Open your wallet to Google

Give Google credit for one thing: The search giant has a way of generating a lot of buzz.

This week, possibly as soon as Wednesday, Google is expected by many to unveil a new Internet payment system. It may start out as an online wallet but could become a PayPal-like infrastructure for payments across the Web, handling everything from skis to music and videos, analysts said Tuesday.

Interesting as that may sound, Google execs have actually said little about this service publicly. But--as has been the case with most other assumed product launches, from the successful Google Earth to the so-called Google Cube co-founder Larry Page was supposedly going to unveil at the Consumer Electronics Show in January but never did--that hasn't stopped Google watchers on Wall Street and in the blogosphere from going into high predictive mode.

"There is quite a bit of excitement and buzz among merchants," about Google Gbuy, as reports have called it, said Safa Rashtchy, an analyst at Piper Jaffray.

Rumors of a Google payment system have been circulating for months. Two weeks ago, Google Chief Executive Eric Schmidt confirmed that the company was testing a system that aimed to speed online purchases, but he said it would not compete directly with eBay's PayPal. The system is targeted at advertisers and not general consumers, Schmidt said during a meeting in New York hosted by Conde Nast's Portfolio business magazine, without elaborating.

Google released a vague statement Tuesday saying: "Billing and payments have historically been a part of Google's advertising programs and online services. As we've previously announced, we offer users the ability to buy items on Google Base and at the Google Store as well as pay for services like Google AdWords, Google Video and Google Earth. We have nothing specific to announce at this time."

Perhaps coincidentally, company executives also were scheduled to host a talk on "Micro-payments trends and news" at Google's Mountain View, Calif., office Thursday night. The talk was part of a scheduled meeting of BayPay, a networking group for people who work in the payment industry in the San Francisco Bay Area.

Even if Google isn't publicly spelling out the details of its payment system, other people are doing it for the search king. As a wallet system, Gbuy would let shoppers carry their payment information around to multiple different merchants and save them the time of having to enter their credit card and billing data every time they shop, Rashtchy said. Users are expected to be offered rebates, and merchants can get discounts on ads.

Gbuy has been billed by some reports as a "PayPal killer," but it's likely to be much more, Rashtchy and other analysts said.

"I think that if this thing succeeds, it will eventually succeed where PayPal hasn't...as an efficient payment mechanism for a wide range of e-commerce transactions," Rashtchy said.

It would also succeed where Yahoo and Microsoft have failed, he predicted. Rashtchy said he used to use Yahoo Wallet, which lets people store their credit card and billing information when shopping on the Yahoo network. However, it didn't gain traction with merchants, he said.

Yahoo did not respond to a request for comment.

Two years ago, Microsoft began paring back its Passport service, which provided authentication and centralized storage for credit card numbers, and single sign-in for Microsoft accounts. Last year, eBay announced it would no longer allow its customers to log in through Passport. Passport is evolving into Windows Live ID.

 

Analysts said Google's system could solve the so-called micropayment problem, enabling people to pay for services and products in small increments and for single items. For example, a user could buy one news article at a subscription-only site, rather than having to shell out for a monthly membership.

"It's not an efficient use of credit card charges for just $1 or $2," said John Barrett, director of research at Parks Associates. "While people are surfing around, and they see a Web page and a piece of content they want, they can be charged a small amount for it."

Google could syndicate the payment system, much as it does with its AdSense program, which lets Web sites host advertisements and receive money when people click on the ads. Such a "payment solution would grease the wheels...and allow anybody to start selling on the Web through Google," Barrett said.

A Google payment system could also pose a threat to credit card companies, Rashtchy said. "Eventually, people could fund their Google Wallet directly from their bank accounts, and merchants would be paid directly by Google, eliminating the 3 percent they have to pay to credit card companies," he said.

Existing credit card processing is too expensive for a lot of smaller merchants, who typically pay about 3 percent commission to credit card companies, Rashtchy said. "Three percent is too high if the margins are 10 to 15 percent," he said.

In a research report released June 9, RBC Capital Markets analyst Jordan Rohan said Google was set to launch Gbuy on June 28 and said it would be a direct competitor to PayPal's "off-eBay" initiative, which refers to Web sites not related to eBay. While Gbuy would be focused on consumer-to-merchant transactions, it could be expanded to consumer-to-consumer, Rohan said. The transaction charge would be expected to be about 2 percent, in line with PayPal's, he said.

With Gbuy, Google would be able to capture all transaction data flowing through the system, enabling it to use that data for targeting in future searches and to identify which categories and keyword bids are offering the highest return on investment for advertisers, Rohan wrote. "Longer-term, it could be a game-changer," he said.

A year ago, when rumors were circulating about a Google Wallet, Forrester analyst Charlene Li wrote in a blog that such a system could allow bloggers and other types of Web publishers to easily sell anything they wanted and even to have items aggregated by Google. "It doesn't make sense for Google to only challenge eBay/PayPal in this area--even though it will bring in close to $1 billion in revenue for eBay this year," she wrote. "Instead, I think (and hope) that Google is thinking much, much bigger."

PayPal spokeswoman Sara Bettencourt said, "We don't comment on other companies' products, especially this one, because it is not even in the marketplace."

But the rumors have undoubtedly been on the minds of eBay executives, who announced a partnership with Yahoo in May under which Yahoo will feature PayPal on its Web sites and eBay will use Yahoo ads.

Forget about PayPal, said Stephen Arnold, author of "The Google Legacy." Google's wallet product is one small piece of a much larger puzzle, he said.

"The (payment) plumbing has been there since they took the first credit card payment for an ad about two-and-a-half or three years ago," Arnold said. "What the heck is Google doing with all this financial plumbing?"