Google miscalculates with Google Checkout

Google’s unbounded hubris leads it to say and do things which, ultimately, will not be in the company’s best interest, long term. Google Checkout is but one of the most high-profile examples.

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Google Checkout is a high-profile, dual-pronged attempt by Google to both solidify and bolster its text ad business, responsible for 99% of its revenues and 100% of its $113 billion market cap, and to reduce its reliance on same advertising juggernaut for future growth.

The company’s much ballyhooed Goggle Checkout, however, is proving to be not only another failed Google attempt at diversification, but, more significantly, a strategic miscalculation that risks alienating Google advertisers, turning off Google users and souring its relationship with perhaps its biggest customer: eBay.

Google’s unbounded hubris leads it to say and do things which, ultimately, will not be in the company’s best interest, long term. Google Checkout is but one of the most high-profile examples.

Unlike Google’s failed destination vertical attempts such as the (who needs) Google Finance, and the underwhelming would-be classifieds killer, Google Base, the dramatic Google Checkout foray puts Google in a must win situation.

Why? Google Checkout aims to directly impact merchant cash registers and consumer wallets.

Because real money is at stake, Google Checkout is not a harmless, Google “technology playground” project. Google Checkout plays in the real world where merchant profits, individuals’ pocketbooks and competitor revenue streams are on the line.

How has Google delivered with its Google Checkout? Only two months out, Google Checkout is feeling the heat from all sides.

Google’s key advertiser account, eBay, has prohibited Google Checkout as “Payment Services not permitted on eBay,” as I discuss in “Google Checkout vs. eBay PayPal: Schmidt and Whitman 'best relationship'?”:

Both Meg Whitman, eBay CEO, and Eric Schmidt, Google CEO, in fact, have taken pains to stress they are ‘the best of friends’; Whitman says, Google ‘is both a competitor and one of our best relationships’ and her and Schmidt (a Princeton classmate) speak several times a month.

Given eBay's determination that Google Checkout is "not permitted" at eBay, however, the next Whitman-Schmidt conversation may be uncomfortable.

In “Google Checkout vs. eBay Pay Pal: Where is the competition?” I recount how Google Checkout has been beset by both customer and merchant defections due to unsatisfactory service and infrastructure shortcomings:

It is not surprising that Google Checkout is not the eBay PayPal killer it was feared to represent; Google Checkout is not a compelling ‘competitor’ to eBay PayPal.

In “Merchants on Google Checkout: undermines our customer relationships” I discuss how Google Checkout is against the best interests of merchants and recount merchant distrust of Google Checkout:

Merchants have indeed not heeded Google's attempts to usurp merchant customer relationships…

81%…probably will not implement Google Checkout primarily due to the concern about ceding customer ownership to Google.

Specifically, online retailers were concerned that Google limits online retailers' ability to market to customers directly…

concern about disintermediation, lack of system flexibility and the perception that Google Checkout provides too much visibility into their business, especially relating to Google search driven conversion rates.

How long will Google be able to maintain its “at bat” status? As long as it continues to satisfy Wall Street as it did this past quarter; See “Wall Street to Google: congratulations.”

I venture, however, that Google’s charmed course will soon be disrupted. I trace dramatic implications of two key areas in which it is financially vulnerable in “Google’s Achilles’ Heel: click fraud + PPC inflation.”

The Google auction driven Pay Per Click advertising model responsible for the company’s $113 billion market cap is inherently vulnerable due to 1) click fraud and 2) bid price inflation…

While Google publicly touts what it says is the inherent targetability and ROI of its Pay Per Click advertising model, the company’s falls short of providing advertisers absolute clarity on the performance of their Google ad spend…

To date, Google is profiting from the relative advertiser cost advantage of online ad spends, versus traditional print or broadcast placements.

Continuously rising Pay Per Click bid prices, however, coupled with the grossly unknown click fraud factor, renders Google’s unprecedented gross margins vulnerable.

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