Friday, January 19, 2007

Its on Like Donkey Kong! PayPal vs. Google

Sorry for that title I got a little carried away. As the Red Herring article mentions, it appears Google and eBay are going to war over online shoppers and merchants. While there is certainly a lot of hyperbole with that statement the truth is there is a battle brewing.

PayPal has the high ground at the moment mostly because of its stranglehold on the eBay platform, which just got stronger with recent initiatives. eBay sellers want to offer Google Checkout but are being prevented by eBay. While eBay continues to state this restriction is not for competitive reasons, a reasonable mind can figure out that is exactly what is happening.

Google is getting some traction in the world of e-commerce outside of eBay where PayPal has had a tough time. [Update: here is a great post on the trouble eBay is having gettiing traction off eBay] So each has their strength and both companies have deep pockets, so is this battle going to end in a stalemate? No, I think eventually that Google and PayPal will work together. The two services are actually more complimentary than you would think.

PayPal is in essence an online bank account without any regulatory issues. Sellers receive payment into their PayPal account and can choose to keep the balance there, spend it online where PayPal is offered, or download it into their real-world bank account. Google Checkout is a credit card processing application. It does not hold a balance it simply processes your transaction on a daily basis and transfers them into your account.

Paypal and Google Checkout are similar in that they allow account holders to make payments from a single account using credit cards but PayPal has advantages with its ability to maintain a balance. PayPal would fit nicely into Checkout just like VISA, MasterCard and AMEX does but Checkout directly competes with PayPal.

So how is this going to end up? In a perfect world the two companies would form a partnership. This would give Google access to the eBay marketplace and give PayPal access to the rest of the world. PayPal has had a tough time getting accepted in the world outside of eBay where Google Checkout is making some headway and Google wants to sign-up eBay’s millions of buyers but can’t. PayPal would benefit greatly by being included in Google Checkout and Google Checkout would benefit just as much. What’s a company to do?

I don’t see eBay giving up their position unless they are forced to and that would escalate this small battle into a full-scale war. If Google were to launch their own store platform, as a way of reaching out to eBay’s sellers or add similar account function to Checkout that might force eBay’s hand. I can tell you this; eBay will not do anything until they are forced to or unless they realize the cost of fighting the battle is too great.