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.
