Why Google Checkout is a Real Threat to PayPal and What is Means for eBay

Since early in 2005, Silicon Valley analysts' speculation about the financial woes of eBay, coupled with the increasingly intense battle to dominant the future of online payments, indicate that one of the world's most prominent female business women, eBay CEO Meg Whitman, may indeed be very worried about the future of one of the world's best known Internet companies.

While Google and Yahoo! have revolutionized and made free almost everything the Internet provides - from email to maps - and are now branching out in to software and other areas like the 'mobile web', there's more at stake in the online payment market than there is in Google's other, more well-known - and highly lucrative - products like AdWords, which alone accounts for the largest chunk of Google's quarterly revenues.

Executives at Google are doing just what Whitman said eBay needed to do two years ago - branch out and diversify their business portfolio and spring new revenue streams to remain competitive in the years to come.

EBay has been diversifying its portfolio of companies during the past two to three years by purchasing Skype, StumbleUpon, Half.com, Shopping.com and a 25% stake in Craigslist and, of course, the bread-winner, PayPal. Whitman has repeatedly told investors that portfolio diversification is the key to the company's success in the future. So far, she's right.

In recent years, eBay's growth has hit a flat line - the heydays of seemingly unstoppable growth have petered out to a base of loyal sellers and buyers worldwide.

Meanwhile, during the past five years, PayPal's growth has exploded, quadrupling their account holders from 35 million to 143 million in 50 countries in 2007.

PayPal is now the most important company in eBay's portfolio. Purchasing PayPal in 2002 may have been the best decision eBay has ever made to remain even marginally competitive with Google and Yahoo! for some years to come. Not to be outdone, Yahoo! has been shoring up its portfolio as well, acquiring companies like Flickr, MyBlogLog, WordPress, Maven Networks, Inktomi and many others.

Here's a list of Google and Yahoo! acquisitions since 1997.

It is no stretch then to see why Google Checkout is a future threat to eBay if it can ante up and siphon off merchants and sellers from eBay's golden egg - PayPal.

Two years ago, PayPal refused to allow Google Checkout as a payment option on eBay, outraging many fair-market merchants and consumers.

While the media have been reporting in recent months that a "new" battle is heating up between eBay/Payal and Google, and not just in payment services, but also in the auctions and classifieds sectors, the truth is that executives at eBay and PayPal identified Google as their number one threat two years ago, going as far as to slam Google with presentations and chants at company meetings as droves of eBay and PayPal employees departed to take jobs at Google.

Google is the number one threat to eBay's bottom line. PayPal is keeping eBay afloat these days and if Google Checkout gains ground, the entire Whitman empire is at stake (she didn't help the situation after reportedly, and secretly, talking to Disney about returning as their CEO in 2005).

The threat to eBay/PayPal by Google is real. With Google's name so well branded, its tons of capital to invest, domination on the Internet and a reputation that is less tainted than PayPal's (a persistent problem for the online payments giant) among merchants and sellers, Google Checkout is positioning itself (although some say not aggressively enough) to give eBay/PayPal a real run for the money in the years to come.

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Read Part One: Silicon Valley Titans Battle for the Future of Online Payment Processing