Michi Knows

I have a secret to share: Google cares half as much about Gmail, Gchat, Gmaps, and virtually every other spin-off they have recently made combined when compared to Google Checkout. Google Checkout is Google’s new secret weapon, and its value to Google has nothing, absolutely nothing, to do with the payment processing market.

This isn’t about competing with PayPal, even though that’s what it looks like at first glance. It is their way of cornering a totally new market: a different ad model commonly known as cost-per-action. Currently, Google is the king of pay-per-click (where you get paid when someone clicks on an ad). But pay-per-click is getting heavy competition from Yahoo and Microsoft. Now Google wants to jump ahead and enter a new market. This market isn’t exactly without its competitors, but as I will demonstrate shortly, Google has a secret weapon called Google Checkout that gives it a huge edge over the currently entrenched king ValueClick.

What’s Google Checkout? I recently tried it out following up on a promotion they were running. After using it twice, I am convinced it is highly under-valued. It is like a universal shopping cart account. It is so sweet not having to create an account at random websites (and having to remember them). Here are the top three features Google Checkout offers consumers:

1. It remembers you. After your first purchase, it remembers everything about you so you never have to type in your email, shipping address, or payment information again. Just like Amazon.
2. One login for every site you purchase from.
3. Email privacy. The explicit option to opt out of promotional emails from that seller *and* the ability to hide your email address from the seller.

#3 is great. I was able to cancel my order without emailing the store directly using a web form, allowing me to keep my email address hidden from them. Just how easy was purchasing with Google Checkout?

Here’s the steps it requires after you click on “Checkout using Google Checkout“.

Step 1: Sign in.

Step 2: Checkout.

This looks just like any other checkout application, right? Wrong. This could be any online store. The checkout process is exactly the same and the amount of typing I do is absolutely minimal. I register with Google once, and I can go and buy stuff at any store that supports Google Checkout without further handing out my personal information.

It’s like PayPal, but not scummy.

One observation I will make is that Google Checkout allows Google to fully track the purchases its users make. This could be another long term investment for Google in terms of targeted ads. If they found that a certain user recently purchased an iPod, for example, they could show that user more iPod accessory ads. If they noticed you like Best Buy, they might show you more Best Buy ads. The possibilities are endless.

But most importantly, Google Checkout closes a huge loop in their ad program. They now have data on who purchases what. Well, let’s rewind a bit and explain the current cost-per-action model.

After you click on an ad, some data is stored by the online store you are visiting, and the owner of that ad A.K.A. publisher. After you’ve paid up, you’re sent to a confirmation page that says stuff like “Thanks for buying!” On this page, there is code (a 1×1 pixel image) that tells the publisher you bought stuff. This allows the publisher to close the loop and know which clicks led to sales. The publisher is then paid per sale that resulted from a click from their ads (thus, “action”).

There are two main obstacles in the industry currently.

1. Ad blockers and various security settings can disable this extremely vital code, depriving the publisher of revenue. Stores that are aware of this can game the system and purposely eliminate some percentages of sales from being credited.
2. Post-sales data is unavailable. Cancellations and refunds still have to be treated like sales. It’s 100% the honor system.

But with Google Checkout, everything changes. Google knows you made the purchase right then and there. There is no external “code” that can be blocked or lost. And unlike regular cost-per-action companies, it also knows if a purchase is later refunded, returned, or canceled - something that is extremely difficult (impossible) to track for all modern day publishers.

If this is widely adopted, they will corner the cost-per-action market since they would be able to track a sale with a much higher degree of confidence than their competitors. This is beneficial to both merchants and publishers. And as I demonstrated above, the application is also awesome for consumers.

I have three pieces of evidence that signify that their interest is in the cost-per-action market rather than, for example, Paypal’s turf:

1. They’ve shown nearly zero interest in consumer to consumer payments. This makes sense since they don’t care about that market. They’re happy letting Paypal have that pie and dealing with all the eBay fraud. They’re even letting merchants use the service free of charge.
2. They started a super-private cost-per-action test several months ago. Google Checkout launched only days later.
3. It is directly related to their core business model. In fact, it is the logical next step. It’s an industry they know well.

They need market share for this plan to work. I predict they will continue to take huge aggressive steps for this product in 2007. Think about it: what other product have you seen Google take losses and offer huge discounts to consumers and merchants just for using it? Right now, Google has only one cash cow. Gaining this market gives them two.

They need this to be a home run success to safeguard their future. I am willing to bet a fortune that Google will push this service as if their life depended on it. Because it does.