A Pitch to Newspapers Highlights Google’s Plan for Micropayments

With the popularity of digital content on the rise, processors are starting to see opportunity in a business that seemed moribund only a few years ago?handling transactions that average roughly $5 or less. The latest entrant, or, more properly, entrant-to-be, in this business is Google Inc., which is working on a micropayments function for its 3-year-old Google Checkout online-payments product, according to a company document that surfaced this week. The online search giant, however, may face some tough obstacles, including getting content providers to work with it, according to some observers. Google, which plans to have the new function ready within a year, follows on the heels of two recent startups that have emerged with mobile-payments services geared toward digital content and the tiny payments that typically attach to such content: Zong Inc. and Boku Inc. (Digital Transactions News, Aug. 6 and June 16). The market for companies like Zong and Boku has been jumpstarted by the rapidly developing popularity of social-network sites that sell various low-value applications and a rising mania for online games, for which players can buy a panoply of digital goods at pint-size prices. The market for Google's prospective micropayments product, however, could include newspaper publishers, which are seeking with increasing desperation for ways to offset a relentless slide in advertising revenue. Selling news stories and other content online, argue some, is one such way. Google was among some 10 companies that submitted proposals to the Newspaper Association of America on how members of the Arlington, Va.-based trade group, which represents more than 2,000 newspapers, could earn more revenue from their content. Others submitting proposals included heavyweights Microsoft Corp., IBM Corp, and Oracle Corp. Google's eight-page submission refers to its micropayments plans only in sketchy detail. The product is “in the early planning stages,” it says, and will be “available to both Google and non-Google properties within the next year.” It will work by aggregating transactions across merchants and over time to help offset the toll taken by transaction fees, and will manage risk through credit limits governed by a purchaser's track record and Google's own risk engines. It promises integration for merchants “will be extremely simple.” Nor does a Google spokesperson contacted by Digital Transactions News add much to this account. “As for Checkout, we don't have any specific new services to announce, but we're always looking for ways to make payments online more efficient and user-friendly,” she says in an e-mail message. Checkout allows consumers to buy online with credit cards they keep in a wallet managed in a Checkout account. It stands in as merchant and pays all discount fees, while charging its own transaction fees to client merchants. Though the new micropayments service could be as much as a year away, it could give Checkout a boost at a time when many see it losing momentum compared to rivals like PayPal Inc. Much of this perception stems from Google's move this spring to raise its transaction fees (Digital Transactions News, March 25). The new rates, which went into effect in May, virtually erased a significant pricing advantage Checkout had held over PayPal. The company also eliminated a program under which it processed $10 worth of transactions for free for each $1 that merchants spent on AdWords, its marketing service. Google has never disclosed a merchant count or other figures for Checkout. In the document it submitted to the NAA, it says the service has “tens of millions” of users and “several hundred thousand merchants.” But Google is entering what could prove to be treacherous waters. Many startups have run aground trying to overcome the economics of micropayments, in which transaction costs on small payments tend to erode any value the processor might earn. Bitpass Inc., which formed in 2003 specifically to help monetize digital content, went out of business in January 2007. And rival Peppercoin Inc., formed around the same time, could never get a highly sophisticated cross-merchant aggregation engine off the ground. It was ultimately acquired by Chockstone Inc. in April 2007. Heartland Payment Systems Inc. bought Chockstone in November. Steve Mott, a consultant whose Stamford, Conn.-based firm BetterBuyDesign follows the electronic-payments business, says Google's new service might be seen by publishers as a “lifeline” at a time of shrinking circulation and advertising income. But publishers will have to adjust to “ceding more and more of its business to a giant 'intruder,” he says in an e-mail message. “Some might view that relationship as a 'deal with the devil' of sorts.” Many publishers have blamed Google's success in online advertising for their loss of adveritising share.