Google's Checkout perks paying off

December 18, 2007: 8:00 AM ET

By Yi-Wyn Yen

Since Google launched its Checkout online payment service 18 months ago, industry insiders have wondered if its aggressive marketing promotions were worth the money.

The company, which has been tight-lipped about the performance of its Checkout campaign, revealed new figures to Fortune on Monday that suggest it's making inroads in luring customers and merchants.

Google says web shoppers who've signed up for Checkout -- which stores credit card and other personal information so consumers can make quick and easy purchases -- are 10 percent more likely to click on an ad that features a Checkout button and 40 percent more likely to make an online purchase once they reach a site. In other words, if an online retailer uses Checkout and spends ad dollars on Google (GOOG), it improves the chance that shoppers will make purchases on its site.

"These are outstanding results," says Tom Oliveri, product marketing manager for Checkout. "Merchants are seeing the benefits of higher traffic and more sales. Google is bringing those stores better buying experiences."

Nevertheless, Google has yet to pose a significant threat to eBay's PayPal (EBAY), the clear leader in third-party online payment services. PayPal (EBAY), which lets people transfer money from their bank accounts to other individuals, raked in $470 million in the third quarter -- a 35 percent increase from a year earlier -- to make up 25 percent of eBay's revenue. PayPal, which began accepting MasterCard (MA) payments on sites that don't offer its service last month, has roughly 150 million users and hundreds of thousands of merchants. Oliveri says Checkout has more than 100,000 merchants and millions of users.

Checkout has cost Google some serious cash. Wall Street analysts estimate that Google has invested between $80 million to $100 million since the June 2006 launch to get both sellers and shoppers to use the service. As an incentive to shoppers, Google started giving discounts to its users last year and has continued the practice during the current holiday season. It is also offering free shipping on purchases over $50 and frequent-flier miles on most major airlines. For merchants, Google has waived processing fees between November 2006 and January 2008.

But once the financial promos end, will merchants continue to flock to Checkout? As long as they spend on AdWords, which allows advertisers to bid for prime real estate on Google's site whenever a person performs keyword searches, it makes financial sense.

Lanny Morton, who sells sports equipment on SportsCloseouts.com, uses Amazon (AMZN), eBay, Overstock (OSTK) and Google to drive traffic to his site. He says that since he began using Checkout 18 months ago, traffic has doubled and browsers have converted into buyers at a rate of 3 percent, up from 1 percent previously.

"In the last seven days, I've spent $45.85 on Google AdWords to get 136 click-throughs for a specific pair of snowboard bindings," says Morton. "I only need to sell two to make a profit, and I've sold six. That's not bad at all. And for the others, they may come in for bindings, but end up buying a baseball bat."

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