Google Checkout Glitches

Updated from 11:22 a.m.

Some users of Google's ( GOOG) online payment processing system Google Checkout are experiencing technical glitches.

The service, which some analysts say poses a competitive threat to eBay's ( EBAY) PayPal, sometimes takes longer than anticipated to process orders. The delays are caused by Google Checkout's fraud protection features.

"Occasionally, these procedures result in brief delays for a small percentage of users," the Mountain View, Calif.-based company says in a statement. "We are continually working to make the process as efficient as possible to ensure that Google Checkout is secure and convenient for both merchants and buyers."

In addition, some shoppers have complained that orders through Google Checkout have been canceled without justification, according to IDG News Service, a trade publication that earlier reported the glitches. Customers have complained to merchants, IDG says.

Google Checkout, which is accepted at sites owned by Starbucks ( SBUX), Timberland ( TBL) and Jockey, lets people store their credit card information with Google so that they don't have to continually provide it to online merchants while they shop.

The problems with the payment processing feature underscore the weakness with Google's product development outside of search. Google often brags about how it releases products "early" and fixes them later after receiving feedback from users. The company has argued that this approach to product development keeps it nimble.

Though people are willing to let Google work out the kinks in other services such as Google Video, they may be less willing to cut Google a break with Google Checkout. One of the reasons why people buy goods online in the first place is convenience, so it's doubtful that consumers will tolerate having lengthy delays in having their orders processed.

Shopper Rhys Ludlow gave up on the service after waiting four days to have it process an order for a digital camera and wound up buying it directly from the merchant's Web site, IDG says.

"Google is stuck in a tough place -- they have to be extra diligent to prevent fraud, but they incur the wrath of their most loyal and ardent users when problems occur,'' says Forrester Research analyst Charlene Li in an email.

"In the long run, if they are able to minimize the problems and quickly get a handle on how to detect fraud more accurately, these glitches will be minor," Li adds. "The number of retailers using Checkout is still small and I expect that they will get it sorted out before the holiday buying season begins in earnest. If they don't, they won't be able to gain that essential user trust."

Google Checkout is a key part of Google's strategy to expand further into e-commerce. For every dollar in search advertising that a merchant buys, they can process $10 in sales for free. The company also wants to use the service to illustrate how it's diversifying its revenue base beyond search advertising.

eBay angered some of its sellers when it decided to not allow them to use Google Checkout on its site because the search engine's system didn't have a sufficient track record.

Both Google and eBay have downplayed talk of a rivalry over the payments system.

In fact, PayPal offers more features than Google Checkout, such as the funding of accounts. Wall Street analysts have noted this, but still argue that Google may add additional functions to Google Checkout at a later date.

Shares of Google jumped $4.86 to $373.36. eBay rose 30 cents to $24.50.

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