Is Fee Increase The Dying Gasp for Google Checkout?

In adopting a new pricing structure for its alternative online payment program, Google might be courting big-money retailers (at the expense of the little guys) in what one analyst called a seemingly futile "Hail Mary pass" that will do little to gain marketshare.

Google has told the world that, as of May 5, it will institute a tiered fee structure for Google Checkout, one that makes the currently cheaper program essentially on par with rival PayPal in terms of fees. The move comes about five months after Google stopped giving Checkout free to retailers that bought ads on Google. At the time, a Google manager said it made sense to pull the plug on the free deal because Google "saw very healthy results" after deciding to charge for Checkout.

Despite those supposedly good results, Checkout has failed to make significant inroads against PayPal and Bill Me Later when it comes to alternative payment adoption by major retailers. According to figures from Rosetta, Checkout was used by only 11 percent of major retailers as of January. Rosetta found that PayPal and Bill Me Later were tied at 25 percent. Only six of the top retailers—Toys R Us, Sports Authority, Rite Aid, Petsmart, NHL and Dick's Sporting Goods—accepted all three forms of payment as 2009 began and it appears Rite Aid has stopped using Checkout and Bill Me Later.

"I don't know why they don't just kill Google Checkout altogether," said Sucharita Mulpuru , principal analyst for retail E-business at Forrester Research. "The only reason for even offering it as a payment option was because it was cheap and now there's no reason to put it on your site at all."

Mulpuru, echoing many of the complaints made by disgruntled Checkout users who put up with the product's quirks because Checkout was inexpensive, said Checkout has "a terrible integration process," non-existent customer support and "no installed base" like PayPal. "I suppose it is a way to try to get money from the truly desperate, poorly branded companies that find the little checkout icon on paid search terms helps drives conversion, but no big retailers I've spoken to have any interest in Google Checkout, regardless of the fee structure," Mulpuru added. She said Checkout "has struggled in the landscape of payments and this is just a Hail Mary pass" on the part of Google.

Google continues to put on a happy face about Checkout, touting its attractiveness and revenue-enhancing abilities. "When we launched Google Checkout in 2006, we set out to create a fast, secure online shopping experience for our users," wrote Google Product Marketing Manager Anita Barci on the official Google Checkout blog. "Now in our third year of helping merchants increase sales and attract user interest, we're announcing the decision to move from our previous standard fee schedule to a new tiered pricing model where rates decrease as merchants process more transactions through Checkout."

Barci's pointed out how "advertisers who use Checkout have the opportunity to display the Checkout badge on their ads, which has proven to help Checkout users convert 40 percent more than shoppers who have not used Checkout in the past."

With the new fee structure, Google will charge 2.9 percent plus 30 cents per transaction to retailers selling less than $3,000 worth of goods per month. Those selling $3,000 to $9,999 will pay 2.5 percent per transaction plus 30 cents, those selling between $10,000 and $99,999 per month will pay 2.2 percent plus the 30 cents and those selling $100,000 and up will pay 1.9 percent plus 30 cents per transaction.