Google Checkout Could Change the Game

An offer to extend free shopping is its latest cunning move.
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Google's (GOOG) - Get Report latest punch comes in the guise of harmless holiday cheer.

On Tuesday, Google announced that it would offer its Checkout service for free to merchants through 2007, extending by a year the amount of time it would give away the service.

The move takes to another level Google's already aggressive efforts to

push its Checkout service, which allows users to purchase items from one of thousands of online merchants in just a few clicks.

At the onset of the holiday shopping season, Google announced a program to offer steep discounts to consumers as an incentive to use the service. While this latest push may cost Google a substantial chunk over the year, it will also add even more kick to the search giant's attempt to bring more merchants into its fold.

While it may not seem earth-shattering -- Google claimed the giveaway was simply part of some holiday cheer when announcing the launch on its blog -- this shrewdly calculated drive could have a major impact on Google's bottom line. And it could be a game-changer for Internet companies including

eBay

(EBAY) - Get Report

,

Amazon.com

(AMZN) - Get Report

and

Yahoo!

(YHOO)

.

Facile and Free

Growing the popularity and appeal of Google's search and advertising platform is the most direct benefit that could stem from Checkout picking up speed.

Checkout makes it easier for users to search, find and buy what they are looking for, says Ben Ling, product lead for Google.

"The easier it is for searchers to find and get what they are looking for, the more likely they are to use Google's search," says Ling.

As Google grows in importance for users who are looking to make purchases, merchants will have that much more incentive to advertise with Google, thereby creating a virtuous cycle, says Ling.

A Click in Time

But that's just for starters. Checkout would also give Google unrivaled insight into the type of search results and advertising that users ultimately find helpful when making purchases.

Armed with this treasure trove of data, Google would be able to make its searches even more relevant.

With a perch that allows it to see which searchers end up making what purchases, Google could introduce an advertising model whereby merchants choose to pay only when a product is sold, rather than when an ad is clicked on.

This capability can be especially useful, because click fraud, the deceptive clicking on ads to take advantage of Google's system, continues to be a growing problem for the company.

Still, a quicker way for Google to get the Checkout money rolling in is by dipping into the spoils currently enjoyed by e-commerce giants such as eBay and Amazon.com.

With a daunting 70% of searches currently being run through Google, the company has the muscle to route customers around the well-known e-commerce names and into the pockets of merchants under the Checkout umbrella, says Stifel Nicolaus analyst Scott Devitt, whose firm has a banking relationship with Google.

For example, a seller may currently list on eBay, with eBay -- a major advertiser on Google -- helping to bring in buyers. But rather than have sellers pay eBay for listings, which in turn could buy Google ads, Checkout could enable Google to take eBay out of the equation entirely.

The proceeds that would otherwise go to e-commerce companies that run stores for merchants, such as eBay and Amazon, could then be turned into profit for Google. These would come in the form of higher prices for ad listings as merchants jockey for even more important top positions in Google search results.

"This would allow Google to ultimately build a retail marketplace that replicates what Amazon and eBay have," says Devitt. "And while 'disintermediating' its retail partners reduces their relevance, it accrues value to Google's franchise."

The approach allows Google to circumvent companies that command a total market capitalization of some $100 billion, says Devitt. "That's what makes Google so powerful, but makes Checkout very significant and misunderstood."

Google has what it takes to make a serious dent with this latest effort. The company is in a position to give away a service that others, such as PayPal, which is owned by eBay, charge for -- inspiring Devitt to liken Checkout to what

Microsoft's

(MSFT) - Get Report

plan was with Internet Explorer.

Though Checkout will start by losing money, Google's deep pockets and wide reach across merchants give the company the resources it needs to pull it off.

The Checkout giveaway may be good news for consumers, merchants and Google. But it's no cause for merriment for Google's competitors.