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Sep 1, 2009
by Kevin Zimmerman
According to "The State of Retailing Online 2009: Merchandising Report," conducted by Cambridge, Mass. based Forrester Research, Inc., eight out of ten retailers said that enhancing the checkout process was at the top of their to-do lists for the remainder of the year, with 90 percent of medium sized retailers ($10 to $100 million in sales) listing checkout as a top priority. The increased focus on checkout comes somewhat at the expense of home page improvements, with 60 percent of companies saying they would concentrate on improving their home page, down from previous years. The Forrester report further maintains that many retailers have learned that a growing number of shoppers bypass the home page altogether, because comparison shopping engines and search engines often direct them to specific pages on retailers' websites instead. As a result, retailers are focusing more on product detail pages and search results pages.
"In today's economy, retailers need to be one step ahead, especially when it comes to attracting shoppers who have money to spend," says Scott Silverman, executive director of Shop.org, an association of online retailers. "Companies are investing in their websites to set them apart from their competition and make the shopping experience informative, efficient and even fun." With such a perfect storm of economic concerns and an expected upturn in online shopping, it's no surprise that both PayPal and Google are trying to improve their offerings in the online checkout sector. Whether there's room for two (or more) such options, or if only one will ultimately be crowned king, remains to be seen.
In 2007, for the first time in its history, PayPal named a chief marketing officer: Barry Herstein, formerly CMO at American Express and at the Financial Times Group. In an interview conducted with him last year, Herstein said that his primary objective was to expand its global presence, while keeping focused squarely on the firm's two sets of customers: consumers and merchants. "The heartland for PayPal has always been the small and medium size business," Herstein said. "Many of our merchants who accept PayPal are folks who sell both on eBay and their own sites or stores. That space, of sole proprietorship, small and medium size merchants, makes for a really interesting merchandising presentation to consumers. Using PayPal, they can navigate the world of ecommerce, and truly the world; not just if you're an American going to U.S. sites, but looking around the world, because PayPal facilitates global ecommerce. Increasingly, consumers are going to see that very interesting blend from PayPal, because I believe we serve well that segment of the merchant community that many other folks leave somewhat ignored, or do not consider a primary audience."
The work seems to be paying off. According to the company, today PayPal is offered as a payment option on over 160,000 retailers' websites across Europe, and is the U.K.'s preferred online payment brand, with a customer base of over 20 million (two out of every three) online shoppers in the U.K. PayPal further states that it now operates in 190 markets and manages over 184 million accounts, more than 73 million of them active. PayPal allows customers to send, receive, and hold funds in 19 currencies worldwide.
PayPal revenues for the first quarter of 2009 were $643 million, up 11 percent from the same period last year, and eBay CEO, John Donahoe, maintains that PayPal will likely be a larger revenue driver than eBay itself within six years. Currently, PayPal accounts for about 35 percent of its parent company's revenues. The popularity of the service is very much derived from its simplicity. PayPal allows individuals and businesses to transfer funds electronically to anyone with an email address, whether or not they have a PayPal account. They'll receive a message from PayPal about the funds, and then be offered the option to sign up for their own account. A basic PayPal account is free.
But as with the ever changing Internet itself, PayPal remains on the lookout for new opportunities and improvements. On July 23, the company announced plans to open its payment platform to third party developers, with the release of new APIs (Application Programming Interfaces) that allow developers to embed PayPal's secure payment system into their applications and platforms. The initiative, called, PayPal X, allows developers to create new ways to send and receive payments for services beyond traditional ecommerce.
Companies already experimenting with the new APIs include social network, Twitter's, TwitPay service. "Using PayPal's new open platform, we've dramatically improved the experience of commerce over the social phenomenon, Twitter," Michael Ivey, CEO and co-founder of Twitpay, said in a released statement. "The global nature and ubiquity of the PayPal service helps us deliver a great service for Twitter users."
PayPal X also represents the company's plans to do battle with web behemoth, Amazon, whose 2007 launch of Amazon Payments was considered by many to be a friendlier payment option and more open to third party developers than PayPal. PayPal X will offer several options not currently available under PayPal, including:
- Send Money: Peer to peer payments will happen on multiple platforms, not just on PayPal.com.
- Split Payments: Payments can be split among many recipients. If a company needs to pay three people a commission on a sale, they can send just one payment rather than three.
- Payment Preapproval: Once a PayPal account holder has logged on and confirmed prepayments, the API will automatically transfer funds based on pre-set specifications.
- Payment Aggregation: To reduce the costs of payment transactions, users can aggregate multiple payments into one lump transaction, similar to what Amazon Payments already allows.
Meanwhile, Google, which recently won the search war with rival Yahoo!, also won an earlier battle when Yahoo!'s own person to person money transfer service, Yahoo! PayDirect, shuttered in 2004 after four years. In that case, however, the victory came before Google even launched its own service, Google Checkout, which debuted in 2006. Google Checkout differs from PayPal in various ways, including a critical one: Unlike PayPal, it does not allow the use of stored funds or person to person payments, focusing instead on facilitating one time payments from a customer to a merchant.
The next big step for ecommerce checkout, as it's believed to be for nearly every product, is mobile. Google and PayPal have both been courting various mobile operators, and Facebook recently announced it had hired Prashant Fuloria, a former Google executive who worked on Google Checkout, to be its director of product management. That hire is being viewed by some observers as indicative that Facebook's, "Pay With Facebook," program will ultimately compete not just with similar social network centered services like SocialGold and Boku, but also with the PayPals, Googles and Amazons of the world. After all, these observers say, while PayPal may have around 73 million active accounts, Facebook has some 250 million users who come to the site at least once a month.
In the meantime, individuals and companies operating websites continue to seek ways of improving their own online payment systems. One case study found that simply by making a web page's Download Now button significantly larger, resulting downloads went up by 32.5 percent, a figure sure to tantalize any company looking to improve sales.
Commenting on the ever evolving space at Fortune's Brainstorm Tech conference in late July, eBay's Donahoe said, "Evidence would say that you have to be part financial services company and part Internet company. You need both." As such, he said, PayPal will be redoubling its efforts. "You can get so focused on expanding current business models that innovation slows down," he said. "We thought fun could overcome less than optimal user experience. Now we're restoring trust and layering fun on top."
In addition to hiring more senior software architects and including them in product design, "We're focused on a wider selection of inventory than anyone else can offer." And if it sounds like PayPal is determined to remain on top of the ecommerce checkout options game, so be it. "Payments is a winner-take-all business," Donahoe said.
Topic: Business Strategies
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