PayPal Vs. Google Checkout!

It looks like a battle is brewing, a battle that might just lead to an all out war. A recent article on RedHerring.com mentions that it appears Google and eBay are going to war over online shoppers and merchants and Ina Steiner echoes these comments in her article Sellers in the Middle of eBay - Google Conflict. While there was much speculation about this growing conflict for most of 2006 it seems to be reaching the boiling point. Ina's article does a good job of explaining the escalation of the conflict.

It would be difficult to argue that Google's Checkout does not pose a threat to eBay's PayPal and that Google Base and Froogle are not in competition for eBay's sellers but at this point Google is not a major competitor. That, of course, does not stop the saber rattling and chess moves that are being made. Recent initiatives from PayPal look to be directly related to the perceived threat of Google Checkout.

At this point in the conflict PayPal has the high ground, mostly because of its stranglehold on the eBay platform, which just got stronger with the recent initiatives. eBay sellers want to offer Google Checkout but are being prevented by eBay. While eBay continues to state this restriction is not for competitive reasons, a reasonable mind can figure out that is exactly what is happening.

Google is getting some traction in the world of e-commerce outside of eBay where PayPal has had a tough time. Each combatant has their strength and both companies have deep pockets, so is this battle going to end in a stalemate? No, I think eventually that Google and PayPal will work together (maybe that is the opinion of my heart rather than my head). The two services are actually more complimentary than you would think.

PayPal is in essence an online bank account without any regulatory issues. Sellers receive payments into their PayPal account and can choose to keep the balance there, spend it online or via debit card, or download it into the sellers real world bank account. If they choose to leave it in their PayPal account they can earn interest through PayPal's Money Market. Google Checkout is strictly a credit card processing application. It does not hold a balance it simply processes transactions on a daily basis and transfers them into the seller's real world checking account. Paypal and Google Checkout are similar in that they allow account holders to make payments from a single account using credit cards but PayPal has advantages with its ability to maintain a balance. This is a huge benefit to eBay members that both buy and sell on eBay because they can sell items and have the funds held in their PayPal account until they decide to buy something else. In my view PayPal would fit nicely into Google's Checkout as another payment option just like VISA, MasterCard and AMEX but Google's Checkout directly competes with PayPal for those buyers that just want to buy items online using their credit cards.

In the competition for sellers, Google has become very aggressive. They are currently running a promotion through the end of 2007 that pays seller transaction fees. While most people may think this is just a small amount of money, had I been able to use Google Checkout rather than PayPal (during a promotion like this) I would have saved nearly $90,000 over a full year. That is not a small amount of money to a small business owner. In fact I might not have shut down my business had that been the case.

So how is this conflict going to end up? In a perfect world the two companies would form a partnership. This would give Google access to the eBay marketplace and give PayPal access to the rest of the world. PayPal has had a tough time getting accepted in the world outside of eBay where Google Checkout is making some headway and Google wants to sign-up eBay's millions of buyers and sellers but is facing some serious road blocks. PayPal would benefit greatly by being included in Google Checkout and Google Checkout would benefit just as much. What's a company to do?

I don't see eBay giving up their position unless they are forced to and that would escalate this small battle into a full-scale war. If Google were to launch a store platform, as a way of reaching out to eBay's sellers or add similar (PayPal) account function to Checkout that might force eBay's hand. I can tell you this; eBay will not do anything until they are forced to or unless they realize the cost of fighting the battle is too great.