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Is Google Losing Money Too Fast?

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JP Morgan has published a report on how Google Checkout did in 2006, and their findings show that Checkout reached 6% of the 1,100 consumers they surveyed, compared to 42% for PayPal, what I call a good, but not massive, start.

They also found that:

  • Google Checkout users are younger (57% under 35), more likely to be male (penetration rates 2x more for men) and more affluent (34% have incomes over $75,000) than PayPal.
  • Only 19% of Google Checkout users reported it as Good or Very Good, abysmal compared with 44% of PayPal users and 65% of credit card users. Indeed, most Google Checkout users probably never would have (and in the future, never will) used it if not for the steep discounts.
  • 43% of PayPal users indicated they would continue to prefer it over Google Checkout, while only 2% said they would continue to prefer Checkout over PayPal. In other words, Checkout has established virtually no brand loyalty at all.
  • 56% had no familiarity with Google Checkout.

So, Checkout has had a rocky start, one that suggests the only reason anyone has used it is because of discounts, discounts which will not continue in the future, and that most Checkout users would prefer not using it at all.

Search Engine Land also covered this.

MarketWatch suggests that Checkout is taking a toll on Google, and they couldn’t possibly be wrong. See, Google Checkout has waved all processing fees for the year, which means that it will achieve $0 (that’s zero dollars) in revenue for all of 2007. Meanwhile, Google is giving ten dollars to all new users, as well as having to pay its own credit card processing fees to Visa and others, meaning it is losing more money as time goes by.

In all likelihood, Checkout is going to have a negative effect on Google’s fourth quarter financials. Google is spending money, bribing users and online stores to use this service in the hope that it will keep all those users and stores in 2008, basically giving the service zero incentive to survive on its own merits. Based on the amound of money Google is pouring into Checkout, Google is making a huge mistake, refusing to fail at any cost, even when the cost is too high.

In two weeks, when Google holds its investor conference call, it is going to have to answer the question of how much money it loses on Checkout, and why this is a wise strategy. I’ll ask the question myself, if I have to.

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Nathan Weinberg writes the popular InsideGoogle blog, offering the latest news and insights about Google and search engines.

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