Friday, May 18, 2007

Google vs. PayPal--Power and Market Shares

I wonder how much it would take for eBay's powersellers (who sell at least $3000 a month) to switch from using BidPay and PayPal to Google's new Checkout system.

PayPal was founded in 1998 first a way of moving money between Palm Pilots. On eBay it was so successful was it that in 2002 the auction site ditched its own payments service, Billpoint, and paid $1.5 billion to bring PayPal under its wing. PayPal isn't that innovative. So I doubt it will be in for the long-run. It does have low fraud rates, which are around a third of the norm for online merchants. Its latest security initiative is a digital key fob, linked to customers' accounts, whose security code changes every 30 seconds.

But safety is nothing without convenience. Hence the new platforms, such as fund transfers with Skype, now eBay's web-telephony arm and mobile phones (in beta testing). PayPal also found a way to use PayPal on websites that do not have a “Pay with PayPal” button: a sort of virtual debit card that pulls money from the user's PayPal account using a 16-digit number, which changes with each transaction.

But Google is just too powerful. I read some reviews by eBayers who said they would be happy to switch over to Checkout. But eBay was contractually stopped from signing Checkout onto its list of approved vendors, or so I heard. Another article said eBay signed onto Checkout anyway. And for now Checkout only offers a way of transferring money without actually storing it. In the long run I expect Google to take the market, and I expect Yahoo! or some other popular net service to buy out PayPal.