Google Checkout: What’s The Motivation?
There’s a lot of commentary out there about Google’s new Checkout service, a lot of it focusing on questions as to what Google’s goals are here.
Nick Carr has some really good insights. He takes an economist view, seeing that with Checkout tied closely to AdWords discounts, it will act as a method of decreased AdWords costs for advertisers, which will lead to those advertisers putting more money into their ad budgets. Since Google has an auction-based system for ad pricing, this will have the affect of pushing keyword prices higher.
My conclusions, based on Nicholas’ view, is that two things are likely to happen. First, Google will fulfill its number one goal: Convincing shareholders that the company has a lot of growth. Yes, sadly, Google has fallen far enough off vision that pleasing Wall Street has become a major goal for the company, one it stated it would never do two years ago. Inflating ad revenues artificially, by creating discounts from a different division (Checkout), will make the company appear to be growing faster than it actually is.
Second: If advertisers save ad money by using Checkout, they have three options. In two scenarios, pocketing the money or spending it on other ad networks (Microsoft, Yahoo), Google loses, big time. In the third, reinvesting the savings into increased ad spending, that can also have unintended consequences. If some companies are making higher bids for free, due to Checkout discounts, then other companies, not receiving the discounts, may get priced out of the system.
There are two ways this could turn out okay. If Google has too much inventory, as some suspect, then higher prices will not be a problem, since prices will still remain constant, just more ads will be sold.
Another option: If all Google advertisers are using Checkout, then prices may rise, but as a zero-sum game, with everyone paying the same as before and everyone getting the same discount. The only losers are those who don’t use Google Checkout. If you believe that Google is the lynchpin of the internet economy, then you have to advertise in Google. And if you don’t use Checkout, then you can’t advertise in Google as much as your competitors. Thus, everyone has to use Checkout, or they fall behind in the game.
It is all so interesting. So many possibilities, so many theories. I would love to sit in on the Google cafeteria, seeing them debating the economics of this. Unless they aren’t. In which case, Google’s got more problems than I thought.
Om Malik discusses the Cost Per Action side of the equation. I’ve long argued in favor of CPA, especially since Paul Gross started doing it at Snap.com. CPA is the future of advertising, in which ads don’t cost any actual money, but instead act as a portion of the cost of doing business. Advertising is free in a CPA system, since the advertiser always makes a sale, or he doesn’t pay.
Aaron Wall notes that advertisers who use Checkout get a Checkout badge 
next to their ads, which could increase clickthrough rates, a value addition for advertisers. He also says that Google uses AdSense to spread its brand accross the web, and is using Checkout since AdSense has little penetration in commercial websites. Great point. He also notes Google may use purchase history to serve more accurate ads.
Jeremy Wagstaff talks about Google’s lack of success. Google has thrown a lot of stuff at the wall, some of it very good, and not a single one is number one in its category. That is a terrible track record. Microsoft wins all the time. Hell, did you know Microsoft is the number one seller of computer keyboards? Jeremy says Google’s minimalist approach makes it extremely difficult for Google to promote its other services.
Robert Scoble says Google is ignoring the tech community, becoming very insular, and not giving people reasons to champion its products. Google wasn’t at Gnomedex, and its presence at geek events is only shrinking as the company grows. Googlers are getting audibly frustrated at the lack of success of their projects, and there’s a good reason for it.
I don’t agree with Jeremy Wagstaff about Google’s failures. They win with the Adsense cash cow, and this new product is a core add-on to Adsense. Trust - they do take Checkout seriously.
Why “win” with chat or spreadsheets? It’s hard to sell premium accounts or advertising on either one.
Comment by Hashim | July 3, 2006
Please don’t quote Scoble. His opinions are worthless. Remember that Scoble’s job when he started at Microsoft 3 years ago was Longhorn evangelism - and I dare say there are more audibly frustrated Microsofties especially in the Windows division than there are at Google.
Thats to say nothing of the frustrated customers to whom scoble spent years evangelizing Longhorn and who have had to wait a ridiculous time for a shadow of the original vision.
The first person to ask Scoble to go work at Microsoft was none other than Vic Gundotra - who has just jumped ship to….Google.
http://www.scripting.com/2006/06/29.html
Comment by RichB | July 3, 2006
It might also attract the eBay crowd. If I advertise and get free transactions, the cost to compete with eBay goes down. Could be could for eBay competitors, and drive more people to Google Base.
Comment by Jason Schramm | July 3, 2006
Hashim: How about winning at Maps or Video? Google has great products there, but the market isn’t responding as well. Google News is an innovator, and never won. Blogger used to be number one, and Google lost that position to Microsoft. Advertising is the cash cow, but you have to grow other businesses. If Microsoft started losing office and operating system market share, they have so many other areas they could expand into to survive. IBM had to do it, and it worked, and I don’t think Google could do that right now.
RichB: I listen to Scoble because I like him. I’ve met him very few times, but every time I do, I like him more. Regardless of how you feel about his blog or opinions, Robert has forced some great progress out of Microsoft and out of the internet community. I can only hope one day to have accomplished half as much as he has.
Jason: Absolutely. Google is going after the professional eBay sellers, among others. Checkout is a multi-pronged attack, and a very interesting one at that.
Comment by Nathan Weinberg | July 3, 2006
you’re right Nathan. They have missed out on other opps to make more money, like in video.
Their video service doesn’t search the larger web, like Yahoo, or offer any compelling social features like YouTube (yes they added comments and rating, but it’s late and lame)
Marissa says that they don’t pressure the engineers to figure out a money model early on. Is this really the proper way to innovate? Sometimes having to deal with producing a service that earns money forces you to think “user first”. You have to make something that’s good enough to buy, or good enough to tolerate ads next to. That type of pressure may be what some of the Google services need.
Comment by Hashim | July 3, 2006