The Series B round for Witherspoon’s Draper James brand was led by San Francisco-based Forerunner Ventures.
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As long as that offer pumps up AdWords sales, Google can offer free processing indefinitely, says Jay DeWitt of consulting firm Glenbrook Partners. That, he says, poses a big challenge to PayPal.
“PayPal is in the payments business to sell payments services, while Google is in the payments business to sell advertising,” DeWitt says. “The question for PayPal is: what do you do when your competitor doesn’t care about the underlying economics of the business?”
PayPal’s Tilenius downplays the threat. “Google is competing in just one element of our business,” she says. “What they’re trying to do is interesting, testing whether they can affect advertising through payments. But we haven’t seen any effect on our business to date.”
Nonetheless, Google Checkout appears to have made headway with online merchants. By June, 26 of the top 200 U.S. online retailers as ranked in the Internet Retailer Top 500 Guide were accepting Google Checkout, up from 15 in January, reported stock analyst Jim Friedland of Cowen and Co. He found 52 of the top 200 accepted PayPal in June, but only 21 offered PayPal Express Checkout.
Where did the shopper go?
For all Google has going for it, there are aspects of Google Checkout some merchants find troubling. For instance, the last few steps of a transaction take place on a Google page, not on the merchant’s site, which means the retailer does not control the entire customer experience.
That’s a big issue for Jorge Perez, director of marketing at Alienware, a Dell Inc. subsidiary that sells high-performance computers. “We take a lot of painstaking work in making sure the customer is happy with the process of buying a computer,” he says. “We wouldn’t want our customers to have to check out from the Google page.”
Ending on a Google page also could limit a merchant’s ability to offer the customer additional items. Google does, however, include a link on the final Google Checkout payment page back to the retailer’s site.
Furthermore, Google lets Google Checkout users opt to hide their real e-mail address from retailers; the retailers instead get an e-mail alias for sending order and shipping confirmations.
Golf equipment retailer Golfballs.com says about half of its Google Checkout users withhold their e-mail addresses, making it harder to market to those customers after the sale. Many retailers put a high value on e-mail addresses. Cosmetics retailer Bath and Body Works, for instance, recently reported it sells $18 more a year to customers when it has their e-mail addresses.
Google’s Oliveri responds that giving consumers more control over their personal information will make them more likely to make an online purchase, particularly at merchants that are not household names.
Some selling to do
But the Google Checkout payment process gives some merchants pause. “Google is saying, ‘We’re taking your customer and we’ll take care of them from here on out.’ It’s something we definitely have considered as we’ve evaluated the payback,” says Alan Johnson, director of payments at Overstock.com, which is considering acceptance of Google Checkout and PayPal.
Rick Quiroga, vice president of finance at consumer electronics retailer Newegg Inc., says that, while the processing discounts are appealing, he is skeptical about Google Checkout. “They basically would own the customer and we would have no way of subsequently contacting them,” he says.
Unlike with Google Checkout, in a PayPal transaction the consumer only goes to PayPal to sign in, then returns to the merchant site to complete the purchase. PayPal executives point to this as a key difference with Google Checkout. “The whole strategy we’ve pursued is to be an enabler for the merchant, let them manage the buyer relationship,” Tilenius says.
She also emphasizes other benefits of accepting PayPal. For instance, of the 153 million PayPal account holders, 36 million have used PayPal in the past 90 days, suggesting a large and loyal cadre of PayPal users.
And many of them keep balances in their PayPal accounts, often accumulated through sales on eBay. At any given time there is $2.5 billion in PayPal accounts, and that money typically turns over every two weeks. Much of that gets spent online, and 18% of U.S. online shoppers in a recent PayPal-sponsored survey said they would not have made a purchase if the retailer had not taken PayPal.
PayPal, in addition, continues to add to the payment options it offers that can be accessed through Express Checkout. PayPal this spring introduced Pay Later, which lets PayPal merchants offer consumers deferred payment for 90 days without interest.
More enhancements are likely. Both Google and PayPal began testing this spring streamlined payment services for cell phone users. And Google has started a five-star rating system for Google Checkout merchants that some participating retailers hope will soon be visible to consumers.
Meanwhile, the competition goes on. Kuhlmann of Grapevinehill says PayPal recently offered him reduced processing fees if he would take PayPal Express Checkout exclusively, which would mean dropping Google Checkout. He can’t do it today because of integration issues with other technology providers, but he says he will consider it if those issues are resolved.
“We would take a real good look at the numbers and check on what we’re losing,” he says. “Then I would call Google Checkout and say, ‘Hey, we’re about to do this. Do you have any thoughts?’”
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