[Infowarrior] - Google's eBay Challenge

[Richard Forno]

Google's eBay Challenge

By Robert Hof
http://uk.biz.yahoo.com/28062006/244/google-s-ebay-challenge.html

The battle to control your online wallet is about to get a lot bloodier.
More than a year after search giant Google (GOOG) was rumored to be
preparing an online payment service, GBuy finally looks set to launch in
test mode as early as June 28. But while Google (NASDAQ: GOOG - news) may
have quickly become the dominant force in search advertising, it's unlikely
there will be one winner in online payments anytime soonif ever.

That's because no other player is likely to give up without a big fight.
There are credit-cards like Visa and MasterCard, of course, which remain by
far the leading way for consumers and merchants to handle online payments.
What's more, prime GBuy rival PayPal is running all-out to get its payment
system used more widely, far beyond transactions involving parent eBay Inc.
(EBAY (NASDAQ: EBAY - news) ) and even past the Web. "We have a lead that's
been built since 2002," eBay Chief Executive Margaret C. Whitman told
analysts in May.

COPYCAT.

Whatever the outcome, this battle is bound to benefit consumers and
merchants. By providing new and cheaper alternatives to credit cards for
buying items online, these and other new online payment services could give
buyers more confidence in a wider range of e-commerce sites. And coupled
with e-commerce services from eBay, Google, Amazon.com (NASDAQ: AMZN - news)
(AMZN), and others, they're likely to help smaller merchants who can't
afford a credit-card merchant account to compete with bigger players.

According to people who have been briefed on the service, GBuy will be
pitted most directly against PayPal, particularly in light of PayPal's push
since last year to accept payments off the eBay.com site [see
BusinessWeek.com, 5/23/05, "PayPal Spreads Its Wings"]. For one, GBuy
apparently will sport many of the same functions as PayPal, including the
ability of consumers to purchase items without revealing a credit card
number and a checkout system that can be integrated with merchants' systems.

More important, eBay's merchants increasingly are using Google as another
venue to reach potential buyers. So a payment system tied more tightly to
Google could be attractiveall the more so because it could be cheaper than
PayPal's. Although people familiar with Google's plans said pricing was
uncertain, they believe it will come close to PayPal's 1.9% to 2.9%
commission, plus 30 cents per transaction.

TRUST.

But with potential discounts to merchants who use Google's AdWords search ad
system, those fees could drop considerably for large merchants. "GBuy
definitely goes after the off-eBay PayPal business," notes Jeetil Patel, an
analyst with Deutsche Bank Securities Inc.

Still, Google will face some big challenges of its own. Indeed, the lengthy
gestation of the GBuy servicefirst rumored more than a year agopoints up the
sizable challenges involved with offering a payment service [see
BusinessWeek.com, 6/21/05, "PayPal: One Tough Nut for Google"]. It's
especially tough against an established rival like PayPal, which has 105
million accounts. "Right now, Google's playing catch-up," says Allen
Weinberg, cofounder of financial services consultant Glenbrook Partners.
"They don't bring anything to the table that other people haven't wallowed
in or taken their lumps on."

In particular, most of GBuy's challenges come down to trust. For one, it
remains to be seen whether consumers will be inclined to trust a Google
payment system more than the alternatives, such as credit cards or PayPal.
Two possible GBuy features might prompt many to take a flier: a rebate on
purchases and a "Trusted GBuy Merchant" logo on product listings.

But PayPal has spent years honing fraud prevention. That's something Google
would have to hire experts to get up to speed on, not something that could
be solved completely with Google's specialty, smart algorithms. "They can't
PhD their way out of it," says Weinberg.

A bigger hurdle may be persuading merchants that the information GBuy
enables Google to gather will be used in a way that benefits them. Jordan
Rohan, an analyst with RBC Capital Markets, noted in a June 9 report that
Google would be able to gather transaction data to determine which keywords
lead to greater sales, not just clicks. "We expect some resistance from
merchants who will fear that Google will use the transaction data to charge
them more for sponsored links in the future," he wrote.

Meanwhile, PayPal is already running hard down the road toward becoming much
more than a way to pay for baseball card purchases on eBay. A flurry of new
initiatives, from a PayPal credit card to a virtual debit card that will
start rolling out next month, makes the unit's ambitions plain. "We're
creating the new global standard for online payments," Whitman told
shareholders at eBay's annual meeting earlier this month.

BRING IT ON.

For one, it's quickly moving beyond eBay itself. Last year, PayPal courted
other online merchants to accept PayPal in addition to credit cards. It now
counts Apple Computer Inc (NASDAQ: AAPL - news) . (AAPL) iTunes Music Store,
and Dell Computer (NASDAQ: DELL - news) (DELL) among its merchants. "We want
the PayPal mark on every single Web site," Dana Stalder, PayPal's senior
vice-president of marketing and business operations, said at eBay's recent
member conference in Las Vegas.

And next month, it will debut a test version of a "virtual debit card" for
use on sites that don't currently accept PayPal. PayPal users will download
software to create a small toolbar in a Web browser. When they visit a site
that takes Mastercard, they can get a onetime-use MasterCard number that
draws on their PayPal account, so they don't have to reveal their credit
card to the site.

What's more, PayPal is quickly moving beyond just online payments. In April,
it announced PayPal Mobile, a way to pay for items using a cell phone. And
in May, it teamed with GE Consumer Finance (GE) to launch a PayPal-branded
MasterCard credit card. "We think this is a big opportunity to take PayPal
beyond Internet payments," eBay CEO Whitman said recently.

As a result, "we're ready for competition," PayPal President Jeff Jordan
said recently. "We feel like we're competing from a position of strength."
At the same time, Google's got money and momentum like few other companies.
So the battle's just beginning.