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Does Google Wallet Stand A Chance?

Contributed by mm | June 21, 2005 9:37 AM PST

According to Wall Street Journal, Google is planning to roll out its own electronic-payment service with a code name "Google Wallet" later this year:

"Exact details of the search company’s planned service are not known. But the knowledgeable people say it could have similarities with PayPal, which allows consumers to pay for purchases on Web sites by funding electronic-payment accounts from their credit cards or checking accounts. Some consumers like PayPal for the security it offers, since it allows them to share their banking or credit-card numbers only with PayPal without having to divulge the information to merchants."

On one side, it is Google, famous for its innovation of existing services, and on the other hand, it's eBay-backed PayPal, which boasts over 71 million registered users in 56 countries and almost $1 billion annual revenue run rate. Will Google be able to successfully unseat the current top dog?

To be honest, I am not optimistic about it.

The competition will come down to two things: the network effect, and the cost of user acquisition.

The network effect is evident in the payment business: the more users in the payment network, the more valuable the service is. And this effect applies to both brick-and-mortar world and the online world. (For example, it is hard to imagine an eBay seller will require a payment method that 99% of his potential customers haven't used before. Same, you might not be willing to apply for a general-purpose card that is only accepted at 1 out 10 shops.) PayPal has the clear first-mover advantage by claiming tens of millions of users in its network, and giving you the peace of mind that most people doing transactions online will accept it.

In order to compete with PayPal, Google needs to pay to acquire a massive user base, and it is not going to be cheap. Especially, Google lacks billing relationship with enough users. Of course, it can mandate to pay all Adsense publishers like me in Google dollars, but it can in no way mirror the number of transactions that pass through eBay's network every day and millions of small businesses it has business relationship with. Without such relationship, how can Google persuade hordes of people to try out its payment services? In this sense, even Amazon is in a better position to establish a payment network than Google.

The industry hasn't been short of casualties in the past. Several years ago, eBay had tried really hard to promote its own payment service "Billpoint", only to recognize failure by buying out PayPal in 2002 and closing BillPoint. Microsoft hasn't been able to leverage its warchest in this game too: three years after launching MSN Wallet, is there anyone who seriously uses the service? Same fate has been logged for Yahoo! PayDirect and C2it from Citibank too.

Good luck Google! We want to see how you will innovate the way we pay, but it will be a rocky road forward.

This Post Has Received 20 Comments. Share Your Opinions Too.

Steven Commented on June 21, 2005

Google has an enourmous power and influence over the users. People just love Google! There will be a great number of users who would gladly switch from Paypal to GWallet. Just consider the effect of! Yahoo and Hotmail used to entirely control this area just a year ago. Now everyone is switching to GMail.

I am very optimistic about Google's wallet service. Heck, I'll open an account!

mm Commented on June 21, 2005

The difference is you can use GMail to send to anyone with an email address. Will you be able to use GWallet to send to PayPal users? It's email, not GMail, that has the network effect.

BA Commented on June 21, 2005

The issue isn't whether Google Wallet is going to completely eliminate PayPal it is whether it's going to take a substantial share of the market. People on Ebay will accept whatever form of payment their customers want to use. If the transaction fees are cheaper with Google Wallet, buyers will demand payment via that method or they'll go elsewhere.

Wallet will most likely be no different than PayPal in that it will allow a user to send money, via a credit card or through funds already in account, to anyone with an email address. Will PayPal be able to send to Wallet?

Jamie Commented on June 22, 2005

You never know what Google might be able to innovate around this space. I would have probably told you that I didn't think it made sense for Google to launch an email service, but now I couldn't imagine myself without gmail.

What I think is interesting is the broader strategic implications of this for ebay and google. ebay is really just a means to *search* for a product and a willing seller. Is Google putting together the wallet service to by-pass the ebay middle layer altogether?

Rob Lewis Commented on June 22, 2005

I doubt it would be a problem getting users on board if they were to take on PayPal (although their CEO has come out and say they would not necessarily be looking to do this) - as Jamie said, there didn't seem to be a market for another email provider, but look how many people now use GMail, and they've built those numbers up in a short space of time largely because of innovation. I think take-up would therefore come down to low transaction costs and innovative services offered.

What I'd really like to see them develop is a system for micropayments - Google have shown with AdSense that they can track millions of small transactions each day - if they can utilise similar technology to create a way of paying for content ("pay-per-content"?) that could add another way for publishers to monetise their websites.

Nathan Commented on June 22, 2005

Just a hunch, but I'd look for google to release their own auction service in the near future as well. There's obviously a market and the payment service goes hand in hand with auctions (C2C business).

There wasn't really a marjet for (another) anything Google has done, including when they first opened as a search engine. Yet they continue to take a large market share project after project by building a better quality product. I expect them to rock our world with Google Wallet (like they did with Google maps) and take a good chunk of the market. I know I'll sign up for an account, I've had it up to here with paypal.

Josh Commented on July 3, 2005

If you want to see how bad paypal can be, just drop by and read about all the ongoing litigation against paypal by irritated users.

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