Tuesday, June 21, 2005
PayPal competitor won't be easy for Google
This is first thoughtful article I've read about the news that Google is working on a competitor to PayPal possibly called Google Wallet. According to this BusinessWeek story Google may be in for a harder task than it expects as it takes on PayPal in an area that Yahoo! just threw in the towel:
Nonetheless, Google will have a very tough time taking on PayPal. For one thing, PayPal got lucky by latching onto eBay and riding that e-commerce rocket past every other competitor. Google doesn't have nearly the same base of users specifically primed to buy something. So it remains unclear whether its offering can attain the same kind of "viral" growth, says analyst Scott Devitt of Legg Mason Wood Walker.
HUGE HEAD START. Moreover, with eBay, PayPal has spent tens of millions of dollars a year to build a reliable system, navigate regulatory hurdles state-by-state, and reduce the fraud that nearly did in the company a few years ago. Indeed, PayPal has spent years honing antifraud technology and techniques. Merchant losses from fraud on PayPal are now only 0.17% of revenues, vs. 1.8% for online merchants that take credit cards (see BW Online, "The Truth About Credit-Card Fraud"). "There are criminals who would love to go to a new service that might not be as secure," notes Jackson.