Google announced on Wednesday that they are extending the Checkout promotion offering free processing through 2007.
Google is a formidable competitor with its deep pockets that allow it to extend the promo in order to further expand its base of merchant customers. Utilizing a loss-leader strategy, more typical in retail, Google is essentially subsidizing merchant processing costs with its profitable advertising business. In doing so, Google shakes up the online payment business, further challenging its competitors without the means to subsidize merchant processing costs.
They are up against PayPal's established merchant base; although Google
does not release stats on the number of merchants that have enrolled a
recent study by CyberSource Corp indicated that 6% of 351 respondents
were accepting Google checkout. PayPal does to reveal the number of
merchant account holders, but says it has 123 million consumer account
holders. eBay generates 25% of its profits from PayPal and cannot be
comfortable with the news.
At TheStreet.com, Vishesh Kumar suggests that Google's "shrewdly calculated" drive to increase its merchant base could change the game for internet companies, including not only eBay but Amazon and Yahoo. Expanding Checkout further intensifies the appeal of Google's search and advertising platform. Extending the Google business model to processing enables the savvy search team at Google to refine its search capabilities based on which searches ultimately result in purchases and which do not.