Is eBay's (Nasdaq: EBAY ) PayPal ready to take on Google (Nasdaq: GOOG ) in the world of online micropayments? Yesterday's Wall Street Journal quoted PayPal president Jeff Jordan as saying that Google's upcoming payment service is "a very legitimate competitive threat."
This reaction flies in the face of what we heard when news of an online transaction service from Google surfaced over the summer. Back then, Google denied that it was attempting to take on PayPal. It insisted that it was simply seeking a way to facilitate payments between itself and its growing fleet of advertisers.
So the market let the news go. Then in October, a signup page for "Google Purchases" temporarily sprang up at the purchases.google.com subdomain. Google was quick to take it down, and it certainly didn't seem like a threat to PayPal.
"Even the name -- Purchases -- is dry and corporate," I wrote at the time. "If Google were gunning for the general consumer market, surely it would have picked something more casual like Google Pay, Goopay, or Google Cash."
How about GBuy? That's the name Google has been using as it gauges the online merchants for interest while testing the platform. Clearly, this is a hipper moniker intended for mainstream audiences. (Think Gmail.)
Online payment services by the other online search stars have failed in the past. Yahoo! (Nasdaq: YHOO ) shuttered its PayDirect service in 2004 after it failed to gain traction, and Microsoft (Nasdaq: MSFT ) also gave up promoting its Passport transaction feature to third parties.
But that shouldn't stop Google from trying. Right now, it's almost imperative that Google gives it a try. After disappointing investors last week for the first time in its brief public life, Google can't bank on its still-healthy online advertising business to account for 99% of the company's revenue mix much longer. The company also started selling videos last month, and a proprietary consumer-oriented payment service to take in those $1.99 (and up) transactions would be gravy.
No one can simply topple PayPal. With 28.1 million active accounts and nearly 100 million existing accounts since the service began, it's just too good. It is growing faster than eBay's namesake domestic marketplace business.
Still, I wouldn't count Google out. It has a few distinct advantages, including its leadership in paid search. The Journal article indicated that merchants who incorporate GBuy into their checkouts would be able to make their text ads stand out more with special icons. I'm smelling the same kind of viral magic that helped PayPal beat out eBay's own Billpoint online payment service; PayPal's ambitious affiliate program paid new users and their referrers $5 to $10 in the service's early days.
Google has the breadth of an ever-growing audience whose members are seeking something on their sites as well. Merchants are also more likely to warm up to Google than to eBay. Why? Well, they may not like the competitive-shopping Froogle site, but it's better than eBay's live auctions marking down the value of many of the merchants' wares.
This is going to get interesting. It may not be a consumer-to-consumer service from the onset, but you just know that's where GBuy is going. PayPal is right to be nervous, but it's also smart for taking the threat seriously this early in the game.
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Longtime Fool contributor Rick Munarriz is a satisfied eBay user, with 160 positive feedbacks to show for it. He does not own shares in any of the companies mentioned in this story, and he is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance.
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