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It makes sense that Google would introduce an electronic-payment service that will make it easier for customers to buy and sell goods through in Web search, advertising and market portals.
But it doesnt necessarily follow that Googles payment service will present a serious near term competitive challenge to PayPal electronic payment system that is a virtual requirement for anyone buying and selling goods on eBays auction site.
However, a Wall Street Journal news article Friday based on unnamed source said Google is will be ready this year to introduce an electronic-payment service, code-named Google Wallet, that stock market analyst said could adversely affect PayPal.
So far, Google officials are declining to comment on whether they have any plans to launch a PayPal style electronic-payment service.
Google already has its AdSense micropayment billing systems to enable customers to pay for advertising.
A PayPal type of payment system would allow customers to maintain balances in their accounts as if it was a checking or savings account.
The service is mainly used by people who regularly trade on eBay or are running an online business, either through eBay or through their own commerce sites.
Such a payment system would be valuable for Google as it continues to expand the goods and services it sells online, particularly its Froogle online shopping service.
Right now, most of its revenue comes from online advertisement. But its clear that Google wants to broadly expand the content and goods it sells online.
An electronic-payment system would be essential for Google to expand its ability into a market for books, text documents of all kinds, video and audio.
Once such a system is in place, there really would be no limit to what Google could sell online.
It already sells advertising placement on an auction basis. There is no reason why it couldnt expand that into other goods as well.
A Serious Threat
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The system could also be used to pay for classified advertising to sell a wide range of goods and services.
Its difficult to say that any online payment system would be a serious competitive threat to PayPal before Google is even ready to comment on whether it has any intention of introducing such a service.
But David Edwards, an analyst with American Technology Research in San Francisco, noted that Google PayPal is strongly entrenched in eBays operations and the online auctions “is a fairly captive business for PayPal.”
Furthermore, there is a high-degree of loyalty among consumers and vendors who use PayPal for transactions outside of the eBay auction sites, he said. Just the existence of a Google payment system wouldnt be a compelling reason to switch from PayPal, he said.
“I do think it would be very important to have a payment system to expand its Froogle shopping system and to encourage consumers to purchase for pay content through its web site,” Edwards said.
“But I dont necessarily believe they have to recreate PayPal to be successful,” he said. They simply need an easy and effective system to let consumers purchase content from a variety of vendors, he said.
In a market report on the prospects of a Google payment system, Edwards noted that on April 13, 2005, Google filed papers to form the “Google Payment Corp,” which could be an indication that Google is getting ready to offer such a service.
But then it may have nothing at all to do with an electronic payment service, and there is no indication when Google might announce such a business.
Its also possible that Google would create a single payment/billing account that would enable merchants to buy ads and receive payments for products through the same account, Edwards report said, which would also be similar to PayPal.
Yahoo also had an electronic payment system called PayDirect that the search engine company shut down as of Nov. 22, 2004, because the company could not attract enough users to make the service a long-term success.
Edwards contends that publishers would benefit from an online payment system that would allow customers to click through to paid content, purchase content and then have the payments accrue in a Google Wallet account.
However, publishers have already expressed concern about allowing Google to provide significant access to their copyrighted works.
Edwards also said he expected that Google would outsource the infrastructure of the system rather than try to build and maintain it in-house.
“The company has repeatedly disclosed in its filing that it intends to migrate worldwide billing, collection and credit evaluation functions to a third party service provider, Bertelsmann AG,” the report said.
Google will have plenty of work to do to build up its electronic payment system to serve its own customers needs before it can even begin to thing about whether its service would take even a single transaction away from PayPal.
John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at [email protected].