It's official: Google launches 'Checkout' with predatory pricing model aiming to 'increase advertising spending'

It's official: Google launches 'Checkout' with predatory pricing model aiming to 'increase advertising spending'

Summary: As I postulated Tuesday in my “Google GBuy online payment system to lock-in AdWords advertisers and usurp consumers via discounts and rebates “, Google has officially launched its online ecommerce payment mechanism with a predatory pricing model.

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TOPICS: Google
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DMM62906GCL.jpgAs I postulated Tuesday in my “Google GBuy online payment system to lock-in AdWords advertisers and usurp consumers via discounts and rebates “, Google has officially launched its ecommerce payment service with a predatory pricing model to lock in its advertisers, increase advertiser spend with Google and attract new Google advertiser customers.

Google’s new service enabling consumers to make purchases from online stores using payment and shipping information they keep on file with Google, officially launched with the name of Google Checkout, rather than the rumored GBuy.

Google Checkout, as reported by The New York Times, is priced at rates which undercut current credit card processing fees:

Google is charging merchants 20 cents plus 2 percent of the purchase price to process card transactions, less than most businesses pay for credit card processing. Banking industry executives say that credit card processors typically pay MasterCard and Visa a fee of 30 cents and 1.95 percent for every purchase, so Google will be subsidizing many transactions.

The specifics of Google's arrangements with credit card companies are unclear, however. Google Checkout handles transactions for four credit/ debit cards: Visa, MasterCard, American Express, Discover and is launching the service in partnership with Citi. According to Google:

Citi + Google Checkout = bonusAre you a Citi cardmember? If so, register your Citi credit card to get $5 or 1000 ThankYouSM Points the first time you use it with Google Checkout.

For Google advertisers, the Google subsidy is even more generous, according to The New York Times:

for every $1 a company spends on search advertising, Google will waive the fees on $10 worth of purchases. Factoring in the 2 percent fee, that represents a rebate of at least 20 percent of advertising spending.

Google CEO Eric Schmidt is quoted:

willing to lose money on transaction fees because it felt the package would increase advertising spending…The math works because we can have lower prices and higher volume

The Georgetown Law Journal paper, August 2001, “Predatory pricing and strategic theory” states:

Under market conditions actually observed, is predatory pricing the most plausible explanation for an episode of low prices? And just as important: Are these conditions distinguishable from legitimate competition in the market? Remember, if you are hunting for a predator and mistakenly shoot a competitor, you injure consumers…

A successful predatory pricing scheme must, after discounting, pay out more during the recoupment phase than it costs the predator during the preceding low-price phase. The longer the duration of the first phase and the greater the volume of sales during this phase, the greater must be the payoff during recoupment.

Will Google Checkout injure consumers in the long-run?

The Google announcement of Google Checkout follows a Google pre-release story in The Wall Street Journal, Tuesday, which indicated Google’s online payment mechanism would launch with mail-in rebates to spur consumer adoption.

Google is launching Google Checkout with a $10 off promotion to incentivize consumers to choose Google Checkout over competing payment processing options:

To get $10 off your order of $20 or more from these stores, enter the coupon code listed below during Google Checkout.

I postulated Tuesday that Google aimed to build valuable offline databases of consumer buying behavior information. According to The New York Times:

Google may get several additional benefits from the checkout service. It will encourage more users to register and give it personal data, allowing Google to display advertising based on specific attributes of the viewer. More broadly, the data the company gets from transactions could help it improve the way it chooses which advertising to show to which users.

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SEE ALSO Google Checkout aims to takeover customer relationships, hinder merchant CRM strategies and Google Checkout to merchants: Give us your customers, and your advertising

Topic: Google

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7 comments
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  • Nobody gets my personal data

    "It will encourage more users to register and give it personal data, allowing Google to display advertising based on specific attributes of the viewer."

    No, thanks, I think I'll give this a miss. Sometimes its not all about the lowest price. I don't use loyalty cards, either. I'm starting to get very leery of Google.
    ebrke
    • No need to get 'leery'. Google is no Microsoft.

      Microsoft does anything and everything to rule the roost. Google gives you options and does not sneak behind the barn to fool you into give your money, data or essence away (which is what the MS monster does).
      nomorems
    • I'm starting to get very leery

      http://www.analogstereo.com/gmc_owners_manual.htm
      uk_forum@...
  • Predatory? Personal Info?

    First off, predatory pricing is everywhere. Look at the price of milk at your local grocery store. This is a "loss-leader", and is perfectly legal. It brings in customers for something else. If it is to our benefit, then why not?

    As far as gathering info, it's all over the web. Myself and the above user had to submit PLENTY of personal info just to sign into ZDNet. Analytics are not a new thing, sites are already gathering info and using it to market. If you own a Paypal account, use Ebay, or shop online, it's the same thing. If Google were to misuse this info, it would be illegal.....
    RG2
  • this is great!

    I use google search, google mail, google
    homepage creator (and the kids use this for
    their pages too), google video (view and share),
    google earth, and now this great facility!
    Oh yeah personalised homepage is great, and
    writely and google spreadsheet are great little
    tools.
    Google are one of my favourite corporations, as
    are Microsoft (I wouldn't have said that back in
    win98 virus hell even though I love Visual
    Studio, and MS Project), Sun (java on mobile
    phones... excellent), and Apple (even tho I
    don't have one any more, they sure know how to
    make a product).
    Also, I like Dell laptops. I've been caught out
    by their desktops being non-upgradable in the
    past, but their laptops are cheap and excellent.
    US Tech is really storming at the moment!
    stevey_d
  • Come on!

    "Predatory pricing model" is a little strong isn't it? Maybe you could qualify it by mentioning that <i>it's your opinion</i>?
    gene_smith
  • Personal data

    I am not big on giving out personal data
    It will encourage more users to register and give it personal data, allowing Google to display advertising based on specific attributes of the viewer.
    KeithCash