Why I'm changing my mind about Google Checkout

[re-posting my comment from Charlene Li's post on Google Checkout]

you know, i think i'm actually changing my mind on this one.

i used to be a skeptic that Google would pick up decent market share against PayPal, just because of the time necessary to build buyer adoption behavior (even with a major brand like Google, could take time as a payment option), and also the time needed to build up fraud prevention staff & expertise.

however, now that i've spent some time thinking about it, i'm pretty sure Google's real goal isn't just getting payment revenue or market share -- i think it's actually a trojan horse to get to CPA-based costing for Adwords.

briefly, the terminology i'm using:
  CPM = Cost Per iMpression = advertising based on # views (ie, banners)
  CPC = Cost Per Click = advertising based on qualified traffic (ie, click-thrus)
  CPA = Cost Per [Trans]Action = advertising based on conversion event or actual sale (ie, purchases)

if that's the lever, combined with the current no-fee incentives & Adword discounts, there could be significant merchant adoption very quickly.

more important than the fees & incentives, if Google starts collecting transaction info using Google Checkout & connects that with the search traffic analytics, they can begin to provide sales-based (CPA) costing for AdWords -- which essentially means "free" advertising for merchants (or more accurately, advertising gets paid out of a share of the actual sale).

this is no small thing to merchants, and could be a huge opportunity to get a behavioral change from merchants -- tying choice of payment option to advertising costs and business profitability is absolutely monumental.

so they might still have a 'long hard slog' to get adoption, but now i'm thinking they have a key selling point to move merchants over to their camp.

eBay, Yahoo, and Amazon better figure out CPA-based advertising fast... before Google figures out payments & ties it into their overall advertising dominance.

strangely, this was really eBay, Yahoo, and Amazon's game to lose.  those 3 have controlled huge amounts of transaction data & know the point of transaction, and they could very easily create a CPA-based advertising system that has significant advantages over Google's CPC-based system. but if they wait much longer, they'll lose the CPA game to Google.

we'll see if the eBay-Yahoo merger had any of this stuff factored in, once Yahoo launches their new advertising system later this year.  i'll be surprised if they don't offer CPA-based ads by then, but if they don't they're making a huge mistake. 

on a related thought, i wouldn't be surprised to see Microsoft make a partnership or even outright acquisition of Amazon, or try again with eBay and/or Yahoo in order to get the point-of-transaction info & payment option that could get them into the CPA game.  however, also possible Microsoft is still "fighting the previous battle" on CPC, and might miss the boat entirely on this one.

some previous comments i've made on the CPM -> CPC -> CPA transition beginning to occur:  here & here, on John Battelle's blog and on Seeking Alpha, also on Naval's blog. other insightful commentary by Chris Sherman on Search Engine Watch, Tom Taulli on Blogging Stocks:EBAY, Rafe Needleman of CNet, and by Jay Weintraub on DMConfidential.

(full disclosure: i used to work for PayPal, an eBay company, on the Merchant Services team.  i also have a number of friends at eBay, Yahoo, Google, & Microsoft, most of whom think i'm an idiot... and they're probably right ;)

Comments

[Premal Shah]

Dave - Excellent analysis -- looks like what you're guessing in June / July just launched on Oct 12th at Google. Check out the Google Analytics blog:

http://analytics.blogspot.com/

(pasted below...)

"Google Analytics + Google Checkout
Thursday, October 12, 2006

Big news today for e-commerce site owners: you can now use Google Analytics with Google Checkout. Simply add a JavaScript call and a hidden field to each page that displays the Google Checkout button and you'll be able to see conversions and revenue metrics for your Checkout transactions. Here are the complete instructions.

This feature makes life even easier if you are an AdWords customer, because you'll also see ROI and Revenue per Click for every transaction that resulted from one of your keywords. (Keep in mind also that for every $1 you spend on AdWords, you can process $10 in sales for free on Google Checkout.)

Learn more about Google Checkout here or read the post on the Google Checkout blog.

Posted by Alden DeSoto, Google Analytics Team

[Steve]

have you noticed the trend? everything that Google does is hyped so much and predicted to be a killer of this and that. In reality, it turns out that Google mostly fails to gain ground in everything they do except for search. It’s a one trick company (although a good one)

The outcome of this will be that PayPal will become even better and Yahoo and probably MSN will try to follow Google and incorporate payments into thier search. Yahoo already signed up with PayPal and I doubt that MSN will try to develop payment system (they are much more likely to use dominant PayPal). In terms of market share, Yahoo search MSN search is just a little bit under Google. But if Yahoo incorporates PayPal into their search, I see this as a very good reason for millions of loyal PayPal users give preference to Yahoo search. I will defenetly switch back to Yahoo search from Google if I can see there who accepts PayPal.

As for me, I checked out Google checkout and since I am a rather heavy PayPal user, I absolutely see nothing atractive about Google payments. PayPal is incomparably more complete solution and is accepted at over 150K merchants off ebay and several millions on ebay. Google has what? mere 100.

On a conceptual level, Google plans seem big and encompassing, but that does not translate into killing everyone everywhere - like I said above Google mostly failed to be known to average guy as something more than just a searchbox.

As far as I see Google intentions...
this payment system is non-for-profit feature for them - or better say a cost of doing business without intentions to make profit directly (just like Skype is probably for eBay). Google said they are willing to take initial costs until (as they hope) increased usage of their advertising system kicks in, which will (as they hope) more than compensate for payment costs. Along with increased usage of advertising system, Google will also get tangible differentiator (until Yahoo and MSN do the same with PayPal) and Google also gets very valuable statistics to know actual ROI (on one side they already know how much money is spent on clicks, but they don’t know how much sales is actually generated by those clicks). With this new payment system, they will have a good sampling of actual ROI range. I am wondering if pay-per-click really has good ROI or not. Noone knows if yes or no on the whole. Google might get that data soon.

[Patrick Chanezon]

I won't comment on the content of your post, but I, for one, never considered you an idiot:-)
Congrats on your new Mashery venture. Hope to see you at Mashup Camp in 2 weeks.

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