Google Checkout - Lookout credit card companies

Google Checkout launched today. Credit card companies better look out...Google is coming. PayPal should be worried too.

Google is pricing the service aggressively, charging just 20 cents plus 2% of the transaction. This compares to credit card companies charging 30 cents plus 3% to 5% of the transaction depending on your volume with the credit card company. PayPal charges 30 cents per transaction plus 2.9% of the purchase price.

Charlene Li says "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"

Google Checkout makes a lot of sense for small merchants and Google advertisers. It is cheaper than credit cards and can be used universally at any merchant that supports Google Checkout. No more entering your credit card and personal information for each purchase.

PayPal will still have a built in market at eBay, and is more focused on person to person payments of very small amounts. But, the small businesses on eBay may decide to offer Google Checkout as an alternative. That could hurt PayPal, and will definitely hurt the credit card companies.

Moves like this make a lot more sense for Google than entering the enterprise software business. Google can take advantage of its consumer brand, low cost computing infrastructure, and direct relationship with advertisers, to provide a very competitive service.

I don't see the same leverage for Google when it comes to enterprise software. Customer support and technical support are a big deal in the software business and Google really doesn't have any support organization. Ever try to get a Google support person on the phone? In fact, have you ever tried to get a Google Support person to respond to an email? Good luck.

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Comments

[Steve]

Interesting post Don. I agree, this Google announcement is gonna be BIG.

What I'm still unclear on is how Google can undercut the credit card companies themselves. Does this mean that they're planning a "razorblade" type of business model on this? Losing money on Google Checkout, but using it as a way to increase revs on AdWords?

[Jason Carr]

Steve is right. This doesn't affect credit card companies much at all. It might kill some smaller credit card processing companies, but Visa and friends will still get paid just as much. Which does mean that Google may end up taking a loss on some transactions in order to increase Adwords revs (unless they get the volume up high enough to negotiate better deals).

[Steve]

I found this article on ZDNet today as well.

http://blogs.zdnet.com/micro-markets/index.php?p=178

It looks like this operation will not be a huge moneymaker as a standalone unit. At the end of the day, they may even lose money on it.

The idea however is probably that this strong way to encourage registration and stickiness within different Google properties. Doing that will make up for the low margins by boosting other units' balance sheets.

[Doug Cummings]

Keep in mind, Google is not promising these terms for life. It would make a good strategy to gain market share at this stage, then slowly keep reducing the subsidies as time goes on.

[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;-)))!!