Coming Soon: Google GBuy - Hurdles and Opportunities

It may sound strange to say that Google is getting into the online payment as a means to an end. It’s not an easy business to do well; there are far too many details that could go wrong. For openers, buyers and sellers need to feel safe using the system, and some kind of controls need to be in place to protect against fraud. Privacy protections also need to be in place; for example, PayPal has never shared the financial information of buyers with sellers.

How challenging is it? Robert Holmes, a Los Angeles detective who has tracked criminals on eBay, pointed out that “If you start branching into other people’s money, you really are branching into something that is completely new and foreign…it’s like running a bank.” In short, you may trust Google with your web searches, but can you trust it with your money?

And yet, even though Google is best known for handling information, it has handled money, too. As Google product manager Benjamin Ling noted in a post to the company’s official blog, “To run our ad programs, Google receives payments every day from advertisers, and then pays out a portion of those funds to advertising partners.” In fact, Google bills more than $11 billion to advertisers in 48 different currencies – all through the magic of the Internet. Among other things, this requires expertise in the difficult area of micro-payments, since Google tracks and collects pennies every time someone clicks on an ad.

So it looks like Google can do it. But why is Google doing it? It’s not for the revenue, though branching into this business will surely help its bottom line and make investors feel a lot better, since diversification of revenue streams is generally considered to be a good thing. But what Google is really after is all that lovely information it will gain from all those transactions.

You see, GBuy will let Google capture the purchasing patterns of everyone who uses the system. Google can then mine that user data to improve the targeting of its ad program. That should improve the click-through rates for its overall ad sales, which of course will increase Google’s ad revenue.

It could potentially go further than that, though, and that’s what some merchants and advertisers fear. Google could, in theory, also examine the information to find out which categories of merchants are benefiting from the highest rates of conversions. With that information, the search engine giant could specifically target merchants in those categories, in the hopes of higher AdWords and AdSense bids, and/or higher GBuy commissions.

So yes, GBuy has the potential to become a major moneymaker for Google, but not in the way that PayPal makes money for eBay. But will merchants be willing to part with their business information to gain a “trusted GBuy merchant” certification? Given the wild popularity of Google’s brand, they quite probably will, even if they might end up spending more for their online advertising. The conversions could well be worth it.