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Is ‘Google Wallet’ the next thing?

Associated Press

SAN FRANCISCO – Hoping to build upon the power of its Internet leading search engine, Google Inc. is believed to be developing an online payment system that that would pose a stiff challenge to online auctioneer Bay Inc.’s industry-dominating PayPal service.

Industry analysts, merchants and investors were digesting reports Monday that the Mountain View-based company is testing a payment system – codenamed “Google Wallet” – in hopes of rolling out the service later this year.

Google declined to comment, but the company’s silence didn’t muffle the buzz about a service that would set up a showdown between two Internet powerhouses.

Investors, meanwhile, appeared to view Google as a formidable threat. Google’s shares gained $6.40, or 2.3 percent, Monday to close at $286.70 on the Nasdaq Stock Market, where eBay’s shares dropped 81 cents, or 2.1 percent, to finish at $37.24.

“It’s definitely going to happen; too many people already know about it and are talking about it,” said Chris Winfield, who follows Google’s machinations closely as president of 10e20, a search engine marketing firm.

After talking to a variety of industry sources, American Technology Research analyst David Edwards also is convinced Google is developing its own payment system. He believes Google Wallet initially will be tied to Froogle, the search engine’s shopping comparison service.

Google conceivably could use a payment service in many other ways. For instance, the service might process the money that’s exchanged between the millions of merchants and Web sites participating in its online advertising network.

A payment service also could make it easier for Google to sell content through its search engine.

Google already has indicated it will charge visitors to view certain videos that will be indexed in its search engine. Some analysts also think a payment service would enable Google to charge a fee on behalf of publishers looking to cash in on copyrighted or subscription-only news articles.

“This is probably the biggest threat to PayPal that has come along so far,” said Gartner Inc. analyst Avivah Litan.

PayPal spokeswoman Amanda Pires declined to comment Monday. “It’s pretty hard to talk about a product that doesn’t even exist yet.”

The first hint of Google Wallet came in March when the company formed Google Payment Corp., according to documents filed in Delaware. In April, Google incorporated the same company in California.

If the payment-processing service materializes, it would herald a significant expansion for Google, which depends upon online advertising for virtually all of its revenue.

Google’s formula has been highly successful so far, generating a $369 million profit on sales of $1.26 billion during the first three months of the year. But the reliance on advertising has raised fears that Google is more vulnerable to a financial downturn than other companies, such as Yahoo Inc., that have developed other revenue channels.

Launching a payment-processing service would help diversify Google because the company would collect a service fee for each transaction it helps complete.

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