring in eBay's online auctions.

The service is becoming an increasingly important source of revenue for San Jose-based eBay, which bought PayPal for $1.3 billion in 2002.

PayPal generated $233.1 million[23], or 23 percent, of eBay's revenue during the first quarter.

As for how eBay perceives Google Payments I will let Meg Whitman, eBay’s CEO do the talking. In an interview with Forrester analyst Charlene Li she said:

"We do a lot of business with Google and we typically don't comment on rumors. What I can tell you is that PayPal has been around since 1999. We've got 70 million accounts. Talk about the ability to manage a new payment service. Think about the infrastructure that we've built up over those six years in terms of customer support, fraud mitigation, the ability to really understand and comply with all the laws that have gone into place since 9/11.

This is a highly regulated space now, and something we've developed a real expertise in. So we feel pretty good about our competitive position and the fact we that we have critical mass here. But we actually don't mind competition; it makes us better.''

Conclusion

Google has a track record of releasing great products but great product features do not necessarily imply success. It’s hard to argue of any better email product than Gmail but although Gmail has pulled off a feat that would have been almost impossible for any other company to do, Hotmail and Yahoo still have by far the highest share of email users worldwide.

I think it would be very difficult for Google to unseat PayPal. PayPal owns a payment network and networks don’t just go away.

On the other hand I think the best move for Google would be to stick to its mission of organizing the world’s information and making it universally accessible - including premium content. And that means providing a product that will enable content owners to sell their content and consumers to buy it.

There is a clear vacuum in that area. I have worked in the content payment industry and I have yet to see an easy-to-use web-based product that makes it easy for publishers to monetize their content by selling it to consumers.

I think that if Google manages to do to content payments what it has done to online advertising then it would increase the size of the pie and benefit itself and everyone else in that industry while at the same time answering its those critics that say that all of Google’s eggs are in one basket.

Google sees payments as a very important project for them. In April 2005 Google incorporated Google Payment Corporation[24].

According to an analyst quoted by Red Herring[25] Google may launch before the holidays. It’s going to be interesting to see how the game is played.

---

[1] http://online.wsj.com/public/article/0,,SB111905141149263168-uKFxsKiPCrP8NxCA_lJid2X_3FM_20050718,00.html?mod=blogs

[2] http://www.foxnews.com/story/0,2933,160136,00.html

[3] http://www.google.com/language_tools?hl=en

[4] http://news.com.com/2100-1032_3-5428685.html

[5] http://news.com.com/Google+to+offer+free+analytics+service/2100-1032_3-5947581.html

[6] http://ny.metro.us/metro/about/

[7] http://news.com.com/Microsoft+eyes+ads+as+consumers+close+wallets/2100-1012_3-5954406.html

[8] http://www.google.com/corporate/

[9] http://washingtontimes.com/upi-breaking/20040408-095925-6844r.htm

[10] http://www.nscc.com/clearance/nyse.html

[11] http://www.internetnews.com/ec-news/article.php/3446211

[12] http://earth.google.com/

[13] http://online.wsj.com/public/article/0,,SB111905141149263168-uKFxsKiPCrP8NxCA_lJid2X_3FM_20050718,00.html?mod=blogs

[14] http://www.google.com/enterprise/mini/index.html

[15] http://www.google.com/enterprise/gsa/index.html

[16] http://www.msnbc.msn.com/id/8293763/

[17] http://news.com.com/Is+AOL+in+play/2100-1030_3-5894929.html

[18] http://cache.technologyreview.com/articles/05/06/ap/ap_062205.asp?p=1

[19] http://www.auctionbytes.com/cab/abn/y05/m10/i13/s02

[20] http://pages.ebay.com/help/policies/safe-payments-policy.html

[21] http://www.gartner.com/DisplayDocument?doc_cd=132752

[22] http://news.com.com/Google+ETA+300+years+to+index+the+worlds+info/2100-1024_3-5891779.html?tag=nefd.top

[23] http://cache.technologyreview.com/articles/05/06/ap/ap_062205.asp?p=1

[24] http://kepler.ss.ca.gov/corpdata/ShowAllList?QueryCorpNumber=C2742364&printer=yes

[25] http://www.redherring.com/Article.aspx?a=14233&hed=Google%20Wallet%20May%20Debut%20Soon&sector=Industries&subsector=Communications