eBay Protects PayPal From Google

When it comes to online commerce, Google seems to have eBay spooked.
At least that's the way it seemed at eBay's eCommerce Forum in San Jose, Calif., this week. Though Google Checkout--the online payment system Google unveiled to consumers in June--is just a tiny fraction of eBay’s PayPal business, eBay unleashed a host of new initiatives to keep PayPal dominant in the market.
Last July, eBay banned the use of Checkout. This week it went further, looking to shore up revenue in the face of the nascent rival. At the event, to which 250 of the company’s most powerful sellers were invited, eBay decreed Wednesday that new sellers must offer PayPal or credit cards for payment.
“We know that PayPal is the safest way to pay on eBay, and we want to make sure our buyers have this option with new sellers,” eBay North American President Bill Cobb wrote in on a blog Wednesday. And though he spun the new requirement as a security feature, enforced PayPal revenue certainly doesn’t hurt the company's bottom line.
In addition, eBay added some PayPal-only rules and perks, which could motivate sellers to stick with eBay’s payment system. Want to sell your goods across country borders? You’ve got to become PayPal certified. Want $2,000 in free listings insurance coverage? You can have it if you use PayPal only.
Pushing sellers to choose PayPal is one thing, but eBay also tried Thursday to fight back against Checkout’s recent seller promotions by dropping its own listing fee down to 20 cents per day from the typical 30 cents. Checkout is free for sellers until the end of 2007. EBay is either unable or unwilling to engage in a real price war with Google.
Why so worried? Because slipping PayPal revenues might scare Wall Street. When eBay reports fourth quarter earnings on Jan. 24, analysts will check out PayPal’s net revenue, which totaled $350 million in the third quarter, out of the company’s $1.5 billion total revenue for the quarter. PayPal is a good gauge of the health of the company’s listings business. Shrinking PayPal revenues would signify a poor job of defending eBay’s payments market share against upstarts like Google.
EBay says its PayPal moves aren't defensive. "We don't make policy decisions based on competitors like Checkout," says eBay spokesman Hani Durzy. "We just do what's good for the community."
Google, meanwhile, spent as much as $20 million during the holiday quarter to get people to use Checkout, according to a Goldman Sachs estimate, and looks to be waiving any immediate revenues from Checkout.
The millions were spent to pay sellers' transaction fees, as well as to offer buyers $10 off purchases during the holidays. The company renewed that promotion Tuesday, as advertised by a prominent notice posted to Google.com. Google also highlights Google Checkout sellers among its most prominent ads in search results.
While Google won’t disclose how many consumers have tried buying something using Checkout, JPMorgan analyst Imran Khan polled consumers on their Internet shopping habits and found that 6% of them have used Checkout, he reported Wednesday.
That’s impressive for six months on the market, but 42% of those polled had used PayPal in 2006. Only 2.3% of Khan’s respondents said they would switch permanently from PayPal to Checkout, making eBay’s recent PayPal-driven announcements seem like an overreaction. These defensive moves could worry analysts and investors who may not have thought Checkout was such a threat. They’ll be looking for some reassurance at the company’s earnings call next week.

Forbes.com