Google Inc., the most-used Internet search engine, is expected to roll out an online payment system at the end of the month that will directly compete with eBay’s PayPal, and let Google offer more targeted ads, a Wall Street analyst said.
After months of speculation, the arrival of “GBuy” would mark the beginning of a long-expected battle between two Silicon Valley giants whose collaboration helped the Internet to develop into a thriving commercial arena.
GBuy, which will begin on June 28, will handle purchases between shoppers and merchants, who post items for sale on Google Base — a giant online database of listings — use GBuy to accept payment. In addition, small e-commerce sites could choose GBuy as a payment method, RBC Capital Markets analyst Jordan Rohan wrote in a note to investors. Participating sellers will be listed as “trusted GBuy merchant” in Google search results, he said.
Gbuy is expected to be free during the initial phase, but merchants may eventually be charged a 1.5 percent to 2 percent per-transaction fee, Rohan said in his research note. A fee of that size would be slightly less than that charged by eBay’s online payment system, PayPal.
PayPal has become popular with small merchants with scant credit history, who would have to pay more to accept credit card payments.
But as online commerce has matured and the two companies have sought to expand their audiences, they have begun to look like competitors. Google’s GBuy would offer some of the same features as PayPal, which allows people to send and receive payments online and charges a transaction fee.
Chief Executive Officer Eric Schmidt has confirmed that Mountain View, California-based Google is working on a payment system to make it easier for users to buy products online.
Last month, eBay announced an alliance with Yahoo, the most visited Internet site, that analysts said positioned the two Internet giants to better compete against Google. In the deal, Yahoo agreed to feature PayPal on its Web sites and EBay agreed to display Yahoo advertising.
The brilliance of Google’s Gbuy merchant-to-consumer payment platform lies in what Google may do with the transactional data it captures from the thousands of merchants that may ultimately offer Gbuy, Rohan said.
Google is able to gather the data when users click on a merchant’s Gbuy feature. Consumers are then transferred to Google’s Gbuy site, where they complete the transaction.
Google’s payment system, as a result, holds the potential to monitor which paid-search results users click on and of that group, which ones turn into actual sales. With that information, Google may find itself in the enviable position of being able to identify which categories bring in the highest return on investment for advertisers, Rohan stated.
“It could be a game-changer,” Rohan noted.
“Consumers now view Google as the main starting point for the Internet,” Rohan, who rates Google shares “outperform,” said in a statement. “That centrality gives Google a huge advantage.”
Mountain View-based Google has raked in billions of dollars from merchants who find customers by purchasing ads on the top-ranked search engine. San Jose-based eBay, the most popular online marketplace, has been one of Google’s best customers.
Google said that it had nothing new to announce. “Billing and payments have historically been a part of Google’s advertising programs and online services,” a company statement said.
Amanda Pires, a spokeswoman for PayPal, said the payments service has faced competition “throughout our entire history.” With 105 million accounts, we feel really good about our position, she added.
PayPal’s sales were $335 million during the quarter that ended in March, 24 percent of eBay’s total sales.
But Google CEO Eric Schmidt provided limited details about the system. The company’s payment system will aim to facilitate quicker purchases by a consumer from a marketer, and a beta version is expected soon, he said.
"It is not like PayPal at all," Schmidt said when asked about "GBuy" during a New York meeting hosted by Conde Nast’s new Portfolio business magazine.
It makes no sense for us to go into businesses that are occupied by existing leaders, he said. "We want to solve new problems in the payments space." He said the system was targeted at advertisers and not general consumers, but he did not elaborate on how it differed from PayPal. Google officials could not be reached for further details.
But John Aiken, an analyst at Majestic Research said the payment service would provide Google with data that would enable the Mountain View Company to more accurately target ads to people who are ready to make a purchase.
By tracing online shoppers from the moment they start looking for something to buy to the moment they reach into their virtual wallets, Google will be able to figure out both the most propitious purchasing time and the most promising products, Aiken said.
“GBuy has the potential to be as important to Google as Goolge Maps or Google News, and there is very little that competitors can do to thwart its success,” Aiken wrote.
The product will generate transaction fees for Google and purchase data may help the company identify which search keywords are most likely to generate sales and increase the cost of those ads, Rohan said. He said he learned details of GBuy from merchants who are testing the software.
But Derek Brown, an analyst at Pacific Growth Equities, cites other reasons why the data may prove valuable to Google.
The data could provide useful guidance on where to place its sponsored links, in order to generate higher traffic, as well as give greater insight into the buying habits of its users. And that, as a result, may prompt the Internet titan to deliver targeted ads to those users, Brown said.
Some merchants, however, may fear that Google would use this information to deactivate keywords and then require a merchant to pay a higher minimum bid to reactivate the keyword, Rohan said.
But merchants may find the lure of having the Gbuy logo next to their sponsored search link too appealing to pass up, even if it potentially means giving Google a closer view into their business, Rohan noted in his research note.
From the merchant’s perspective, the placement of a Gbuy logo and the designation as a “trusted Gbuy merchant” will be a point of distinction and theoretically raise conversion rates and traffic, Rohan states in his research report.
The company has registered the domain name googlepayments.com, according to Internet registration records.
We are experimenting in making the whole advertiser buy cycle faster, Schmidt said at the conference in Las Vegas. If you get a stop watch and you time how long these things take, they take way too long in an online, instantaneous world.
Google spokeswoman Sonya Boralv did not return a call seeking comment and an e-mail to Google’s public relations department was not answered.
Skip McGrath, an experienced eBay seller said Google’s initiative was good news for eBay merchants. “EBay needs some competition,” said McGrath, who has just published, “Titanium eBay: A Tactical Guide to Becoming a Millionaire PowerSeller.”
Google has been expanding the technology underlying its search advertising to send targeted messages to individual consumers using other media, including traditional outlets such as magazines.
Such targeted marketing is viewed as one new frontier for growth in the advertising industry. Schmidt said its adoption could help to boost advertising dollars, and even divert money that companies spend on sales and marketing teams to Google and its rivals.
"Eventually we hope that a targeted ad would be better than a targeted sales person," Schmidt said.
To that end, Google has tested placing targeted ads in magazines based on subscriber zip codes, a system that could be extended to newspapers, he said.
Ads served up to customers searching for information on their mobile phones are being tested in Japan and there are plans for a similar service to test in Europe, Schmidt said.
Yahoo, whose Web site is the most-visited in the U.S., on May 25 agreed to exclusively use EBay’s PayPal system. In return, EBay agreed to use Yahoo software exclusively to post ads on its site.
Merchants who are already involved in Google’s Gbuy beta test are set for a June 28 launch, but those who are new to the program can expect an implementation period of six to eight weeks, the report states.