Google gives PayPal a run for your money

Shoppers browsing online for new designer sunglasses or that ultrathin cellphone have a new temptation: a speedy-looking blue shopping-cart icon offering to whisk them to a purchase.

Last month, Google, by far the most popular way to find things on the Internet (it processes about 45 percent of all searches), added Google Checkout to its burgeoning list of related products. By signing up, shoppers can quickly and painlessly (at least until the bill arrives!) click to buy anything where they see the Google Checkout shopping-cart symbol without entering their credit-card number or other information. Consumers can also keep track of what they've bought anywhere online in one place.

Google joins PayPal, a more full-service online- payment system owned by eBay, and others such as Bill Me Later, in offering an online "electronic wallet." These companies argue such systems are safer than punching in credit-card numbers all over the Net. Both Google and PayPal act as an intermediary and don't reveal the consumer's full credit-card number to the merchant at the site of the purchase.

But others worry that Google, in particular, is beginning to accumulate a tremendous amount of personal and financial data on consumers.

With Checkout, "Google has more data on you than before," says Philipp Lenssen, a full-time blogger in Stuttgart, Germany, whose Google Blogoscoped (blog.outer-court.com) tracks developments at Google. "They have your e-mails [if you use Gmail], they have your search queries, they have what you shop for, they know which results you click on. If you have the Google Toolbar installed, they know where you're surfing."

"We take the privacy of our users very, very seriously," says Benjamin Ling, product lead for Google Checkout. For example, buyers using Checkout can set up a special e-mail account to communicate with sellers so that their own e-mail address remains private. "We understand that we're playing a trusted role here," Mr. Ling says. "We seek to protect the privacy of our users while staying in compliance with the law."

Google Checkout's privacy policy states that the company "will not sell or rent your personal information to companies or individuals outside Google," but will share information "[t]o detect, prevent, or otherwise address" fraud, security, or technical issues.

Earlier this year, Google vigorously opposed in court a request from the US Justice Department to provide it with 1 million random Web addresses and records of one week of Google searches. A judge later ruled that Google must provide 50,000 Web addresses from its databank but would not have to reveal any terms users had searched for.

Other than requests from the US government, Google has little reason to disclose the data it's accumulating, Lenssen says. "They don't have any [business] incentive to hand out your credit card [number]," he adds.

Although Google is a widely recognized brand name, it still has some work to do to persuade shoppers that it will handle their money with care, says analyst Edward Kountz, who tracks online payments and financial services at JupiterResearch in Boston. "[Google's] very much a search 'brand.' It's not a trusted brand per se." The ultimate question, he says, is "Would you let them hold your wallet?"

In the short term, Mr. Kountz says, "The credit-card companies still have the predominant share of the market space [online], and I would say of brand recognition as well, with the exception of PayPal."

About three-quarters of those going on the Internet have purchased a product or service online in the past 12 months, according to a JupiterResearch/Ipsos-Insight survey. But among those who have not made a purchase, concerns about security for their credit card or person ranks as the No. 1 reason (37 percent of respondents) for hesitating.

That may be why both Google Checkout and PayPal emphasize the security advantages of making purchases through them rather than entering credit-card information at each website. PayPal, online since 1998, has already staked out a large and growing presence. Last year, its total transactions amounted to $27.5 billion, a 45 percent increase over the previous year. Or, put another way, 10 percent of all the online sales in the United States were processed through PayPal, says Amanda Pires, a spokesperson for the company.

But although PayPal administers 114 million accounts worldwide, there are still "a lot of people who've never bought anything online," especially outside the US, Ms. Pires says, meaning the market is far from saturated.

Currently, Google requires a credit- or debit-account number to buy from participating merchants. At PayPal, consumers can transfer money in and out of bank accounts, too.

While PayPal won't comment directly on Google Checkout, PayPal's parent company, the giant online auction site eBay, has said it will not allow Google Checkout to be used for eBay transactions.

Google Checkout, with fewer features than PayPal, isn't "going to be a PayPal killer," Kountz says. PayPal is aimed at consumers and auction buyers, while Checkout is aimed at attracting merchants.

Google launched Checkout (www.google.com/checkout) with a relatively modest number of online stores on board, including Jockey, Starbucks Store, Levi's, Dockers, Buy.com, Timberland, and Zales. Google's Checkout icon appears as an option on the checkout page of participating merchants.

But the service may quickly prove attractive to the vast number of online merchants, large and small, who pay to advertise using Google's AdWords program. For them, Google places small ads on behalf of advertisers next to its search results and charges the advertisers based on the number of clicks their ads receive.

Google will also make money, as do the credit-card companies, by charging a small fee to merchants for processing online transactions.

However, for every dollar a merchant spends on buying AdWords, Checkout will waive the processing fee for $10 worth in sales. That's a symbiotic relationship that could drive more use of both services.

In the end, Google simply wants to make money in as many places as it can as it creates more online tools, Lenssen says. "For them, [Checkout] is a very logical next step."