What Does Google Have in its Wallet? - PayPal’s Turf
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It’s funny how old sayings can still ring true in this age of the Internet. Do you remember the one that goes “don’t put all your eggs in one basket”? Well, Google gets most of its revenue from sales of online advertising. By “most,” I mean just one percentage point short of “all.” Granted, Google made more than three billion dollars last year from that one basket, but plenty of companies have gone into bankruptcy because they made their living from one revenue stream that eventually dried up.
If Google Wallet was an online payment service a la PayPal, it would give Google another source of revenue. As anyone who has used such a service knows, these companies make their money by taking a fee for acting as the intermediary and enabling transactions that could not otherwise take place. For example, if I successfully ran an auction on eBay, and the winning bidder wanted to use a credit card, I would be out of luck because I can’t (as an individual) accept credit cards. However, as a Premiere member of PayPal, I can accept credit card payments from other PayPal members –- minus a small fee for each transaction. At two and a half percent per transaction, that really adds up.
But the job of an intermediary is not an easy one, as PayPal co-founder Max Levchin revealed in an interview with The Register recently. He pointed out one of the reasons for PayPal’s success: its willingness to take on more risk than its competition. Indeed, according to Levchin, PayPal helped enable eBay to grow because “we were taking on their riskier users, which meant (among others) their new users, where there is the least amount of information.” However, he adds, the only way you can get the data to be a good risk manager “is by letting bad transactions go through your system and learning from that. And that hurts!”
Indeed, PayPal is such a strong competitor on its own turf that it effectively put BillPoint out of business. BillPoint was the electronic payment service that eBay itself created for its users. By 2002, eBay admitted defeat and bought PayPal. Yahoo’s online payment service, Yahoo PayDirect, launched in 2000, also fell to PayPal; the company officially closed the service in May because it didn’t garner enough users. Would Google fare any better against this powerhouse?
Next: What Google Faces in This Venture >>
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