Small Business and Technology Focus

Return to Article

Amazon's Google Problem

Jonathan Berr

Google's (GOOG - Cramer's Take - Stockpickr) new online payment-processing system is expected to threaten eBay(EBAY - Cramer's Take - Stockpickr). It also might hurt Amazon.com(AMZN - Cramer's Take - Stockpickr).

While Wall Street has focused on the similarities between the new Google Payment feature and eBay's PayPal unit, less attention has been paid to how it may impact Amazon.com, which has a similar offering called Amazon Payments.

From an Amazon perspective, the payment service is more profitable than their basic online business, says Martin Pyykkonen, an analyst with Global Crown Capital, who has an underweight rating on Amazon with a $30 price target.

Rafe Needleman argues on his CNET blog that Google Checkout is a "huge threat'' to Amazon.

"Once you buy an item on Amazon, buying the next one is a one-click affair,'' writes Needleman, the Web site's editor-at-large. "If Google is good enough at handling dispute resolution, people will come to trust it, they'll enjoy its convenience, and Amazon's value-add will be thwarted.''

E-commerce consultant Craig Smith disagrees, pointing out that merchants using Amazon's service get exposure for their products that they wouldn't have gotten otherwise. He also argues that the Amazon service is much different than Google Payments.

"PayPal is the more impacted competitor,'' says Smith, the co-founder of Trinity Insight of Conshohocken, Pa. "Google's Checkout integrates into an online retailers' site as a payment processing alternative.''

Wall Street already has a dim view of Seattle-based Amazon, whose shares have dropped 21% this year amid concerns about rising competition and increasing costs. The company declined to comment for this story.

Google is pushing Google Checkout hard to boost its core advertising business. For every $1 merchants spend on AdWords, Google's search-advertising program, they can receive $10 worth of processing through Google Checkout. Consumers also can get discounts for using the service through participating companies including Starbucks (SBUX - Cramer's Take - Stockpickr) and Timberland(TBL - Cramer's Take - Stockpickr). PayPal, which has more than 100 million active users, is a key business for San Jose, Calif.-based eBay, accounting for $335 million, or 24%, of its $1.39 billion in first-quarter revenue.

eBay, which could prevent its users from using Google Payments under its terms of service, needs to take Google Checkout seriously, says Ina Steiner, of the trade publication AuctionBytes.com .

"A growing number of consumers are concerned about fraud on online auction sites, and some are skeptical of using PayPal,'' she writes. "Seeing a seller is a Google-approved merchant with credit-card protections may allay some fears.''