Around the Net

Checkout Is No PayPal Killer

The bloggers from Business 2.0 slam yesterday's New York Times report touting Google Checkout as a PayPal killer. "How unsurprising: Bribe people heavily, and they'll use your service," the post says. That piece of logic hardly guarantees that Checkout, which is not used nearly as widely as eBay's PayPal, will be a runaway success.

In fact, Google may not pose any threat at all to PayPal. Why? First, Google can't continue to provide Checkout for free without a credit- card processing fee, which is around 3%. PayPal doesn't actually make any money on that credit-card processing fee; it makes its money through bank and PayPal account transfers. While the processing fee is the same, PayPal pays banks much, much less than credit-card companies to execute them.

Google deals only with debit or credit cards, which means the margins are miniscule. As with every other money-losing Google operation, Checkout will be subsidized by heavier usage of its search advertising. Checkout, ultimately, is a gimmick to increase click-through rates, the number of competing advertisers and the price of keywords for retail products.

eBay actually faces a bigger threat from Checkout, especially since the current trend shows that shoppers are spending less on the online auction site. Meanwhile, PayPal's transactions outside of eBay have grown 59% in the third quarter, which means PayPal may be eBay's savior.

advertisement

advertisement

Read the whole story at Business 2.0 Beta »

Next story loading loading..