eBay a Haven in Hard Times

Google revealed that it had spent $58.4 million promoting Checkout in 2006, and previously had indicated that approximately $30 million of that was spent in the fourth quarter alone. The company also said that its cost of revenue likely would increase in 2007, meaning that it could be backing Checkout even more aggressively over the next year.

eBay is quick to play down the threat posed by Checkout. During the company's fourth-quarter conference call with investors, Whitman said that the high-profile service actually may have helped PayPal because of the publicity it generated about online payments.

Dutta points out that Checkout falls short of being a payment service and is merely a quicker way for people to use their bank or credit cards with merchants. And Google hardly aims to replicate PayPal's business model with Checkout.

But despite the differences, PayPal and Checkout offer consumers a common, attractive feature: an easy and safe way to make transactions on the Internet. And while Google's biggest hope with Checkout is to drive more ad sales by bringing more merchants into its fold -- and not to make money off payments directly like PayPal -- that is hardly a respite for eBay either.

For Google, it's imperative to bring in new advertisers and continue to grow sales at a breathtaking pace. After all, the company took a hit after showing that quarterly growth wasn't what it used to be, despite reporting a fourth quarter that outstripped Wall Street expectations.

And with more than $11 billion in liquid assets and twice the quarterly revenue of eBay, Google has the resources to make its presence felt -- even if it isn't intending to pull the rug out from under eBay.

PayPal, for its part, isn't planning to stand still. Along with expanding services in new countries and extending its outreach to merchants, it's also experimenting with innovations, such as letting users send funds to each other through their Skype clients.

PayPal's performance was crucial to buoying eBay as it sorted through its teetering auction business. In the event of an economic downturn and with more heat from Google, though, it may be eBay's auction segment that comes through with an expected kick.