There's no point in leaving something up to chance. eBay's (Nasdaq: EBAY) PayPal has survived the initial threat from Google's (Nasdaq: GOOG) nascent electronic-payment platform, but it wants to make sure that things stay that way. The world's leading online marketplace announced last week that it will team up with Yahoo! (Nasdaq: YHOO) in a deal to promote PayPal as well as Yahoo!'s paid-search product.
The Yahoo! PayPal Checkout Program dangles some pretty tasty bait. Websites that offer online transactions can get $100 credit on Yahoo!'s sponsored search service and also score free PayPal processing through the end of the year. Participants will also have a blue shopping-cart icon appear on the text ads, so that the ads will stand out even better against the competition. Google also isn't charging transaction fees to merchants until next year.
The tactics aren't exactly original. Google already offers a colorful virtual badge to advertisers who refer shoppers to use Google Checkout through Google's contextual-marketing program.
So why is eBay following Google? It stands to leave a lot of money on the table by waiving PayPal transaction fees. And just watch. If one of them decides to extend the freebie deadline into 2008, the other will have little choice but to follow suit.
eBay is no dummy. It has thought this through. Sure, Google Checkout is a small fry at the moment, but this is the best way to slay a Google.
Flexing muscles while they're still there
Google isn't perfect. It sometimes shutters initiatives such as Google Answers. It bumped the Froogle comparison-shopping site off its landing page last summer and has now dumped the Froogle name altogether. Believe it or not, the usually whimsical Google now calls its comparison-shopping site "Google Product Search." Yikes! Bring on the vanilla-bean extract.
However, when Google is strong -- as it is in search-engine functionality and Internet advertising -- it's a monster at the expense of its shrinking-market-share rivals. Yes, PayPal is huge. There are more than 143 million global accounts on PayPal, and they swapped $11.4 billion in transactions this past quarter. More importantly, PayPal transaction volume has soared 30% higher over the past year. If Google Checkout has left a dent, it hasn't been much of a fender-bender. But still, it's better to be proactive than sorry.
PayPal has always been an easy sell to merchants over conventional credit card processing. It's cheaper, and there's also $2 billion sitting idle in interest-bearing PayPal accounts. You just don't know what it's like to go shopping until you find 200 billion pennies under your sofa cushions!
These are all compelling reasons to back PayPal in this bout. What's more, whether it's online juggernauts like Yahoo! or Microsoft (Nasdaq: MSFT) -- or even giant banking outfits like Citigroup (NYSE: C) -- the e-payment graveyard is loaded with heavy tombstones that have tried to take it on.
Maybe it isn't different this time
History has been kind to eBay in vanquishing the competition. Sites such as Yahoo!, Amazon.com (Nasdaq: AMZN), and Overstock (Nasdaq: OSTK) have tried to take on eBay's auction business by undercutting fees, and it hasn't worked. In the communications space, the well-heeled portals don't seem to stand a chance against Skype.
So why is eBay fearful of Google when it comes to online payments? It's not just because Google has money. Yahoo! and Microsoft failed despite greenery that runneth over. It may be because Google has the secret recipe.
One of those ingredients is viral gimmickry. Not only does Google have merchants promoting Checkout as a way for those same merchants to keep more of the sale, but it is also nudging customers along by offering a $10 sign-up bonus. Old-time PayPal users will probably remember when the site was handing out $5 and $10 incentives to new users.
The other main ingredient is that, as the world's leading online-advertising platform, Google is already in the hearts and pockets of many online businesses. It's a straight line from there to a Google Checkout merchant application.
Yes, PayPal has some inherent advantages over Google Checkout. By taking a stand now, it will make sure that it doesn't lose those advantages without a fight.
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Longtime Fool contributor Rick Munarriz misses the good old days when actual greenbacks traded hands. He does not own shares in any of the companies in this story. He is also part of the
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