Google's New Micropayment System: Your Wallet
Online
Author: Danny Wirken

Google's diligent attempt in becoming a leader in e-commerce is
unstoppable! After its success on launching various services
such as Google Base, Google Earth, Google Store, Google
AdWords, Google Video and many others, the search giant is
still keen on spreading its wings. This time around their aim
is to try their hand on online payment services.

Since early June of last year, various rumors had been
circulating on the net about Google's new payment system.
Although the exact plans and details of Google's new service
remains in the shadow, millions of online enthusiasts all
across the globe were running on fevered pitch trying to
uncover the mystery behind Google's so-called payment system
dubbed the "Google Wallet".

Fortunately, the yearlong mystery will finally unravel since
Google Inc. announced that they are set to launch their highly
anticipated payment system this week, possibly as early as
Wednesday or Thursday. Naturally, its main objective is to make
shopping online faster and more convenient. But even before its
launch, the search giant's new service seemed to be facing
various obstacles already.

One of the biggest obstacles in its way is the risk of
antagonizing one of their biggest advertisers – eBay. Why you
ask? Well, majority of Google's revenues are derive from online
advertising and one of their biggest patron is eBay, who bought
PayPal, the current leading online payment service, for $1.3
billion in 2002. Moreover, PayPal comprises about 25% of eBay's
total revenue. Now by launching an online payment service that
could be a possible competition for PayPal would cause a
serious blow not only to PayPal, but to eBay as well.

At the moment two merchants have already signed up for Google's
new payment system, namely Starbucks Corporation and
http://Buy.com. Incidentally, these two merchants also accept
PayPal. Experts are already making their own predictions
regarding the possible turn in the relationship between the two
companies and the rivalry that is currently brewing between
them.

However, about two weeks earlier Google Chief Executive Eric
Schmidt finally faced the press and acknowledged that Google
indeed have plans to launch a payment system. But he firmly
denied the allegations that they would be directly competing
with eBay's PayPal. According to Schmidt their system will
target the advertisers alone and not the general consumers as
most of the speculations implied.

Without going through the exact details, Schmidt explained that
the solution they are working on is more of an extension of
their existing programs. Most people believed that it's likely
an extension of the payment service that Google utilizes in
handling their paid search ad program, though this time it will
probably encompass different kinds of content.

So, just how does Google's new micropayment system works? Well,
most people assumed that Google's payment service would have the
same premise as PayPal. It would act as some sort of electronic
wallet that will allow consumers to purchase products as well
as services from different merchants without giving out their
personal and financial information repeatedly. This is actually
a preferred payment method among consumers since it reduces the
risk of credit card fraud.

With Google Wallet, users need only key in their credit card
number together with some other information and the company
will send out the payments to the participating merchants. Now
this is where Google's payment service differs from Paypal,
merchants are required to advertise on Google in order to
participate. In turn, merchants need not pay for the processing
fees on purchases that sum to about 10 times their advertising
volume with Google. For instance, an advertiser who spends
$10,000 a month at Google need not pay any processing fees on
purchases that amount to $100,000. But once the merchant
exceeds their spending threshold, Google will then charge them
a fee equal to 2 percent of the purchase amount, plus 20 cents
per transaction. Either way, it is still relatively lower than
Paypal's fee.

In conjunction with the "Google Wallet" rumor is the
speculation that the search engine king will soon begin
charging people for streaming video content from their site. A
lot of people believed that the problems that had been
encountered during the streaming of several videos in the
previous weeks are clear indications that Google is about to
switch to a pay-per-view model.

The rumors surfaced after Google Video head Jennifer Feikin
mentioned in passing that they have plans to offer video
content on a pay-per-view model, with the content owners giving
their own price tags. The company even began soliciting videos,
where uploaders are requested to tag the files with a
corresponding per-view price. Google also aims to take a share
of the price and possibly even charge a hosting fee.

Although a formal announcement is yet to be made, most
consumers are already resigned to the idea that Google will
indeed offer videos on a pay-per-access basis in the not so
distant future. Most people also believed that Google's new
micropayment system, Google Wallet will be used to send and
receive payments for the video content.

Micropayments can be a double edge sword. Sure, micropayments
are generally more secure and more convenient compare to using
other payment method. On the other hand, it has a mental
transaction cost that makes people think twice whether the
product is indeed worth purchasing or not. Another risks to
micropayment-based system is that they are prone to competitors
who ends up with the notion that it is more effective to simply
give the content away for free and then make money somewhere
else.

But then again, once Google manages to overcome these hurdles
(which they eventually would) it is highly possible that they
will eventually succeed where PayPal, Yahoo and Microsoft
failed – to become an efficient payment system for a wide range
of e-commerce transactions. As the old clinch goes, timing is
everything and Google's timing is indeed truly perfect. What
with Paypal's customer services issues and other such outrage
still fresh on the consumers' mind it will not take long before
the consumers start looking for other options.


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