“Got kitesurfing on the mind, mixed with some search & classification tech, and a dab of political ranting”

Google Checkout, a shot across the bow of…

Posted by direwolff on July 18, 2006

There’s been lots of talk about Google Checkout being a threat to Paypal.  Personally, while there may be implications there it’s not where I see the most significant threat.  The real threat is to all of the affiliate management service providers.  Companies like Linkshare (recently acquired by Rakuten), BeFree and Commission Junction (owned by ValueClick), who have been in the business of tracking sales driven from merchants’ affiliates.  Google recently hinted that it would be releasing a CPA (“cost per action”) model which is one of the business models supported by the affiliate systems.  While the positioning that it enables the foiling of the click fraud is a good one, the reality is that it also puts Google in a position to augment its available business models and move into the service areas currently under the auspieces of the affiliate management systems. 

To add to the introduction of the CPA model, the Google Checkout component is really the icing on the cake of their strategy, since it enables merchants to participate without requiring any software installation.  By having merchants encourage their customers to use Google Checkout, they gain the same tracking capabilities as they would through the affiliate systems.  However, because so many merchants already use Google for their other advertising needs through AdSense and AdWords, they can now manage all of their campaigns from one central dashboard.  Combine this with the fact that Google can leverage their AdSense business with merchants to provide free Google Checkout services, and you’ve got a pretty tough proposition for the likes of Linkshare and Commission Junction to really be able to compete with.

Click fraud has been around for much longer than any one will admit and only the affiliate system companies were aware of the level that it had reached, and were laughing from the sidelines knowing that their CPA and commission-based business models were immuned from this sort of activity.  With this game changing news, it will be interesting to see if they begin getting acquired by the likes of Yahoo!, MSN and AOL as a means of maintaining their competitive edge against Google, because going it alone may no longer be viable.  In the case of Linkshare and their parent Rakuten, their Japanese holdings are pretty significant so I’d worry less about them, but ValueClick may not necessarily have the firepower to combat Google on its own.  Needless to say, things should get interesting.


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