Google Checkout results 'encouraging' but at a cost

[poster_boy]

SAN FRANCISCO (MarketWatch) -- Chief Executive Officer Eric Schmidt said late Wednesday that its online payment feature has been adopted by 20% of the top 500 retailers since its introduction. Also, when pressed by analysts, Google Chief Financial Officer George Reyes indicated that what Google has spent promoting the new feature -- including processing all transactions for free this year -- amounted to about 1% of Google's revenue. Reyes didn't elaborate. Checkout is seen as a major competitor to eBay Inc.'s PayPal online payment feature, and also a potentially lucrative new source of Google revenue. Schmidt and Reyes were making their comments during a conference call following the release of Google's fourth-quarter results.

MarketWatch [marketwatch.com]

[JRnow]

Based on George Reyes comments, this suggests Google's out-of-pocket expenses for promoting Google Checkout was roughly $32.1million in Q4 2006. Looks like this figure could easily exceed $200million for fiscal year 2007 depending on retailer adoption in the coming months.

Does anyone know what Google pays for credit card processing? Assuming Google's rates across the board average 2.0% (they are one of the largest credit card processors in the world), this also suggest they processed $1.61billion in revenue via Google Checkout during Q4 2006.

For comparison, eBay's Paypal handled $11billion in transactions in Q4 2006, but they are generating revenue's and profits on those figures, unlike Google. Paypal's revenues were $417million in Q4 2006.

So the big question is will this money bleeding strategy pay off beyond 2007 . . . or is there other motivations behind this free promotion? . . . other advertising models? One thing for sure is that the amount of data (specifically conversion) Google is collecting from this promotion is extremely valuable.

I'm assuming many merchants have declined to participate because of this very issue.