Just this past weekend, I underscored that Google Checkout is a losing proposition for Google in “Bill Gates: Microsoft vs. Google Checkout, eBay PayPal”:
Google Checkout is not a competitor to PayPal; Google invests in the Google-centric formula as part of a strategy to continually increase monetization of AdWords. Google positions Google Checkout as undercutting credit card transaction fees but in reality it pays for them on behalf of merchants. It also subsidizes the consumer transaction.
As Google is losing money on its Checkout offering, it is not sustainable as a stand alone micro payments service, or for mass distribution on the Google publisher network. Google Checkout currently has no raison d'etre without its AdWords tie-in.
I dissect the multi-million dollar subsidies Google is committing to acquire merchants and buy customers in “Google Checkout: $20 million AdWords pitch”:
Is Google spending $20 million this quarter to spread holiday cheer to merchants and consumers? NO. Google is investing big-time in the hopes of “locking-in” merchants long-term, as AdWords customers.
There's no such thing as a free lunch,” and Google’s “free” Checkout is costly to merchants.
It is also costly to Google, very costly.
In its Q4 earnings call today, Google stated that its overall cost of sales will increase going forward due to credit card fees for Google Checkout, among other things.
Additionally, consumer promotions for Google Checkout during the quarter were accounted for as a reduction to both Google sites and network revenues in accordance with GAAP.
Google indicated that as per the determination of its Ernst & Young accounting firm a few months ago, Google Checkout transactions are accounted for as “contra-revenue.”
Translation? The unsustainable as a stand-alone payment processing service that is Google’s Checkout “hurt” Google’s total revenue to the tune of 1%.
For multi-billion dollar revenue Google, a 1% hit is a lot to check out.