According to the Mercury, recent surveys found that less than one out of five users of Google’s Checkout online payment service were happy with it and eBay’s PayPal figure was more than double that (two out of five). In May, about 33 people visited PayPal’s Web site for each Checkout visitor, up from an 11-to-1 ratio in December, according to Nielsen/NetRatings.

At Searchnomics 2007, Google CheckOut claimed that 25% of all online transactions originate via search. Even if half that number is true, then there is a threat to Paypal’s lead over CheckOut. In 2004, both the companies’ had annual sales that were almost equal. However, revenue at Google tripled to $10.6 billion last year, while eBay sales increased 82% to $5.97 billion. According to comScore, Google had 120 million visitors in May which was 51% more than eBay’s in the same period.

Google’s Advantage
Google is the most used and recognized search engine on the planet. Google is leveraging its advantage in search and advertising to complete the checkout flow for online payments. Google’s strategy is to chip away at PayPal’s leadership. Approximately 40% of Paypal’s transactions orginate on eBay and some of these products compete with third party vendors. Previously, these vendors did not have much choice but to use Paypal as a payment system on their web sites. CheckOut provides them an alternative. Also, with CheckOut there is no holding of balances. It is an automatic overnight deposit to your bank account, where as on Paypal, a request has to be made for a deposit and it takes 3-4 days at best.

Paypal’s Advantages
PayPal is the most innovative and recognized web payment service ever. Paypal has the benefit of a large marketplace via eBay. Presently, eBay does not allow CheckOut on its properties. PayPal’s service, generated a fourth of eBay’s revenue last year and it has become increasingly important as auction sales growth slowed to 23% in the first quarter, half that in 2004.

Google is using Checkout as another tool to further entrench its search and advertising platform. PayPal is a profit and growth center for eBay. To secure its lead Paypal should move quickly to integrate itself as the online payment system with other major search engines such as Yahoo, AOL, Ask, MSN, Amazon to name a few. Alternatively, Google could open up to third party payment systems like Paypal and let the user decide which payment service to use. This way the market decides the winner.