It’s supposed to be a new online payment service, named GBuy. According to analyst Jordan Rohan, it’s supposed to go live on June 28. Before I get into the information that’s been circulating about the service, though, let me take a somewhat historical look at Google’s association with this kind of service.
Analysts have been expecting Google to put together an online payment business rivaling the likes of PayPal for quite some time now. About a year ago, those rumors solidified into something that made it into the Wall Street Journal. Google CEO Eric Schmidt was compelled, a few days later, to state that yes, the company is working on an online payment system, but no, it’s not going to compete with PayPal because it wouldn’t be a “person-to-person stored-value payments system.”
PayPal CEO Jeff Jordan didn’t buy that, and told the Wall Street Journal that he believed the service would be a “very legitimate competitive threat.” So what shows up after all this speculation? Google adds a payment option to Google Base, and presumably lots of people wonder what PayPal was worried about. On the other hand, this was followed sometime later by the brief appearance of a “Google Payments” page on the company website, and people continued to wonder about “Google Wallet.” Was it just going to be a secure, single login intended to work similarly to Microsoft’s Passport service, or was there something more going on?
That’s the backdrop against which this latest rumor has surfaced. I have to call it a rumor at this point, because Google is refusing to confirm anything. Of course, that’s no surprise to Google watchers, who know the company never says anything about a new service before its launch. We’ll know shortly whether this latest rumor has any merit; in the meantime, it’s interesting to consider what the service might look like, and why Google might be making this latest move. The answers might surprise you.
Some observers forget that Google already has a payment service of a sort in place. If you go to Google Base, you will find that many if not most of the items listed are for sale. In fact, go to a listing for a car, and you might see something slightly reminiscent of what you’d find on eBay. (That’s probably because there’s only a certain number of ways to display an attractive “for sale” item). Rather than any kind of bidding function, though, you’ll usually see what methods of payment the seller accepts, and some way to contact the seller.
If they have been approved to accept payments via Google Payments, though, and chose to do so for that item, you’ll find a big “Buy” button on the listing. From their end, it’s relatively easy to set up. Simply log in with the appropriate Google account, post a new item, list its details, click “edit” at the payment section near the bottom of the form, and check the box for accepting payments through Google. There are a variety of payment options a seller could choose to accept; interestingly, PayPal isn’t one of them.
Sellers who want to accept payment through Google need to create a special account for it, in which they fill out the standard information (name, business name, address, phone, and so on), as well as their own credit card information. You also need to include bank information so funds can be transferred into your bank account. Google verifies your bank account in a way that will be familiar to anyone who has verified an account with PayPal – it deposits less than a dollar into your account using the information you gave it, and then asks you to enter that information into a bank account verification form after the deposit is made.
When a buyer clicks on the “Buy” button, he or she is sent to a secure checkout page where they specify a payment method (as with eBay, you need an account with Google to actually buy anything from Google Base using this method). After placing an order, the buyer gets a “thank you” screen, and the order is sent to the seller. The buyer can view the order’s status through a purchase history page. And yes, there is a feedback mechanism; after completion of the transaction, the buyer is sent an email from Google asking for a rating of the seller on a five point scale.
GBuy has reportedly been in the works, being tested, for at least the last nine months. The Wall Street Journal has described how it’s supposed to work. GBuy merchants will include an icon next to their sponsored links, showing that they’re a “trusted GBuy merchant.” Consumers will be able to store their credit card information on Google as part of the GBuy system, which should facilitate purchasing.
The program won’t be entirely free, of course, though it will be free to start with. After the beta period (and with Google, there’s no telling how long that will last), Jordan Rohan expects that the search engine giant will charge merchants about 1.5 to two percent. That undercuts PayPal’s current fees for Premiere and Business accounts (the kind of accounts that accept credit cards).
Now, it doesn’t undercut PayPal’s fees by a lot. If you’re keeping score, those fees currently stand at 1.9 to 2.9 percent, plus $0.30. But if you’re a seller who completes a lot of transactions, or particularly large ones, those fees can really add up after a while. (During the eight months I wrote freelance articles on the side while working full-time and was paid for the articles via PayPal, I racked up enough fees to make it worth my while to declare them as a business expense on my income taxes).
Aside from the promotion of merchants in the listings, once GBuy is in actual operation, it might not work too differently from paying through Google on Google Base. Indeed, one observer described it as taking the payment system already available through Google Base and extending it to the web via Google’s search engine. Hmmm. Someone in a particularly paranoid mood might say that, by using that approach, Google is trying to leverage one near-monopoly to gain major traction in another, unrelated business area – much as Microsoft did years ago to kill the competition in the browser market.
But that’s not really what Google is after. The search engine giant isn’t trying to get into the online payment business as an end in itself. That explains the lower fees, of course; but the point is that Google has much bigger fish to fry.
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.